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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
(Exact name of registrant as specified in charter)
| | |
| 11 Greenway Plaza, Suite 1000 Houston, Texas | | 77046 |
| (Address of principal executive offices) | | (Zip code) |
Philip A. Taylor 11 Greenway Plaza, Suite 1000 Houston, Texas 77046
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 12/31
Date of reporting period: 12/31/12
| Item 1. | Reports to Stockholders. |
Invesco V.I. Balanced-Risk Allocation Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Balanced-Risk Allocation Fund underperformed the Custom V.I. Balanced-Risk Allocation Index, the Fund’s custom style-specific benchmark. Positive absolute performance from the Fund’s strategic equity, fixed income and commodity exposures, in addition to a positive impact from active positioning, drove results for the reporting period. Most of the Fund’s underperformance occurred in the second half of 2012, when stocks performed very well. In such an environment, the equity-dominant benchmark may outperform the Fund’s risk-balanced approach.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 10.98 | % |
| Series II Shares | | | | 10.64 | |
| MSCI World Index‚ (Broad Market Index) | | | | 15.83 | |
| Custom V.I. Balanced-Risk Allocation Index¡ (Style-Specific Index) | | | | 11.30 | |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; ¡Invesco, IDC via FactSet Research Systems Inc.
How we invest
The Fund’s investment process, under normal conditions, is implemented with derivatives and other financially-linked instruments whose performance is expected to correspond to US and international equity, fixed income and commodity markets. The Fund invests in derivatives and other financially-linked instruments such as total return swaps, futures and exchange-traded funds. The Fund seeks to gain exposure to commodity markets primarily through investments in Invesco Cayman Commodity Fund IV Ltd. (“the Subsidiary”), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands.
Our philosophy is based on the idea that understanding, managing and allocating risk is fundamental to a properly constructed portfolio. The Fund uses a risk premium capture strategy that seeks to generate returns by investing in equity, fixed income and commodity markets using a risk-balanced investment process. Our primary goal is to build a portfolio that may perform well in diverse economic environments – recessionary, non-inflationary growth and inflationary growth – while balancing the amount of
| | | | | | | | | | |
| Risk Allocation | | |
| By asset class | | | | | | |
| Asset Class | | |
| Risk
Allocation |
| | |
| % of Net
Assets as of
12/31/12* |
|
| Equity | | | | 40.29 | % | | | | 37.36 | % |
| Fixed Income | | | | 27.78 | | | | | 86.15 | |
| Commodities | | | | 31.83 | | | | | 31.59 | |
| * | Due to the use of leverage, the percentages may not equal 100%. |
risk contributed by its exposure to equity, fixed income and commodity markets. We use a disciplined, three-step investment process that seeks to build a portfolio that may perform well in a variety of economic environments while attempting to limit the impact that poor performance from any single asset has on overall Fund performance.
We begin the process by selecting representative assets for each asset class (equity, fixed income and commodity) from a universe of more than 50 assets. We consider three criteria when selecting assets:
| n | | Low correlation among the assets – We estimate long-term correlation among assets to build the Fund. |
| n | | Theoretical basis for excess return – We analyze each asset’s expected excess return over cash (its risk premium). |
| n | | Liquidity, transparency and flexibility – Our strategy is implemented using exchange-traded futures and other derivative or financially linked instruments. This ensures ample capacity and allows for daily liquidity while providing pure asset-class exposure. |
Next, we seek to construct the portfolio so that an approximately equal amount of risk comes from the equity, fixed income and commodity allocations. This balanced-risk allocation drives the weight of each asset class. We believe this approach may help mitigate large losses in capital and improve the portfolio’s risk/reward profile which is commonly referred to as the Sharpe ratio. We re-estimate the risk contributed by each asset and re-optimize the portfolio
monthly, or when new assets are added to the portfolio. Typically, the majority of the leverage in the Fund stems from its fixed income exposure, since it is the asset class that requires upsizing due to its generally lower risk profile.
Finally, on a monthly basis, we actively adjust portfolio positions to reflect the near-term environment while remaining consistent with the optimized portfolio structure. The positions are weighted to reflect the volatility of each asset (e.g., bonds tend to have larger active positions than equities). This step is crucial because various asset classes respond differently to different economic environments. Active positioning better aligns the portfolio with the prevailing economic climate.
Market conditions and your Fund
All three asset classes, as well as tactical decisions, produced positive returns for the Fund.
The year began with equities and commodities advancing, driven by improving economic data and continued stimulus from monetary authorities around the globe. Equity gains were particularly strong in the Japanese and US markets. Heightened tensions between the US and Iran increased the price of oil, while gold declined sharply at the end of February and continued to fall in March. Most bond markets fell during the first quarter on signs of improving economic conditions, reduced economic strains in Europe and declining expectations for further US Treasury bond purchase programs. Contributions from equities and commodities were essentially even, while bonds detracted from Fund performance for the quarter. The Fund’s tactical overweight position to riskier assets proved beneficial.
Effective April 1, 2012, we expanded the Fund’s strategic commodity exposure to reduce single-asset risk across the commodity complexes – the result of the Global Asset Allocation team’s ongoing research process.
Over April and May, gains in equities and commodities from earlier in the year were eroded by renewed fears arising from the ongoing European crisis, coupled with weakening economic data in key markets. Commodities were broadly negative, with the exception of select agricultural commodities, on weakening demand and a strengthening dollar. Equities were also notably weaker. Government bonds once again fulfilled their role
Invesco V.I. Balanced-Risk Allocation Fund
as safe haven assets as yields contracted in response to the weakness in riskier assets. In April and May, the Fund produced negative returns, with bonds providing the only positive contribution. Nevertheless, the Fund outperformed its style-specific index as its defensive posture proved beneficial in a difficult environment.
In the third quarter, equity, fixed income and commodity markets all posted impressive results. This stood in contrast to the prior months during the “mini-swoon” which saw riskier assets under pressure and bonds as the sole asset class above water. Riskier assets, especially commodities, were able to rally from these depressed levels on expectations for additional monetary easing and hope that Europe would be able to finally make headway on its lingering economic issues. Bond yields spiked twice during the third quarter, but managed to settle down to similar or slightly lower levels than where they stood at the start of the quarter, as markets seesawed between concerns over inflation and continuing weakness in Europe. Commodities were the primary driver of returns, though all three asset classes produced gains for the Fund for the quarter.
In the fourth quarter, a lift in equities was offset by declines in bonds and commodities. Investors had a host of political issues to navigate, including elections in the US, China and Japan; “fiscal cliff” negotiations in the US; and continuing concerns over European and Chinese economic growth. The performance of equities was the lone bright spot, with Asian markets benefiting most from favorable reaction to political elections. Commodity markets were weighed down by concerns over falling demand and improved crop yields. Bond yields ultimately made their way higher as the market experienced both rallies and sell offs that were fairly range-bound. Australia and the UK led the increase in yields.
Please note that our strategy is principally implemented using derivative instruments, including futures and total return swaps. Therefore, all or most of the performance of the strategy, both positive and negative, can be attributed to these instruments. Derivatives can be a more liquid and cost-effective way to gain exposure to asset classes. Additionally, the leverage used in the strategy is inherent in these instruments.
Thank you for your continued commitment to Invesco V.I. Balanced-Risk Allocation Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Mark Ahnrud Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Balanced- |
| Risk Allocation Fund. He joined Invesco in 2000. Mr. Ahnrud earned a BS in finance and investments from Babson College and an MBA from Duke University Fuqua School of Business. |
| | |
 | | Chris Devine Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Balanced- |
| Risk Allocation Fund. He joined Invesco in 1998. Mr. Devine earned a BA in economics from Wake Forest University and an MBA from the University of Georgia. |
| | |
 | | Scott Hixon Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Balanced- |
| Risk Allocation Fund. He joined Invesco in 1994. Mr. Hixon earned a BBA in finance from Georgia Southern University and an MBA in finance from Georgia State University. |
| | |
 | | Christian Ulrich Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Balanced- |
| Risk Allocation Fund. He joined Invesco in 2000. Mr. Ulrich earned the equivalent of a BBA from the KV Zurich Business School in Zurich, Switzerland. |
| | |
 | | Scott Wolle Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Balanced-Risk Allocation Fund. |
| He joined Invesco in 1999. Mr. Wolle earned a BS in finance from Virginia Polytechnic Institute and State University and an MBA from Duke University Fuqua School of Business. |
Assisted by the Invesco Global Asset Allocation Team
Invesco V.I. Balanced-Risk Allocation Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es) since Inception
Fund data from 1/23/09; index data from 1/31/09
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| |
| Series I Shares | | | | | |
| Inception (1/23/09) | | | | 14.92 | % |
| 1 Year | | | | 10.98 | |
| |
| Series II Shares | | | | | |
| Inception (1/23/09) | | | | 14.61 | % |
| 1 Year | | | | 10.64 | |
The returns shown above include the returns of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the first predecessor fund) for the period June 1, 2010, to May 2, 2011, the date the first predecessor fund was reorganized into the Fund, and the returns of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio (the second predecessor fund) for the period prior to June 1, 2010, the date the second predecessor fund was reorganized into the first predecessor fund. The second predecessor fund was advised by Van Kampen Asset Management. 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 1.24% and 1.49%, respectively.2 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. 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 | 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. |
| 2 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.02% for Invesco V.I. Balanced-Risk Allocation Fund. |
Invesco V.I. Balanced-Risk Allocation Fund
Invesco V.I. Balanced-Risk Allocation Fund’s investment objective is total return with a low to moderate correlation to traditional financial market indices.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Commodity-linked notes risk. The Fund’s and the Subsidiary’s investments in commodity-linked notes may involve substantial risks, including risk of loss of a significant portion of their principal value. In addition to risks associated with the underlying commodities, they may be subject to additional special risks, such as the lack of a secondary trading market and temporary price distortions due to speculators and/or the continuous rolling over of futures contracts underlying the notes. Commodity-linked notes are also subject to counterparty risk, which is the risk that the other party to the contract will not fulfill its contractual obligation to complete the transaction with the Fund and the Subsidiary.
Commodity risk. The Fund’s and the Subsidiary’s investment exposure to the commodities markets and/or a particular sector of the commodities markets, may subject the Fund and the Subsidiary to greater volatility than investments in traditional securities, such as stocks and bonds. The commodities markets may fluctuate widely based on a variety of factors, including changes in overall market movements, domestic and foreign political and economic events and policies, war, acts of terrorism, changes in domestic or foreign interest rates and/or investor expectations concerning interest rates, domestic and foreign inflation rates and investment and trading activities of mutual funds, hedge funds and commodities funds. Prices of various commodities may also be affected by factors such as drought, floods, weather, livestock disease, embargoes, tariffs and other regulatory developments. The prices of commodities can also fluctuate widely due to supply and demand disruptions in major producing or consuming regions. Because the Fund’s and the Subsidiary’s performance are linked to the performance of potentially volatile commodities, investors should be willing to assume the risks of potentially significant fluctuations in the value of the Fund’s shares.
Counterparty risk. Counterparty risk is the risk that the other party to the contract will not fulfill its contractual obligations, which may cause losses or additional costs to the Fund and the Subsidiary.
Credit risk. The issuer of instruments in which the Fund and the Subsidiary invest may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Currency/exchange rate risk. The dollar value of the Fund’s and the Subsidiary’s foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund and the Subsidiary may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Exchange-traded funds risk. An investment by the Fund and the Subsidiary in exchange-traded funds generally presents the same primary risks as an investment in a mutual fund. In addition, an exchange-traded fund may be subject
to the following: (1) a discount of the exchange-traded fund’s shares to its net asset value; (2) failure to develop an active trading market for the exchange-traded fund’s shares; (3) the listing exchange halting trading of the exchange-traded fund’s shares; (4) failure of the exchange-traded fund’s shares to track the referenced index; and (5) holding troubled securities in the referenced index. Exchange-traded funds may involve duplication of management fees and certain other expenses, as the Fund and the Subsidiary indirectly bear their proportionate share of any expenses paid by the exchange-traded funds in which it invests. Further, certain of the exchange-traded funds in which the Fund and the Subsidiary may invest are leveraged. The more the Fund and the Subsidiary invest in such leveraged exchange-traded funds, the more this leverage will magnify any losses on those investments.
Exchange-traded notes risk. Exchange-traded notes are subject to credit risk, including the credit risk of the issuer, and the value of the exchange-traded note may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an exchange-traded note may also be influenced by time to maturity, level of supply and demand for the exchange-traded note, volatility and lack of liquidity in the underlying market, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political or geographic events that affect the referenced underlying market or strategy. Exchange-traded notes are also subject to counterparty risk.
Foreign securities risk. The Fund’s and the Subsidiary’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest
Invesco V.I. Balanced-Risk Allocation Fund
rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Leverage risk. Leverage exists when the Fund and the Subsidiary purchase or sell an instrument or enters into a transaction without investing cash in an amount equal to the full economic exposure of the instrument or transaction and the Fund and the Subsidiary could lose more than it invested. Leverage created from borrowing or certain types of transactions or instruments may impair the Fund’s and the Subsidiary’s liquidity, cause them to liquidate positions at an unfavorable time, increase volatility or otherwise not achieve their intended objective.
Liquidity risk. The Fund and the Subsidiary may hold illiquid securities that may be unable to sell at the preferred time or price and could lose their entire investment in such securities.
Management risk. The investment techniques and risk analysis used by the Fund’s and the Subsidiary’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s and Subsidiary’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability and currency and interest rate fluctuations.
Non-diversification risk. The Fund is non-diversified and can invest a greater portion of its assets in a single issuer. A change in the value of the issuer could affect the value of the Fund more than if it was a diversified fund.
Subsidiary risk. By investing in the Subsidiary, the Fund is indirectly exposed to risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the Investment Company Act of 1940 (1940 Act) and, except as otherwise noted in this prospectus, is not subject to the investor protections of the 1940 Act. Changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary, respectively, are organized, could result in the inability of the Fund and/or the Subsidiary to operate as described in this prospectus and could negatively affect the Fund and its shareholders.
Tax risk. The tax treatment of commodity-linked derivative instruments may be adversely affected by changes in legislation, regulations or other legally binding authority. If, as a result of any such adverse action, the income of the Fund from certain commodity-linked derivatives was treated as non-qualifying income, the Fund might fail to qualify as a regulated investment company and be subject to federal income tax at the Fund level. The Internal Revenue Service has issued a number of private letter rulings to other mutual funds, including to another Invesco fund (upon which only the fund that received the private letter ruling can rely), which indicate that income from a fund’s investment in certain commodity-linked notes and a wholly owned foreign subsidiary that invests in commodity-linked derivatives, such as the Subsidiary, constitutes qualifying income. However, the Internal Revenue Service has suspended issuance of any further private letter rulings pending a review of its position. Should the Internal Revenue Service issue guidance, or Congress enact legislation, that adversely affects the tax treatment of the Fund’s use of commodity-linked notes or the Subsidiary (which guidance might be applied to the Fund retroactively), it could limit the Fund’s ability to pursue its investment strategy and the Fund might not qualify as a regulated investment company for one or more years. In this event, the Fund’s Board of Trustees may authorize a significant change in investment strategy or Fund liquidation. The Fund also may incur transaction and other costs to comply with any new or additional guidance from the Internal Revenue Service.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
About indexes used in this report
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Custom V.I. Balanced-Risk Allocation Index, created by Invesco to serve as a benchmark for Invesco V.I. Balanced-Risk Allocation Fund, comprises 60% MSCI World Index and 40% Barclays U.S. Aggregate Index.
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
December 31, 2012
| | | | | | | | | | | | | | | | |
| | | Interest
Rate | | | Maturity
Date | | | Principal
Amount | | | Value | |
U.S. Treasury Securities–7.42% | |
U.S. Treasury Bills(a) | | | 0.10 | % | | | 01/10/13 | | | $ | 38,200,000 | | | $ | 38,199,788 | |
U.S. Treasury Bills(a) | | | 0.12 | % | | | 01/10/13 | | | | 14,300,000 | | | | 14,299,920 | |
U.S. Treasury Bills(a)(b) | | | 0.11 | % | | | 03/07/13 | | | | 34,500,000 | | | | 34,498,156 | |
U.S. Treasury Bills(a)(b) | | | 0.12 | % | | | 03/07/13 | | | | 13,550,000 | | | | 13,549,276 | |
Total U.S. Treasury Securities (Cost $100,538,761) | | | | | | | | | | | | | | | 100,547,140 | |
| | | | |
| | | | | | Expiration
Date | | | | | | | |
|
Commodity-Linked Securities–1.38% | |
Canadian Imperial Bank of Commerce Commodity Linked EMTN Notes U.S. Federal Funds Effective Rate minus 0.04% (linked to the Canadian Imperial Bank of Commerce Custom 1 Agriculture Commodity Index, multiplied by two)(c) | | | | | | | 11/12/13 | | | | 10,915,000 | | | | 9,360,972 | |
Cargill, Inc. Commodity Linked Notes one month LIBOR rate minus 0.1% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by two)(c) | | | | | | | 11/20/13 | | | | 10,015,000 | | | | 9,286,955 | |
Total Commodity-Linked Securities (Cost $20,930,000) | | | | | | | | | | | | | | | 18,647,927 | |
| | | | |
| | | | | | | | | Shares | | | | |
| | | | |
Money Market Funds–85.04% | | | | | | | | | | | | | | | | |
Government & Agency Portfolio–Institutional Class(d) | | | | | | | | | | | 168,742,536 | | | | 168,742,536 | |
Invesco V.I. Money Market Fund–Series I(d) | | | | | | | | | | | 20,440,310 | | | | 20,440,310 | |
Liquid Assets Portfolio–Institutional Class(d) | | | | | | | | | | | 224,990,047 | | | | 224,990,047 | |
Premier Portfolio–Institutional Class(d) | | | | | | | | | | | 187,491,706 | | | | 187,491,706 | |
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional Class (Ireland)(d) | | | | | | | | | | | 193,692,154 | | | | 193,692,154 | |
STIC Prime Portfolio–Institutional Class(d) | | | | | | | | | | | 149,993,365 | | | | 149,993,365 | |
Treasury Portfolio–Institutional Class(d) | | | | | | | | | | | 206,240,877 | | | | 206,240,877 | |
Total Money Market Funds (Cost $1,151,590,995) | | | | | | | | | | | | | | | 1,151,590,995 | |
TOTAL INVESTMENTS–93.84% (Cost $1,273,059,756) | | | | | | | | | | | | | | | 1,270,786,062 | |
OTHER ASSETS LESS LIABILITIES–6.16% | | | | | | | | | | | | | | | 83,373,961 | |
NET ASSETS–100.00% | | | | | | | | | | | | | | $ | 1,354,160,023 | |
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 designated as collateral for swap agreements. See Note 1J and Note 4. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $18,647,927, which represented 1.38% 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 Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
| | | | | | | | | | | | | | | | | | |
| Open Futures Contracts and Swap Agreements at Period-End(a) | |
| Long Futures Contracts | | Number of
Contracts | | | Expiration Month | | | Notional Value | | | Unrealized
Appreciation
(Depreciation) | |
Australia 10 Year Bonds | | | 1,490 | | | | March–2013 | | | $ | 191,020,896 | | | $ | 931,122 | |
Brent Crude | | | 244 | | | | February–2013 | | | | 27,110,840 | | | | 566,698 | |
Canada 10 Year Bonds | | | 1,161 | | | | March–2013 | | | | 158,519,130 | | | | (169,121 | ) |
Dow Jones EURO STOXX 50 Index | | | 2,600 | | | | March–2013 | | | | 89,706,006 | | | | 601 | |
E-Mini S&P 500 Index | | | 1,293 | | | | March–2013 | | | | 91,809,465 | | | | 332,032 | |
Euro Bonds | | | 973 | | | | March–2013 | | | | 186,969,166 | | | | 1,787,633 | |
FTSE 100 Index | | | 920 | | | | March–2013 | | | | 87,422,220 | | | | (400,890 | ) |
Gas Oil | | | 208 | | | | January–2013 | | | | 19,281,600 | | | | (205,399 | ) |
Gasoline Reformulated Blendstock Oxygenate Blending | | | 173 | | | | February–2013 | | | | 20,066,512 | | | | 317,196 | |
Hang Seng Index | | | 367 | | | | January–2013 | | | | 53,684,103 | | | | 196,786 | |
Heating Oil | | | 78 | | | | April–2013 | | | | 9,813,586 | | | | 58,713 | |
Japan 10 Year Bonds | | | 80 | | | | March–2013 | | | | 132,472,622 | | | | (958,605 | ) |
LME Copper | | | 379 | | | | May–2013 | | | | 75,248,081 | | | | (1,143,881 | ) |
LME Primary Aluminum | | | 103 | | | | January–2013 | | | | 5,269,737 | | | | (152,982 | ) |
Long Gilt | | | 1,098 | | | | March–2013 | | | | 212,169,953 | | | | 481,085 | |
Russell 2000 Index Mini | | | 912 | | | | March–2013 | | | | 77,209,920 | | | | 1,357,824 | |
Silver | | | 264 | | | | March–2013 | | | | 39,899,640 | | | | (3,921,752 | ) |
Tokyo Stock Price Index | | | 1,038 | | | | March–2013 | | | | 103,082,075 | | | | 9,070,990 | |
U.S. Treasury 20 Year Bonds | | | 657 | | | | March–2013 | | | | 96,907,500 | | | | (1,263,288 | ) |
WTI Crude | | | 138 | | | | June–2013 | | | | 12,901,620 | | | | 386,135 | |
Total Futures Contracts | | | | | | | | | | | | | | $ | 7,270,897 | |
| | | | | |
| | | | | | | | | | | | | | | | | | |
| Long Swap Agreements | | Counterparty | | | | | | | | | | | | |
Receive a return equal to the Dow Jones-UBS Gold Index and pay the product of (i) 0.15% of the Notional Amount multiplied by (ii) days in the period divided by 365. | | Bank of America,
N.A. | | | 216,500 | | | | December–2013 | | | $ | 46,884,352 | | | $ | (1,010,124 | ) |
Receive a return equal to the Barclays Commodity Strategy 1635 Excess Return Index and pay the product of (i) 0.53% of the Notional Amount multiplied by (ii) days in the period divided by 365. | | Barclays Bank
PLC | | | 30,330 | | | | October–2013 | | | | 19,860,290 | | | | (705,527 | ) |
Receive a return equal to the Barclays Gold Nearby Excess Return Index and pay the product of (i) 0.22% of the Notional Amount multiplied by (ii) days in the period divided by 365. | | Barclays Bank
PLC | | | 82,800 | | | | April–2013 | | | | 32,844,118 | | | | (433,217 | ) |
Receive a return equal to the Goldman Sachs Alpha Basket B472 Excess Return Strategy and pay the product of (i) 0.60% of the Notional Amount multiplied by (ii) days in the period divided by 365. | | Goldman Sachs
International | | | 23,080 | | | | November–2013 | | | | 12,993,033 | | | | (254,087 | ) |
Receive a return equal to the J.P. Morgan Bespoke Commodity 165 Index and pay the product of (i) 0.45% of the Notional Amount multiplied by (ii) days in the period divided by 365. | | JPMorgan Chase
Bank, N.A. | | | 26,350 | | | | October–2013 | | | | 18,282,249 | | | | (145,157 | ) |
Total Swap Agreements | | | | | | | | | | | | | | | | $ | (2,548,112 | ) |
| (a) | Futures collateralized by $73,306,000 cash held with Goldman Sachs & Co., the futures commission merchant. |
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
December 31, 2012
Consolidated Statement of
Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $121,468,761) | | $ | 119,195,067 | |
Investments in affiliated money market funds, at value and cost | | | 1,151,590,995 | |
Total investments, at value (Cost $1,273,059,756) | | | 1,270,786,062 | |
Foreign currencies, at value (Cost $111,705) | | | 104,809 | |
Receivable for: | | | | |
Deposits with brokers for open futures contracts | | | 73,306,000 | |
Variation margin | | | 2,706,946 | |
Fund shares sold | | | 12,051,164 | |
Dividends | | | 87,807 | |
Investment for trustee deferred compensation and retirement plans | | | 21,011 | |
Other assets | | | 1,216 | |
Total assets | | | 1,359,065,015 | |
|
Liabilities: | |
Payable for: | | | | |
Fund shares reacquired | | | 653,633 | |
Swap income payable | | | 26,696 | |
Accrued fees to affiliates | | | 1,579,840 | |
Accrued other operating expenses | | | 59,048 | |
Trustee deferred compensation and retirement plans | | | 37,663 | |
Unrealized depreciation on swap agreements | | | 2,548,112 | |
Total liabilities | | | 4,904,992 | |
Net assets applicable to shares outstanding | | $ | 1,354,160,023 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 1,279,050,108 | |
Undistributed net investment income | | | 25,953,683 | |
Undistributed net realized gain | | | 46,714,178 | |
Unrealized appreciation | | | 2,442,054 | |
| | | $ | 1,354,160,023 | |
|
Net Assets: | |
Series I | | $ | 10,354,301 | |
Series II | | $ | 1,343,805,722 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 818,584 | |
Series II | | | 106,898,470 | |
Series I: | | | | |
Net asset value per share | | $ | 12.65 | |
Series II: | | | | |
Net asset value per share | | $ | 12.57 | |
| | | | |
Investment income: | |
Dividends from affiliated money market funds | | $ | 602,971 | |
Interest | | | 258,534 | |
Total investment income | | | 861,505 | |
| |
Expenses: | | | | |
Advisory fees | | | 7,226,293 | |
Administrative services fees | | | 1,566,467 | |
Custodian fees | | | 23,718 | |
Distribution fees — Series II | | | 1,936,502 | |
Transfer agent fees | | | 10,989 | |
Trustees’ and officers’ fees and benefits | | | 43,328 | |
Other | | | 85,338 | |
Total expenses | | | 10,892,635 | |
Less: Fees waived | | | (3,473,065 | ) |
Net expenses | | | 7,419,570 | |
Net investment income (loss) | | | (6,558,065 | ) |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 199,459 | |
Foreign currencies | | | 1,486,147 | |
Futures contracts | | | 69,897,983 | |
Swap agreements | | | 8,010,685 | |
| | | | 79,594,274 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | (1,846,119 | ) |
Foreign currencies | | | (8,710 | ) |
Futures contracts | | | 4,324,553 | |
Swap agreements | | | (4,006,652 | ) |
| | | | (1,536,928 | ) |
Net realized and unrealized gain | | | 78,057,346 | |
Net increase in net assets resulting from operations | | $ | 71,499,281 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income (loss) | | $ | (6,558,065 | ) | | $ | (779,193 | ) |
Net realized gain | | | 79,594,274 | | | | 17,004,994 | |
Change in net unrealized appreciation (depreciation) | | | (1,536,928 | ) | | | (3,110,200 | ) |
Net increase in net assets resulting from operations | | | 71,499,281 | | | | 13,115,601 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (77,493 | ) | | | (136 | ) |
Series ll | | | (9,112,949 | ) | | | (301,687 | ) |
Total distributions from net investment income | | | (9,190,442 | ) | | | (301,823 | ) |
| | |
Distributions to shareholders from net realized gains: | | | | | | | | |
Series l | | | (34,204 | ) | | | (3,582 | ) |
Series ll | | | (4,174,439 | ) | | | (14,743,368 | ) |
Total distributions from net realized gains | | | (4,208,643 | ) | | | (14,746,950 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | 5,276,102 | | | | 4,242,158 | |
Series ll | | | 1,028,414,257 | | | | 185,367,819 | |
Net increase in net assets resulting from share transactions | | | 1,033,690,359 | | | | 189,609,977 | |
Net increase in net assets | | | 1,091,790,555 | | | | 187,676,805 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 262,369,468 | | | | 74,692,663 | |
End of year (includes undistributed net investment income of $25,953,683 and $8,294,288, respectively) | | $ | 1,354,160,023 | | | $ | 262,369,468 | |
Notes to Consolidated Financial Statements
December 31, 2012
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-five 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 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 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 total return with a low to moderate correlation to traditional financial market indices.
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations 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
Invesco V.I. Balanced-Risk Allocation Fund
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) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. |
Invesco V.I. Balanced-Risk Allocation Fund
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.
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 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 the 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. | 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 Consolidated 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 Consolidated 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 Consolidated 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 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. |
| L. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). These agreements may contain among other conditions, events of default and termination |
Invesco V.I. Balanced-Risk Allocation Fund
| | events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
A CDS is an agreement between 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. 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 designation of collateral by the counterparty to cover the Fund’s exposure to the counterparty.
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 may designate liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the 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. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
| M. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| N. | 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.
| O. | Collateral — To the extent the Fund has designated 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 V.I. Balanced-Risk Allocation Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | | | |
| Average Net Assets | | Rate |
First $250 million | | | 0 | .95% | | |
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% | | |
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. (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 15, 2012, the Adviser has contractually agreed, through 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 waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 0.72% and Series II shares to 0.97% of average daily net assets. Prior to May 15, 2012, 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 to 0.62% and 0.87% of average net assets 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 waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Acquired Fund Fees and Expenses are not fees and expenses incurred by the Fund directly but are fees and expenses, including management fees, of the investment companies in which the Fund invests. As a result, total annual fund operating expenses may exceed the expense limits above. You incur these expenses indirectly through the valuation of the Fund’s investment in those investment companies. The impact of the Acquired Fund Fees and Expenses are included in the total return of the Fund.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $3,473,065.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $187,367 for accounting and fund administrative services and reimbursed $1,379,100 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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
Invesco V.I. Balanced-Risk Allocation Fund
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 December 31, 2012. 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 | |
Money Market Funds | | $ | 1,151,590,995 | | | $ | — | | | $ | — | | | $ | 1,151,590,995 | |
U.S. Treasury Securities | | �� | — | | | | 100,547,140 | | | | — | | | | 100,547,140 | |
Commodity-Linked Securities | | | — | | | | 18,647,927 | | | | — | | | | 18,647,927 | |
| | | | 1,151,590,995 | | | | 119,195,067 | | | | — | | | | 1,270,786,062 | |
Futures Contracts* | | | 7,270,897 | | | | — | | | | — | | | | 7,270,897 | |
Swap Agreements* | | | — | | | | (2,548,112 | ) | | | — | | | | (2,548,112 | ) |
Total Investments | | $ | 1,158,861,892 | | | $ | 116,646,955 | | | $ | — | | | $ | 1,275,508,847 | |
| * | Unrealized appreciation (depreciation) |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Commodity risk | | | | | | | | |
Futures contracts(a) | | $ | 1,330,917 | | | $ | (5,426,187 | ) |
Swap agreements(b) | | | — | | | | (2,548,112 | ) |
Interest rate risk | | | | | | | | |
Futures contracts(a) | | | 3,239,570 | | | | (2,430,744 | ) |
Market risk | | | | | | | | |
Futures contracts(a) | | | 11,094,356 | | | | (537,015 | ) |
| (a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Consolidated Statement of Assets and Liabilities. |
| (b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under Unrealized depreciation on swap agreements. |
Effect of Derivative Instruments for the year ended December 31, 2012
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
Consolidated Statement of Operations | |
| | | Futures
Contracts* | | | Swap
Agreements* | |
Realized Gain | | | | | | | | |
Commodity risk | | $ | 11,391,432 | | | $ | 6,912,122 | |
Interest rate risk | | | 20,982,433 | | | | 1,098,563 | |
Market risk | | | 37,524,118 | | | | — | |
Change in Unrealized Appreciation (Depreciation) | | | | | | | | |
Commodity risk | | $ | (2,917,490 | ) | | $ | (3,412,752 | ) |
Interest rate risk | | | (2,609,154 | ) | | | (593,900 | ) |
Market risk | | | 9,851,197 | | | | — | |
Total | | $ | 74,222,536 | | | $ | 4,004,033 | |
| * | The average notional value of futures contracts and swap agreements outstanding during the period was $1,035,089,836 and $98,904,647, respectively. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Consolidated Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 9,385,414 | | | $ | 10,127,848 | |
Long-term capital gain | | | 4,013,671 | | | | 4,920,925 | |
Total distributions | | $ | 13,399,085 | | | $ | 15,048,773 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 54,821,421 | |
Undistributed long-term gain | | | 13,071,694 | |
Net unrealized appreciation (depreciation) — investments | | | (2,273,694 | ) |
Net unrealized appreciation — other investments | | | 9,525,654 | |
Temporary book/tax differences | | | (35,160 | ) |
Shares of beneficial interest | | | 1,279,050,108 | |
Total net assets | �� | $ | 1,354,160,023 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to swaps and futures contracts.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Trust to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 does not have a capital loss carryforward at period-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 year ended December 31, 2012 was $21,317,147 and $12,072,384, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| | | | |
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | |
Aggregate unrealized appreciation of investment securities | | $ | 8,379 | |
Aggregate unrealized (depreciation) of investment securities | | | (2,282,073 | ) |
Net unrealized appreciation (depreciation) of investment securities | | $ | (2,273,694 | ) |
Cost of investments is the same for financial statement and tax purposes.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign futures, swap income and net operating losses, on December 31, 2012, undistributed net investment income was increased by $33,407,902, undistributed net realized gain was decreased by $32,830,833 and shares of beneficial interest was decreased by $577,069. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 580,788 | | | $ | 7,112,873 | | | | 258,487 | | | $ | 2,871,722 | |
Series II | | | 89,709,269 | | | | 1,093,292,927 | | | | 12,355,475 | | | | 139,883,748 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 8,809 | | | | 111,428 | | | | — | | | | — | |
Series II | | | 1,056,225 | | | | 13,287,315 | | | | 1,398,239 | | | | 15,045,054 | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 174,025 | | | | 1,876,288 | |
Series II | | | — | | | | — | | | | 6,178,799 | | | | 66,483,294 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (158,889 | ) | | | (1,948,199 | ) | | | (45,961 | ) | | | (505,852 | ) |
Series II | | | (6,320,776 | ) | | | (78,165,985 | ) | | | (3,202,503 | ) | | | (36,044,277 | ) |
Net increase in share activity | | | 84,875,426 | | | $ | 1,033,690,359 | | | | 17,116,561 | | | $ | 189,609,977 | |
| (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 Fund 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 (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund as of the close of business on April 29, 2011. The Target Fund’s net assets at that date of $68,359,582 were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $73,364,971 and $141,724,553 immediately after the acquisition. |
| | The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
| | | | |
Net investment income | | $ | (432,423 | ) |
Net realized/unrealized gains | | | 14,147,497 | |
Change in net assets resulting from operations | | $ | 13,715,074 | |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, and it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 11—Consolidated Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of expenses
to average net assets with fee waivers and/or expenses absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
(loss)
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 11.53 | | | $ | (0.07 | ) | | $ | 1.34 | | | $ | 1.27 | | | $ | (0.11 | ) | | $ | (0.04 | ) | | $ | (0.15 | ) | | $ | 12.65 | | | | 10.98 | % | | $ | 10,354 | | | | 0.70 | %(d)(e) | | | 1.15 | %(e) | | | (0.59 | )%(e) | | | 188 | % |
Year ended 12/31/11(f) | | | 13.09 | | | | (0.04 | ) | | | 1.28 | | | | 1.24 | | | | (0.10 | ) | | | (2.70 | ) | | | (2.80 | ) | | | 11.53 | | | | 11.00 | | | | 4,472 | | | | 0.71 | (d) | | | 1.22 | | | | (0.32 | ) | | | 142 | |
Year ended 12/31/10(g) | | | 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 | (h) | | | 444 | |
Eleven months ended 12/31/09(i) | | | 10.00 | | | | 0.04 | | | | 2.67 | | | | 2.71 | | | | (0.25 | ) | | | (0.46 | ) | | | (0.71 | ) | | | 12.00 | | | | 28.21 | | | | 120 | | | | 0.90 | (j)(k) | | | 1.46 | (j)(k) | | | 0.41 | (h)(j)(k) | | | 87 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 11.49 | | | | (0.10 | ) | | | 1.33 | | | | 1.22 | | | | (0.10 | ) | | | (0.04 | ) | | | (0.14 | ) | | | 12.57 | | | | 10.64 | | | | 1,343,806 | | | | 0.95 | (d)(e) | | | 1.40 | (e) | | | (0.84 | )(e) | | | 188 | |
Year ended 12/31/11(f) | | | 13.05 | | | | (0.07 | ) | | | 1.27 | | | | 1.20 | | | | (0.06 | ) | | | (2.70 | ) | | | (2.76 | ) | | | 11.49 | | | | 10.61 | | | | 257,898 | | | | 0.96 | (d) | | | 1.47 | | | | (0.57 | ) | | | 142 | |
Year ended 12/31/10(g) | | | 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 | (h) | | | 444 | |
Eleven months ended 12/31/09(i) | | | 10.00 | | | | 0.05 | | | | 2.74 | | | | 2.79 | | | | (0.23 | ) | | | (0.46 | ) | | | (0.69 | ) | | | 12.10 | | | | 27.86 | (l) | | | 110 | | | | 1.15 | (j)(k) | | | 1.71 | (j)(k) | | | 0.44 | (h)(j)(k) | | | 87 | |
| (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 were 0.02% and 0.04% for the years ended December 31, 2012 and 2011, respectively. |
| (e) | Ratios are based on average daily net assets (000’s omitted) of $7,487 and $774,601 for Series I and Series II shares, respectively. |
| (f) | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Predecessor Fund”). On such date, holders of the Predecessor Fund’s Series I and Series II shares received Series I and Series II shares, respectively, of the Fund. |
| (g) | On June 1, 2010, the Class I and Class II shares of Invesco Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio were reorganized into Series I and Series II shares, respectively, of the Predecessor Fund. |
| (h) | Ratio of net investment income (loss) to average net assets without fee waivers and/or expenses absorbed for the year ended December 31, 2010 and the eleven months 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. |
| (i) | Commencement date of January 23, 2009. |
| (j) | Does not include expenses of the underlying funds in which the Fund invests. The annualized weighted average ratio of expenses to average net assets for the underlying funds was 0.08% at December 31, 2009. |
| (l) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Balanced-Risk Allocation Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Balanced-Risk Allocation Fund:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the consolidated financial position of Invesco V.I. Balanced-Risk Allocation Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,054.10 | | | $ | 3.72 | | | $ | 1,021.52 | | | $ | 3.66 | | | | 0.72 | % |
Series II | | | 1,000.00 | | | | 1,052.40 | | | | 5.00 | | | | 1,020.26 | | | | 4.93 | | | | 0.97 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Balanced-Risk Allocation Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Long-Term Capital Gain Distributions | | $ | 4,013,671 | |
Corporate Dividends Received Deduction* | | | 4.93 | % |
U.S. Treasury Obligations* | | | 0.10 | % |
| | * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
| | | | |
Non-Resident Alien Shareholders | |
Qualified Short-Term Gains Distributions | | $ | 178,750 | |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | �� |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Balanced-Risk Allocation Fund
Invesco V.I. Core Equity Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Core Equity Fund’s returns were positive with investments in the information technology (IT) and health care sectors delivering attractive results. The Fund lagged the broad market as measured by the S&P 500 Index, as well as its style-specific benchmark, the Russell 1000 Index. The financials and energy sectors were the largest detractors from the Fund’s relative results versus its style-specific benchmark. The Fund’s allocation to cash also tempered results for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 13.88 | % |
| Series II Shares | | | | 13.61 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 1000 Index¡ (Style-Specific Index) | | | | 16.42 | |
| Lipper VUF Large-Cap Core Funds Index¨ (Peer Group Index) | | | | 15.23 | |
| Source(s): | ‚ Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; |
| | ¡ Invesco, Russell via FactSet Research Systems Inc.; ¨Lipper Inc. |
How we invest
We seek to manage your Fund with the goal of achieving long-run realized investor returns exceeding those of passive benchmarks across a full market cycle, which we define as market trough to market trough, or peak-to-peak. As Fund managers, we believe investors need a reason to stick with the Fund for long periods of time in order to realize these returns, and believe the best way we can encourage this behavior is by delivering a smoother (less volatile) investor experience – especially in turbulent, down-trending markets. The portfolio we construct is intended to provide attractive participation during positive-trending equity markets, but with a greater emphasis on comparative downside protection during more turbulent, down-trending equity markets. We position the Fund to act as a “conservative cornerstone” – a stable foundational component within a well-diversified portfolio of assets.
The Fund’s portfolio is composed of “core stocks.” A core stock encompasses elements of growth (revenues, profits, economic value) and value (both absolute and comparative measures). Along this growth-value continuum, we seek to identify and invest in areas of temporary disconnection between market perception and the view our research uncovers.
To build a portfolio of core stocks, we conduct thorough fundamental research of businesses to gain a deeper understanding of the companies’ prospects, growth potential and return on invested capital (ROIC) characteristics. The analytical process we use to identify potential investments for the Fund includes three phases: financial, business and valuation.
Financial analysis provides insights into historical ROIC (a key indicator of business quality) and historical capital allocation (a key indicator of management quality). Business analysis evaluates the competitive landscape and any structural or cyclical business opportunities or
threats and allows us to identify key revenue, profit and return drivers of the company. Both the financial and business analyses serve as bases to construct valuation models that help us assess a company’s intrinsic worth. Our valuation analysis employs three primary techniques, including discounted cash flow, traditional valuation multiples and net asset value.
We consider selling a stock when it exceeds our target price, we have not seen a demonstrable improvement in fundamentals, or a more compelling investments opportunity exists.
Market conditions and your Fund
The year began with improving economic data in the US and a rally in the equity markets. However, the ongoing European debt crisis intensified in April and May, dominating headlines and creating significant volatility in equity markets across the globe.
With pressure from overseas, US economic data began to decelerate and indicators for manufacturing, employment, consumer spending and consumer confidence weakened over the summer. Despite these headwinds, corporate earnings were resilient, and the equity markets delivered strong results for the year. All sectors in the S&P 500 Index posted gains. The financials and consumer discretionary sectors were the leading performers, while the utilities and energy sectors lagged.
The health care and IT sectors delivered attractive returns for the Fund during the reporting period and contained the Fund’s top contributors. The largest contributor to Fund results for the reporting period was Gilead, which had favorable news on several of its drug candidates. Its hepatitis-C drug candidate, in combination with an antiviral
| | | | | |
| Portfolio Composition |
| |
| By sector | | | | | |
Health Care | | | | 22.3 | % |
| Information Technology | | | | 16.6 | |
| Financials | | | | 11.5 | |
| Energy | | | | 9.5 | |
| Industrials | | | | 8.0 | |
| Consumer Staples | | | | 7.2 | |
| Consumer Discretionary | | | | 5.2 | |
| Materials | | | | 4.3 | |
| Telecommunication Services | | | | 1.2 | |
| Utilities | | | | 1.0 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 13.2 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
1. Kellogg Co. | | | | 2.4 | % |
2. Novartis AG-ADR | | | | 2.3 | |
3. General Electric Co. | | | | 2.1 | |
4. Sanofi-ADR | | | | 2.1 | |
5. Northern Trust Corp. | | | | 2.0 | |
6. Roche Holding AG | | | | 2.0 | |
7. American Express Co. | | | | 2.0 | |
8. Berkshire Hathaway Inc.-Class A | | | | 2.0 | |
9. Symantec Corp. | | | | 2.0 | |
10. Microsoft Corp. | | | | 1.8 | |
| | | | | |
| Top Five Industries* |
| | | | | |
1. Pharmaceuticals | | | | 14.6 | % |
2. Communications Equipment | | | | 4.9 | |
3. Oil and Gas Equipment and Services | | | | 4.6 | |
4. Systems Software | | | | 3.8 | |
5. Property and Casualty Insurance | | | | 3.8 | |
| | | | | |
| Total Net Assets | | | | $1.1 billion | |
| |
| Total Number of Holdings* | | | | 69 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Core Equity Fund
drug, effectively suppressed the virus in previously untreated patients with genotype 1 hepatitis C, after 12 weeks of treatment. Additionally, Gilead’s single-tablet HIV combination drug, Stribild, received Food and Drug Administration approval. As it is Gilead’s first once-daily HIV regimen, Stribild is expected to generate significant revenue for the company. The company’s share price was up on the news, and we used the opportunity to trim our position in the stock.
eBay was another strong contributor during the reporting period. The online auction site benefited from continued strength in its payments division, Paypal, as well as a rejuvenated core marketplace segment. In recent years, the company invested significantly to improve the customer experience in the traditional marketplace division. In our opinion, it now appears that those investments were wise, as growth in product listings, transactions and profits have accelerated.
The Fund lagged the style-specific benchmark on a relative basis for the reporting period, which was partially due to companies that we did not own in the Fund, such as Apple, which did very well in the Russell 1000 Index.
The energy and utilities sectors contained some of the largest individual detractors from Fund performance for the reporting period, including Weatherford International, an oil services firm, and Exelon, one of the largest nuclear power generators in the US. Weatherford has dealt with a series of tax reporting issues, which included a restatement of its financial results for the second consecutive year. As a result of these issues, the company’s chief financial officer departed in March, which we believe was a step in the right direction. We believe the company is currently undervalued and, in the long term, has an opportunity to improve margins and capital efficiency.
Exelon’s stock declined due to weakness in power generation rates. Also, delays in the implementation of carbon emission regulation continued to weigh on the stock. Recently, the company closed its merger with Constellation Energy Group, making it the largest retail power provider in the US. The merger diversified Exelon’s earnings stream, but the deal was dilutive to shareholders. We eliminated this holding during the reporting period.
During the year, we decreased our exposure to the more cyclical areas of the market, such as the consumer discretionary, energy and industrials sectors and increased our exposure to the more
defensive consumer staples and health care sectors. We also added holdings in the materials sector. At the end of the reporting period, our largest overweight position relative to the Russell 1000 Index was in the health care sector, and the largest underweight position was in the consumer discretionary sector.
Regardless of market conditions, our goal for Invesco V.I. Core Equity Fund remains the same: to serve as a conservative cornerstone for your investment portfolio. We seek to provide attractive upside participation with strong potential downside protection, so that over a full market cycle the Fund delivers solid investment results with the potential for reduced risk and a smoother investor experience. As always, we would like to thank you for your continued investment in Invesco V.I. Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Ronald Sloan Chartered Financial Analyst, portfolio manager and chief investment officer of Invesco’s domestic |
| core investments team, is lead manager of Invesco V.I. Core Equity Fund. He joined Invesco in 1998. Mr. Sloan earned a BS in business administration and an MBA from the University of Missouri. |
| | |
 | | Tyler Dann II Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Core Equity Fund. He joined |
| Invesco in 2004. Mr. Dann earned a BA from Princeton University. |
| | |
 | | Brian Nelson Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Core Equity Fund. He joined |
| Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara. |
Invesco V.I. Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/2/94) | | | | 7.53 | % |
| 10 Years | | | | 7.25 | |
| 5 Years | | | | 2.25 | |
| 1 Year | | | | 13.88 | |
| |
| Series II Shares | | | | | |
| Inception (10/24/01) | | | | 5.19 | % |
| 10 Years | | | | 6.99 | |
| 5 Years | | | | 1.99 | |
| 1 Year | | | | 13.61 | |
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 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.
Invesco V.I. Core Equity Fund
Invesco V.I. Core Equity Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Cash/cash equivalents risk. Holding cash or cash equivalents may negatively affect performance.
Debt securities risk. The Fund may invest in debt securities that are affected by changing interest rates and changes in their effective maturities and credit quality.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Core Equity Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–86.79% | |
| Aerospace & Defense–0.80% | |
Boeing Co. (The) | | | 121,330 | | | $ | 9,143,429 | |
|
| Air Freight & Logistics–0.76% | |
FedEx Corp. | | | 94,859 | | | | 8,700,467 | |
|
| Application Software–1.52% | |
Adobe Systems Inc.(b) | | | 460,372 | | | | 17,346,817 | |
|
| Asset Management & Custody Banks–2.02% | |
Northern Trust Corp. | | | 460,721 | | | | 23,109,765 | |
|
| Biotechnology–1.26% | |
Gilead Sciences, Inc.(b) | | | 195,467 | | | | 14,357,051 | |
|
| Brewers–1.19% | |
Molson Coors Brewing Co.—Class B | | | 317,802 | | | | 13,598,748 | |
|
| Casinos & Gaming–1.16% | |
Las Vegas Sands Corp. | | | 287,706 | | | | 13,280,509 | |
|
| Communications Equipment–4.89% | |
Cisco Systems, Inc. | | | 899,784 | | | | 17,680,755 | |
F5 Networks, Inc.(b) | | | 122,471 | | | | 11,898,058 | |
QUALCOMM, Inc. | | | 263,258 | | | | 16,327,261 | |
Telefonaktiebolaget LM Ericsson—ADR (Sweden) | | | 991,139 | | | | 10,010,504 | |
| | | | | | | | 55,916,578 | |
|
| Construction Materials–0.56% | |
CRH PLC (Ireland) | | | 305,495 | | | | 6,336,644 | |
|
| Consumer Finance–1.97% | |
American Express Co. | | | 391,839 | | | | 22,522,906 | |
|
| Department Stores–1.52% | |
Macy’s, Inc. | | | 446,002 | | | | 17,402,998 | |
|
| Diversified Banks–1.16% | |
U.S. Bancorp | | | 415,308 | | | | 13,264,938 | |
|
| Diversified Chemicals–0.41% | |
Dow Chemical Co. (The) | | | 145,802 | | | | 4,712,321 | |
|
| Electric Utilities–0.99% | |
Duke Energy Corp. | | | 177,824 | | | | 11,345,171 | |
|
| Electronic Manufacturing Services–1.72% | |
TE Connectivity Ltd. (Switzerland) | | | 527,911 | | | | 19,596,056 | |
|
| Environmental & Facilities Services–1.34% | |
Waste Management, Inc. | | | 455,011 | | | | 15,352,071 | |
|
| Food Retail–1.24% | |
Kroger Co. (The) | | | 546,554 | | | | 14,221,335 | |
|
| General Merchandise Stores–1.12% | |
Target Corp. | | | 215,368 | | | | 12,743,325 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Gold–0.94% | |
Agnico-Eagle Mines Ltd. (Canada) | | | 72,960 | | | $ | 3,827,482 | |
Kinross Gold Corp. (Canada) | | | 713,950 | | | | 6,939,594 | |
| | | | | | | | 10,767,076 | |
|
| Health Care Equipment–1.98% | |
Baxter International Inc. | | | 149,682 | | | | 9,977,802 | |
Covidien PLC | | | 219,399 | | | | 12,668,098 | |
| | | | | | | | 22,645,900 | |
|
| Heavy Electrical Equipment–0.69% | |
ABB Ltd. (Switzerland) | | | 377,886 | | | | 7,839,104 | |
|
| Home Improvement Retail–1.36% | |
Lowe’s Cos., Inc. | | | 437,609 | | | | 15,543,872 | |
|
| Household Products–1.18% | |
Procter & Gamble Co. (The) | | | 198,622 | | | | 13,484,448 | |
|
| Industrial Conglomerates–2.14% | |
General Electric Co. | | | 1,164,909 | | | | 24,451,440 | |
|
| Industrial Gases–1.52% | |
Air Products & Chemicals, Inc. | | | 206,853 | | | | 17,379,789 | |
|
| Industrial Machinery–0.95% | |
Illinois Tool Works Inc. | | | 178,076 | | | | 10,828,802 | |
|
| Insurance Brokers–1.49% | |
Marsh & McLennan Cos., Inc. | | | 493,879 | | | | 17,024,009 | |
|
| Integrated Oil & Gas–1.99% | |
Exxon Mobil Corp. | | | 203,078 | | | | 17,576,401 | |
Occidental Petroleum Corp. | | | 67,868 | | | | 5,199,367 | |
| | | | | | | | 22,775,768 | |
|
| Internet Software & Services–1.24% | |
eBay Inc.(b) | | | 277,888 | | | | 14,177,846 | |
|
| Investment Banking & Brokerage–0.81% | |
Charles Schwab Corp. (The) | | | 641,912 | | | | 9,217,856 | |
|
| Life Sciences Tools & Services–2.79% | |
Agilent Technologies, Inc. | | | 426,567 | | | | 17,463,653 | |
Thermo Fisher Scientific, Inc. | | | 225,474 | | | | 14,380,732 | |
| | | | | | | | 31,844,385 | |
|
| Managed Health Care–1.67% | |
Humana Inc. | | | 115,519 | | | | 7,928,069 | |
WellPoint, Inc. | | | 182,833 | | | | 11,138,186 | |
| | | | | | | | 19,066,255 | |
|
| Multi-Line Insurance–0.35% | |
American International Group, Inc.(b) | | | 114,579 | | | | 4,044,639 | |
|
| Office Services & Supplies–0.45% | |
Pitney Bowes Inc. | | | 480,125 | | | | 5,108,530 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Oil & Gas Equipment & Services–4.64% | |
Cameron International Corp.(b) | | | 168,876 | | | $ | 9,534,739 | |
Halliburton Co. | | | 333,073 | | | | 11,554,302 | |
National Oilwell Varco Inc. | | | 246,146 | | | | 16,824,079 | |
Weatherford International Ltd.(b) | | | 1,348,534 | | | | 15,090,096 | |
| | | | | | | | 53,003,216 | |
|
| Oil & Gas Exploration & Production–2.88% | |
Anadarko Petroleum Corp. | | | 129,379 | | | | 9,614,153 | |
EOG Resources, Inc. | | | 75,411 | | | | 9,108,895 | |
Pioneer Natural Resources Co. | | | 132,824 | | | | 14,157,710 | |
| | | | | | | | 32,880,758 | |
|
| Packaged Foods & Meats–3.54% | |
Danone S.A. (France) | | | 202,978 | | | | 13,405,085 | |
Kellogg Co. | | | 485,229 | | | | 27,100,040 | |
| | | | | | | | 40,505,125 | |
|
| Paper Products–0.84% | |
International Paper Co. | | | 241,225 | | | | 9,610,404 | |
|
| Pharmaceuticals–14.61% | |
Eli Lilly & Co. | | | 181,906 | | | | 8,971,604 | |
GlaxoSmithKline PLC—ADR (United Kingdom) | | | 304,162 | | | | 13,221,922 | |
Johnson & Johnson | | | 259,326 | | | | 18,178,753 | |
Merck & Co., Inc. | | | 398,608 | | | | 16,319,012 | |
Novartis AG—ADR (Switzerland) | | | 415,613 | | | | 26,308,303 | |
Pfizer Inc. | | | 722,979 | | | | 18,132,313 | |
Roche Holding AG (Switzerland) | | | 112,441 | | | | 22,885,764 | |
Sanofi—ADR (France) | | | 494,956 | | | | 23,451,015 | |
Teva Pharmaceutical Industries Ltd.—ADR (Israel) | | | 522,528 | | | | 19,511,195 | |
| | | | | | | | 166,979,881 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Property & Casualty Insurance–3.75% | |
Berkshire Hathaway Inc.—Class A(b) | | | 168 | | | $ | 22,522,080 | |
Progressive Corp. (The) | | | 965,472 | | | | 20,371,459 | |
| | | | | | | | 42,893,539 | |
|
| Railroads–0.83% | |
Union Pacific Corp. | | | 75,663 | | | | 9,512,352 | |
|
| Semiconductors–3.51% | |
Analog Devices, Inc. | | | 471,838 | | | | 19,845,506 | |
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | | | 6,047,823 | | | | 20,245,718 | |
| | | | | | | | 40,091,224 | |
|
| Systems Software–3.76% | |
Microsoft Corp. | | | 775,295 | | | | 20,723,635 | |
Symantec Corp.(b) | | | 1,185,454 | | | | 22,298,390 | |
| | | | | | | | 43,022,025 | |
|
| Wireless Telecommunication Services–1.25% | |
Vodafone Group PLC (United Kingdom) | | | 5,678,918 | | | | 14,285,678 | |
Total Common Stocks & Other Equity Interests
(Cost $810,813,277) | | | | 991,935,050 | |
|
Money Market Funds–13.15% | |
Liquid Assets Portfolio—Institutional Class(c) | | | 75,124,768 | | | | 75,124,768 | |
Premier Portfolio—Institutional Class(c) | | | 75,124,768 | | | | 75,124,768 | |
Total Money Market Funds
(Cost $150,249,536) | | | | 150,249,536 | |
TOTAL INVESTMENTS–99.94%
(Cost $961,062,813) | | | | 1,142,184,586 | |
OTHER ASSETS LESS LIABILITIES–0.06% | | | | 683,666 | |
NET ASSETS–100.00% | | | $ | 1,142,868,252 | |
Investment Abbreviations:
| | |
| ADR | | — American Depositary Receipts |
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
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $810,813,277) | | $ | 991,935,050 | |
Investments in affiliated money market funds, at value and cost | | | 150,249,536 | |
Total investments, at value (Cost $961,062,813) | | | 1,142,184,586 | |
Foreign currencies, at value (Cost $984,860) | | | 999,731 | |
Receivable for: | | | | |
Fund shares sold | | | 453,930 | |
Dividends | | | 1,661,479 | |
Investment for trustee deferred compensation and retirement plans | | | 157,128 | |
Other assets | | | 191 | |
Total assets | | | 1,145,457,045 | |
|
Liabilities: | |
Payable for: | | | | |
Fund shares reacquired | | | 1,295,685 | |
Accrued fees to affiliates | | | 753,329 | |
Accrued other operating expenses | | | 66,493 | |
Trustee deferred compensation and retirement plans | | | 473,286 | |
Total liabilities | | | 2,588,793 | |
Net assets applicable to shares outstanding | | $ | 1,142,868,252 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 1,048,093,051 | |
Undistributed net investment income | | | 16,728,501 | |
Undistributed net realized gain (loss) | | | (103,096,174 | ) |
Unrealized appreciation | | | 181,142,874 | |
| | | $ | 1,142,868,252 | |
| |
Net Assets: | | | | |
Series I | | $ | 1,033,655,095 | |
Series II | | $ | 109,213,157 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 34,294,761 | |
Series II | | | 3,657,866 | |
Series I: | | | | |
Net asset value per share | | $ | 30.14 | |
Series II: | | | | |
Net asset value per share | | $ | 29.86 | |
| | | | |
Investment income: | | | | |
Dividends (net of foreign withholding taxes of $743,769) | | $ | 25,141,842 | |
Dividends from affiliated money market funds | | | 192,408 | |
Total investment income | | | 25,334,250 | |
| |
Expenses: | | | | |
Advisory fees | | | 7,136,331 | |
Administrative services fees | | | 3,051,190 | |
Custodian fees | | | 88,853 | |
Distribution fees — Series II | | | 206,896 | |
Transfer agent fees | | | 75,719 | |
Trustees’ and officers’ fees and benefits | | | 66,441 | |
Other | | | 96,331 | |
Total expenses | | | 10,721,761 | |
Less: Fees waived | | | (194,333 | ) |
Net expenses | | | 10,527,428 | |
Net investment income | | | 14,806,822 | |
|
Realized and unrealized gain from: | |
Net realized gain from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $337,458) | | | 45,411,768 | |
Foreign currencies | | | 70,306 | |
| | | | 45,482,074 | |
Change in net unrealized appreciation of: | | | | |
Investment securities | | | 90,930,163 | |
Foreign currencies | | | 63,552 | |
| | | | 90,993,715 | |
Net realized and unrealized gain | | | 136,475,789 | |
Net increase in net assets resulting from operations | | $ | 151,282,611 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income | | $ | 14,806,822 | | | $ | 10,888,692 | |
Net realized gain | | | 45,482,074 | | | | 71,682,330 | |
Change in net unrealized appreciation (depreciation) | | | 90,993,715 | | | | (73,048,607 | ) |
Net increase in net assets resulting from operations | | | 151,282,611 | | | | 9,522,415 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (10,258,120 | ) | | | (11,312,225 | ) |
Series ll | | | (825,074 | ) | | | (326,851 | ) |
Total distributions from net investment income | | | (11,083,194 | ) | | | (11,639,076 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (189,370,062 | ) | | | (252,642,206 | ) |
Series ll | | | 49,735,579 | | | | 16,379,401 | |
Net increase (decrease) in net assets resulting from share transactions | | | (139,634,483 | ) | | | (236,262,805 | ) |
Net increase (decrease) in net assets | | | 564,934 | | | | (238,379,466 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,142,303,318 | | | | 1,380,682,784 | |
End of year (includes undistributed net investment income of $16,728,501 and $10,643,071, respectively) | | $ | 1,142,868,252 | | | $ | 1,142,303,318 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Core Equity Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. Core Equity 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 the 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 | | | 0.65% | |
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. (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 April 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 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $194,333.
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 year ended December 31, 2012, Invesco was paid $276,254 for accounting and fund administrative services and reimbursed $2,774,936 for services provided by insurance companies.
Invesco V.I. Core Equity 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $48,707,144 due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 1,057,186,593 | | | $ | 84,997,993 | | | $ | — | | | $ | 1,142,184,586 | |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $244,203 and securities sales of $1,719,492, which resulted in net realized gains of $337,458.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Core Equity Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 11,083,194 | | | $ | 11,639,076 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 17,183,033 | |
Net unrealized appreciation — investments | | | 176,558,181 | |
Net unrealized appreciation — other investments | | | 21,101 | |
Temporary book/tax differences | | | (454,532 | ) |
Capital loss carryforward | | | (98,532,582 | ) |
Shares of beneficial interest | | | 1,048,093,051 | |
Total net assets | | $ | 1,142,868,252 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $41,259,112 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2017 | | $ | 98,532,582 | | | $ | — | | | $ | 98,532,582 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $455,535,753 and $598,504,283, 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 | | $ | 194,268,309 | |
Aggregate unrealized (depreciation) of investment securities | | | (17,710,128 | ) |
Net unrealized appreciation of investment securities | | $ | 176,558,181 | |
Cost of investments for tax purposes is $965,626,405.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair funds settlements, on December 31, 2012, undistributed net investment income was increased by $2,361,802 and undistributed net realized gain (loss) was decreased by $2,361,802. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Core Equity Fund
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Year ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 633,084 | | | $ | 18,165,623 | | | | 1,178,162 | | | $ | 31,786,139 | |
Series II | | | 2,065,035 | | | | 59,301,631 | | | | 1,071,003 | | | | 28,747,134 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 343,081 | | | | 10,258,120 | | | | 459,287 | | | | 11,312,225 | |
Series II | | | 27,836 | | | | 825,074 | | | | 13,368 | | | | 326,851 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (7,514,023 | ) | | | (217,793,805 | ) | | | (10,589,116 | ) | | | (295,740,570 | ) |
Series II | | | (363,524 | ) | | | (10,391,126 | ) | | | (461,543 | ) | | | (12,694,584 | ) |
Net increase (decrease) in share activity | | | (4,808,511 | ) | | $ | (139,634,483 | ) | | | (8,328,839 | ) | | $ | (236,262,805 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 50% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses) on
securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 26.72 | | | $ | 0.37 | | | $ | 3.34 | | | $ | 3.71 | | | $ | (0.29 | ) | | $ | 30.14 | | | | 13.88 | % | | $ | 1,033,655 | | | | 0.88 | %(d) | | | 0.90 | %(d) | | | 1.29 | %(d) | | | 44 | % |
Year ended 12/31/11 | | | 27.03 | | | | 0.24 | | | | (0.28 | ) | | | (0.04 | ) | | | (0.27 | ) | | | 26.72 | | | | (0.06 | ) | | | 1,091,171 | | | | 0.87 | | | | 0.89 | | | | 0.86 | | | | 35 | |
Year ended 12/31/10 | | | 24.92 | | | | 0.22 | | | | 2.14 | | | | 2.36 | | | | (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 | ) | | | 24.92 | | | | 28.30 | | | | 1,456,822 | | | | 0.88 | | | | 0.90 | | | | 0.96 | | | | 21 | |
Year ended 12/31/08 | | | 29.11 | | | | 0.33 | | | | (9.11 | ) | | | (8.78 | ) | | | (0.58 | ) | | | 19.75 | | | | (30.14 | ) | | | 1,330,161 | | | | 0.89 | | | | 0.90 | | | | 1.26 | | | | 36 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 26.51 | | | | 0.30 | | | | 3.31 | | | | 3.61 | | | | (0.26 | ) | | | 29.86 | | | | 13.61 | | | | 109,213 | | | | 1.13 | (d) | | | 1.15 | (d) | | | 1.04 | (d) | | | 44 | |
Year ended 12/31/11 | | | 26.82 | | | | 0.17 | | | | (0.27 | ) | | | (0.10 | ) | | | (0.21 | ) | | | 26.51 | | | | (0.29 | ) | | | 51,132 | | | | 1.12 | | | | 1.14 | | | | 0.61 | | | | 35 | |
Year ended 12/31/10 | | | 24.75 | | | | 0.15 | | | | 2.12 | | | | 2.27 | | | | (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 | ) | | | 24.75 | | | | 27.98 | | | | 34,275 | | | | 1.13 | | | | 1.15 | | | | 0.71 | | | | 21 | |
Year ended 12/31/08 | | | 28.88 | | | | 0.26 | | | | (9.02 | ) | | | (8.76 | ) | | | (0.50 | ) | | | 19.62 | | | | (30.32 | ) | | | 23,885 | | | | 1.14 | | | | 1.15 | | | | 1.01 | | | | 36 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $1,085,797 and $82,759 for Series I and Series II shares, respectively. |
Invesco V.I. Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Core Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,079.00 | | | $ | 4.55 | | | $ | 1,020.76 | | | $ | 4.42 | | | | 0.87 | % |
Series II | | | 1,000.00 | | | | 1,077.60 | | | | 5.85 | | | | 1,019.51 | | | | 5.69 | | | | 1.12 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | |
Federal and State Income Tax |
Corporate Dividends Received Deduction* | | 100% |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Core Equity Fund
Invesco V.I. Diversified Dividend Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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.
VIDDI-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Diversified Dividend Fund delivered positive returns and outperformed its broad market and style-specific benchmarks, the S&P 500 Index and the Russell 1000 Value Index, respectively. The Fund’s absolute returns were largely driven by investments in financials and consumer staples stocks. All sectors of the Fund posted gains, but select holdings in the consumer discretionary and utilities sectors detracted from results versus the Russell 1000 Value Index for the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 18.72 | % |
| Series II Shares | | | | 18.37 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 1000 Value Index¡ (Style-Specific Index) | | | | 17.51 | |
| Russell 1000 Index¡ (Former Style-Specific Index)* | | | | 16.42 | |
| Lipper VUF Large-Cap Value Funds Index¨ (Peer Group Index) | | | | 15.92 | |
| Lipper VUF Large-Cap Core Funds Index¨ (Former Peer Group Index)* | | | | 15.23 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; ¡Invesco, Russell via FactSet Research Systems Inc.;¨Lipper Inc.
| * | During the reporting period, the Fund has elected to use the Russell 1000 Value Index as its style-specific index rather than the Russell 1000 Index, and to use the Lipper VUF Large-Cap Value Funds Index as its peer group index rather than the Lipper VUF Large-Cap Core Funds Index. This is because the Russell 1000 Value Index and the Lipper VUF Large-Cap Value Funds Index more closely reflect the performance of the types of securities in which the Fund invests. |
How we invest
Our total return approach emphasizes long-term capital appreciation, current income and capital preservation. The Fund may serve as a foundation within a well-diversified asset allocation strategy, complementing more aggressive and cyclical investments. We seek companies that we believe have normalized earnings power greater than that implied by their current market valuation and that return capital to shareholders via dividends and share repurchases. All stocks in the portfolio pay dividends, and the Fund pays an annual dividend to shareholders. We manage risk utilizing a valuation framework, careful stock selection and a rigorous buy-and-sell discipline.
We look for dividend-paying companies with strong profitability, solid balance sheets and capital allocation policies that support sustained or increasing dividends and share repurchases. We perform extensive fundamental research, incorporating both financial statement analysis and an assessment of the potential reward relative to the downside risk to determine a fair valuation over our two- to three-year investment horizon for each stock. We believe our process may provide a good combination of dividend income, price appreciation and capital preservation.
We maintain a rigorous sell discipline and consider selling or trimming a stock when it no longer meets our investment criteria, including when:
| n | | A stock reaches its fair valuation (target price). |
| n | | A company’s fundamental business prospects deteriorate. |
| n | | A more attractive investment opportunity presents itself. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in the equity markets. However, the ongoing European debt crisis intensified in April and May, dominating headlines and creating significant volatility in equity markets across the globe.
With pressure from overseas, US economic data began to decelerate and indicators for manufacturing, employment, consumer spending and consumer confidence weakened over the summer. Despite these headwinds, corporate earnings were resilient, and the financial markets delivered strong results for the year. All sectors in the S&P 500 Index posted gains for the year. The financials and consumer discretionary sectors were the leading performers, while the utilities and energy sectors lagged.
The Fund’s investments in the financials sector contributed the most to absolute Fund performance for the year. Many of the Fund’s bank holdings performed well, including SunTrust. The company’s operating results showed continued improvement in credit metrics and modest loan growth, particularly in residential mortgages and commercial and industrial accounts. Profitability metrics improved over the reporting period but lagged those of its peers.
Another top contributor to Fund performance was building-products company Masco. Masco’s stock appreciated as a variety of housing-related indicators strengthened; pending home sales improved, expected housing starts increased and the percentage of seriously
| | | | | |
Portfolio Composition | | | | | |
By sector | | | | | |
| Consumer Staples | | | | 23.1 | % |
| Financials | | | | 22.0 | |
| Utilities | | | | 11.8 | |
| Industrials | | | | 10.8 | |
| Consumer Discretionary | | | | 10.6 | |
| Health Care | | | | 7.3 | |
| Information Technology | | | | 4.6 | |
| Materials | | | | 2.1 | |
| Energy | | | | 1.8 | |
| Telecommunications Services | | | | 0.9 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 5.0 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
1. SunTrust Banks, Inc. | | | | 3.4 | % |
2. General Mills, Inc. | | | | 3.2 | |
3. Heineken N.V. (Netherlands) | | | | 3.0 | |
4. Kimberly-Clark Corp. | | | | 2.5 | |
5. Raytheon Co. | | | | 2.4 | |
6. Pentair Ltd. | | | | 2.2 | |
7. Procter & Gamble Co. (The) | | | | 2.2 | |
8. General Dynamics Corp. | | | | 2.2 | |
9. Zions Bancorp. | | | | 2.2 | |
10. Masco Corp. | | | | 2.1 | |
| | | | | |
| Top Five Industries* |
| | | | | |
1. Regional Banks | | | | 8.9 | % |
2. Packaged Foods & Meats | | | | 7.4 | |
3. Electric Utilities | | | | 7.3 | |
4. Household Products | | | | 4.7 | |
5. Aerospace & Defense | | | | 4.6 | |
| | | | | |
| Total Net Assets | | | | $344.0 million | |
| |
| Total Number of Holdings* | | | | 72 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Diversified Dividend Fund
delinquent loans declined. We originally invested in Masco in the late stages of the last economic downturn when the housing market’s collapse severely impacted the company’s sales and stock price. Our long-term view was that the company could improve returns on capital via restructuring initiatives to reduce costs, and at the same time, improve organic growth with market share gains from new product introductions. The company’s restructuring has progressed, and key businesses such as paints and plumbing have rebounded while cabinets and installation continue to lag.
While most of our consumer discretionary holdings posted gains, some investments in this sector detracted from results relative to the Russell 1000 Value Index. One such investment was International Game Technology. The gaming equipment manufacturer has under-earned in recent years due to the lackluster slot machine replacement cycle, which was exacerbated by the economic downturn and casino operators’ constrained balance sheets. Although the slot machine replacement cycle has recently improved, competitive pressures remain heightened as evidenced by pricing pressure and lower game yields. We eliminated the holding from the Fund before the close of the reporting period.
Exelon was among the largest detractors from Fund performance during the year. Faced with continued weak power and commodity markets, Exelon cut and deferred approximately $2.0 billion of long-term capital investment projects in order to preserve the balance sheet.1 Management discussed additional balance sheet actions that may be necessary if commodity prices remain below long-term trends.
Our investment process focuses on investing in companies that we believe have a higher normalized earnings power than what is reflected in current valuations. Our fundamental research gives us the conviction to go against the consensus viewpoint when supported by our analysis. At this point in the earnings recovery cycle, our investment team is particularly focused on defensible businesses with operating profit margin sustainability and prudent capital allocation. Our positioning reflects this as the Fund, at the close of the reporting period, was overweight in the consumer staples sector while it was underweight some cyclical sectors such as energy. We see attractive total return opportunities in consumer staples, which is the largest sector weighting for the Fund, and where
management teams are returning cash to shareholders via dividends and stock buybacks. We are also more confident in the durability of margins due to productivity measures and product innovations in recent years. In contrast, we are underweight more cyclical sectors, such as energy, where we believe earnings, operating leverage and margins are potentially at risk.
Overall, we believe companies have done an admirable job of managing their businesses through a myriad of economic and business challenges. This has been demonstrated by the relatively strong recovery in corporate profits since the lows of the most recent recession when compared to the modest recovery in gross domestic product growth. Longer-term, we believe global debt-deleveraging remains the most pressing issue affecting economic growth. While consumers and corporations have made significant progress in improving their balance sheets, globally, governments have been much slower to address this issue.
We encourage investors to recognize the progress the private sector has made with regard to profitability since the economic downturn. Although risks remain, we believe there are pockets of value opportunities to pursue. We remain focused on a long-term total return strategy that emphasizes capital appreciation, current income and capital preservation over a full market cycle. This approach has served our investors well over the years, and we believe our Fund may serve as a cornerstone in your portfolio.
We are grateful for the opportunity to help investors achieve their financial goals and we thank you for your investment in Invesco V.I. Diversified Dividend Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Meggan Walsh Chartered Financial Analyst, portfolio manager, is lead manager of Invesco V.I. Diversified Dividend |
| Fund. She joined Invesco in 1991. Ms. Walsh earned a BS in finance from the University of Maryland and an MBA from Loyola University Maryland |
| | |
 | | Jonathan Harrington Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Diversified Dividend Fund. He |
| joined Invesco in 2001. Mr. Harrington earned a BA in history and philosophy from Dartmouth College and an MBA from Kellogg School of Management, Northwestern University |
Invesco V.I. Diversified Dividend Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
During the reporting period, the Fund has elected to use the Russell 1000 Value Index as its style-specific index rather than the Russell 1000 Index, and to use the Lipper VUF Large-Cap Value Funds
Index as its peer group index rather than the Lipper VUF Large-Cap Core Funds Index. This is because the Russell 1000 Value Index and the Lipper VUF Large-Cap Value Funds Index more closely reflect the performance of the types of securities in which the Fund invests.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (3/1/90) | | | | 7.13 | % |
| 10 Years | | | | 5.84 | |
| 5 Years | | | | 0.79 | |
| 1 Year | | | | 18.72 | |
| |
| Series II Shares | | | | | |
| Inception (6/5/00) | | | | 2.89 | % |
| 10 Years | | | | 5.56 | |
| 5 Years | | | | 0.53 | |
1 Year | | | | 18.37 | |
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 (renamed Invesco V.I. Diversified Dividend Fund
on April 30, 2012). 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 0.67% and 0.92%, 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 Dividend 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. Diversified Dividend Fund
Invesco V.I. Diversified Dividend Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Call risk. If interest rates fall, it is possible that issuers of debt securities with high interest rates will prepay or call their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Currency/exchange rate risk. The dollar value of the Fund’s foreign investments will be affected by changes in the exchange rates between the dollar and the currencies in which those investments are traded.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic
securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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 Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co.
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 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Diversified Dividend Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–94.99% | |
| Aerospace & Defense–4.56% | |
General Dynamics Corp. | | | 109,068 | | | $ | 7,555,140 | |
Raytheon Co. | | | 141,043 | | | | 8,118,435 | |
| | | | | | | | 15,673,575 | |
|
| Air Freight & Logistics–0.99% | |
United Parcel Service, Inc.–Class B | | | 46,207 | | | | 3,406,842 | |
|
| Apparel Retail–0.59% | |
TJX Cos., Inc. (The) | | | 48,027 | | | | 2,038,746 | |
|
| Apparel, Accessories & Luxury Goods–0.48% | |
Columbia Sportswear Co. | | | 30,673 | | | | 1,636,711 | |
|
| Asset Management & Custody Banks–2.46% | |
Federated Investors, Inc.–Class B | | | 256,252 | | | | 5,183,978 | |
Legg Mason, Inc. | | | 127,482 | | | | 3,278,837 | |
| | | | | | | | 8,462,815 | |
|
| Auto Parts & Equipment–1.62% | |
Johnson Controls, Inc. | | | 182,039 | | | | 5,588,597 | |
|
| Brewers–3.01% | |
Heineken N.V. (Netherlands) | | | 155,118 | | | | 10,342,506 | |
|
| Building Products–2.07% | |
Masco Corp. | | | 427,327 | | | | 7,119,268 | |
|
| Consumer Finance–0.75% | |
Capital One Financial Corp. | | | 44,476 | | | | 2,576,495 | |
|
| Data Processing & Outsourced Services–1.74% | |
Automatic Data Processing, Inc. | | | 105,203 | | | | 5,997,623 | |
|
| Distillers & Vintners–0.33% | |
Treasury Wine Estates (Australia) | | | 227,094 | | | | 1,119,607 | |
|
| Drug Retail–1.88% | |
Walgreen Co. | | | 175,052 | | | | 6,478,675 | |
|
| Electric Utilities–7.28% | |
American Electric Power Co., Inc. | | | 160,642 | | | | 6,856,201 | |
Duke Energy Corp. | | | 65,193 | | | | 4,159,313 | |
Entergy Corp. | | | 56,063 | | | | 3,574,016 | |
Exelon Corp. | | | 190,607 | | | | 5,668,652 | |
Pepco Holdings, Inc. | | | 158,138 | | | | 3,101,086 | |
PPL Corp. | | | 59,504 | | | | 1,703,600 | |
| | | | | | | | 25,062,868 | |
|
| Food Distributors–2.04% | |
Sysco Corp. | | | 221,242 | | | | 7,004,522 | |
|
| Gas Utilities–1.28% | |
AGL Resources Inc. | | | 110,059 | | | | 4,399,058 | |
|
| General Merchandise Stores–2.04% | |
Target Corp. | | | 118,776 | | | | 7,027,976 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Health Care Equipment–2.92% | |
Medtronic, Inc. | | | 92,767 | | | $ | 3,805,302 | |
Stryker Corp. | | | 113,983 | | | | 6,248,548 | |
| | | | | | | | 10,053,850 | |
|
| Hotels, Resorts & Cruise Lines–1.92% | |
Accor S.A. (France) | | | 64,045 | | | | 2,296,371 | |
Marriott International Inc.–Class A | | | 115,561 | | | | 4,306,958 | |
| | | | | | | | 6,603,329 | |
|
| Household Products–4.74% | |
Kimberly-Clark Corp. | | | 103,164 | | | | 8,710,137 | |
Procter & Gamble Co. (The) | | | 111,962 | | | | 7,601,100 | |
| | | | | | | | 16,311,237 | |
|
| Housewares & Specialties–1.30% | |
Newell Rubbermaid Inc. | | | 200,042 | | | | 4,454,935 | |
|
| Industrial Machinery–2.22% | |
Pentair Ltd. | | | 155,067 | | | | 7,621,543 | |
|
| Integrated Oil & Gas–1.82% | |
Exxon Mobil Corp. | | | 17,818 | | | | 1,542,148 | |
Total S.A. (France) | | | 91,041 | | | | 4,710,092 | |
| | | | | | | | 6,252,240 | |
|
| Integrated Telecommunication Services–0.88% | |
AT&T Inc. | | | 90,005 | | | | 3,034,069 | |
|
| Investment Banking & Brokerage–1.86% | |
Charles Schwab Corp. (The) | | | 446,391 | | | | 6,410,175 | |
|
| Life & Health Insurance–2.97% | |
Lincoln National Corp. | | | 119,482 | | | | 3,094,584 | |
Prudential Financial, Inc. | | | 48,856 | | | | 2,605,491 | |
StanCorp Financial Group, Inc. | | | 123,532 | | | | 4,529,918 | |
| | | | | | | | 10,229,993 | |
|
| Motorcycle Manufacturers–0.69% | |
Harley-Davidson, Inc. | | | 48,516 | | | | 2,369,521 | |
|
| Movies & Entertainment–1.35% | |
Time Warner Inc. | | | 96,752 | | | | 4,627,648 | |
|
| Multi-Utilities–3.21% | |
Dominion Resources, Inc. | | | 66,031 | | | | 3,420,406 | |
PG&E Corp. | | | 54,832 | | | | 2,203,150 | |
Sempra Energy | | | 76,217 | | | | 5,406,834 | |
| | | | | | | | 11,030,390 | |
|
| Office Services & Supplies–1.00% | |
Avery Dennison Corp. | | | 98,195 | | | | 3,428,969 | |
|
| Packaged Foods & Meats–7.36% | |
Campbell Soup Co. | | | 195,291 | | | | 6,813,703 | |
General Mills, Inc. | | | 272,236 | | | | 11,001,057 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Packaged Foods & Meats–(continued) | |
Kraft Foods Group, Inc. | | | 53,679 | | | $ | 2,440,784 | |
Mead Johnson Nutrition Co. | | | 21,876 | | | | 1,441,410 | |
Mondelez International Inc.–Class A | | | 142,883 | | | | 3,639,230 | |
| | | | | | | | 25,336,184 | |
|
| Paper Packaging–0.58% | |
Sonoco Products Co. | | | 66,698 | | | | 1,982,932 | |
|
| Paper Products–1.55% | |
International Paper Co. | | | 134,143 | | | | 5,344,257 | |
|
| Personal Products–1.04% | |
L’Oreal S.A. (France) | | | 25,714 | | | | 3,590,494 | |
|
| Pharmaceuticals–4.38% | |
Bristol-Myers Squibb Co. | | | 51,280 | | | | 1,671,215 | |
Eli Lilly & Co. | | | 119,860 | | | | 5,911,495 | |
Johnson & Johnson | | | 90,814 | | | | 6,366,062 | |
Novartis AG (Switzerland) | | | 17,761 | | | | 1,123,432 | |
| | | | | | | | 15,072,204 | |
|
| Property & Casualty Insurance–1.36% | |
Travelers Cos., Inc. (The) | | | 65,132 | | | | 4,677,780 | |
|
| Regional Banks–8.90% | |
Cullen/Frost Bankers, Inc. | | | 31,806 | | | | 1,726,112 | |
Fifth Third Bancorp | | | 350,311 | | | | 5,321,224 | |
M&T Bank Corp. | | | 45,307 | | | | 4,461,380 | |
SunTrust Banks, Inc. | | | 413,481 | | | | 11,722,186 | |
Zions Bancorp. | | | 345,750 | | | | 7,399,050 | |
| | | | | | | | 30,629,952 | |
|
| Restaurants–0.62% | |
Brinker International, Inc. | | | 68,855 | | | | 2,133,816 | |
|
| Semiconductors–1.92% | |
Linear Technology Corp. | | | 43,130 | | | | 1,479,359 | |
Texas Instruments Inc. | | | 166,017 | | | | 5,136,566 | |
| | | | | | | | 6,615,925 | |
| | | | | | | | |
| | | Shares | | | Value | |
|
| Soft Drinks–0.95% | |
Coca-Cola Co. (The) | | | 90,484 | | | $ | 3,280,045 | |
|
| Specialized REIT’s–1.97% | |
Weyerhaeuser Co. | | | 243,300 | | | | 6,768,606 | |
|
| Systems Software–0.92% | |
Microsoft Corp. | | | 117,901 | | | | 3,151,494 | |
|
| Thrifts & Mortgage Finance–1.70% | |
Capitol Federal Financial Inc. | | | 2,685 | | | | 31,388 | |
Hudson City Bancorp, Inc. | | | 717,040 | | | | 5,829,535 | |
| | | | | | | | 5,860,923 | |
|
| Tobacco–1.74% | |
Altria Group, Inc. | | | 136,068 | | | | 4,275,257 | |
Philip Morris International Inc. | | | 20,577 | | | | 1,721,060 | |
| | | | | | | | 5,996,317 | |
Total Common Stocks & Other Equity Interests
(Cost $290,412,166) | | | | 326,804,712 | |
| | |
Money Market Funds–4.89% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(b) | | | 8,409,764 | | | | 8,409,764 | |
Premier Portfolio–Institutional Class(b) | | | 8,409,764 | | | | 8,409,764 | |
Total Money Market Funds
(Cost $16,819,528) | | | | 16,819,528 | |
TOTAL INVESTMENTS–99.88%
(Cost $307,231,694) | | | | 343,624,240 | |
OTHER ASSETS LESS LIABILITIES–0.12% | | | | 423,574 | |
NET ASSETS–100.00% | | | $ | 344,047,814 | |
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) | 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. Diversified Dividend Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $290,412,166) | | $ | 326,804,712 | |
Investments in affiliated money market funds, at value and cost | | | 16,819,528 | |
Total investments, at value (Cost $307,231,694) | | | 343,624,240 | |
Receivable for: | | | | |
Investments sold | | | 646,267 | |
Fund shares sold | | | 49,565 | |
Dividends | | | 506,262 | |
Investment for trustee deferred compensation and retirement plans | | | 32,887 | |
Other assets | | | 249 | |
Total assets | | | 344,859,470 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 79,996 | |
Fund shares reacquired | | | 251,867 | |
Foreign currency contracts outstanding | | | 173,753 | |
Accrued fees to affiliates | | | 181,883 | |
Accrued other operating expenses | | | 47,752 | |
Trustee deferred compensation and retirement plans | | | 76,405 | |
Total liabilities | | | 811,656 | |
Net assets applicable to shares outstanding | | $ | 344,047,814 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 387,981,829 | |
Undistributed net investment income | | | 8,646,796 | |
Undistributed net realized gain (loss) | | | (88,799,167 | ) |
Unrealized appreciation | | | 36,218,356 | |
| | | $ | 344,047,814 | |
| |
Net Assets: | | | | |
Series I | | $ | 271,407,160 | |
Series II | | $ | 72,640,654 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 16,613,425 | |
Series II | | | 4,460,637 | |
Series I: | | | | |
Net asset value per share | | $ | 16.34 | |
Series II: | | | | |
Net asset value per share | | $ | 16.28 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $87,421) | | $ | 9,908,604 | |
Dividends from affiliated money market funds | | | 26,319 | |
Total investment income | | | 9,934,923 | |
| |
Expenses: | | | | |
Advisory fees | | | 1,720,406 | |
Administrative services fees | | | 592,000 | |
Custodian fees | | | 7,519 | |
Distribution fees — Series II | | | 175,503 | |
Transfer agent fees | | | 21,410 | |
Trustees’ and officers’ fees and benefits | | | 34,326 | |
Other | | | (80,579 | ) |
Total expenses | | | 2,470,585 | |
Less: Fees waived | | | (26,686 | ) |
Net expenses | | | 2,443,899 | |
Net investment income | | | 7,491,024 | |
| |
Realized and unrealized gain from: | | | | |
Net realized gain from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $5,372) | | | 15,502,829 | |
Foreign currencies | | | 134,344 | |
Foreign currency contracts | | | 267,509 | |
| | | | 15,904,682 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 33,929,096 | |
Foreign currencies | | | (72,893 | ) |
Foreign currency contracts | | | (173,753 | ) |
| | | | 33,682,450 | |
Net realized and unrealized gain | | | 49,587,132 | |
Net increase (decrease) in net assets resulting from operations | | $ | 57,078,156 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 7,491,024 | | | $ | 6,566,239 | |
Net realized gain | | | 15,904,682 | | | | 23,687,705 | |
Change in net unrealized appreciation (depreciation) | | | 33,682,450 | | | | (41,148,119 | ) |
Net increase (decrease) in net assets resulting from operations | | | 57,078,156 | | | | (10,894,175 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (5,387,849 | ) | | | (2,886,405 | ) |
Series ll | | | (1,277,732 | ) | | | (680,347 | ) |
Total distributions from net investment income | | | (6,665,581 | ) | | | (3,566,752 | ) |
| | |
Share transactions–net: | | | | | | | | |
Series l | | | (22,261,163 | ) | | | 85,833,062 | |
Series ll | | | (6,378,324 | ) | | | 19,990,978 | |
Net increase (decrease) in net assets resulting from share transactions | | | (28,639,487 | ) | | | 105,824,040 | |
Net increase in net assets | | | 21,773,088 | | | | 91,363,113 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 322,274,726 | | | | 230,911,613 | |
End of year (includes undistributed net investment income of $8,646,796 and $6,604,125, respectively) | | $ | 344,047,814 | | | $ | 322,274,726 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Dividend Fund, formerly 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-five 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.
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Diversified Dividend Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. Diversified Dividend 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 the 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 | .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. (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 July 1, 2012, the Adviser has contractually agreed, through April 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 0.77% and Series II shares to 1.02% of average daily net assets. Prior to July 1, 2012, 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) to 0.67% and 0.92% of average daily net assets 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Adviser did not waive and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $26,686.
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
Invesco V.I. Diversified Dividend Fund
the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $84,586 for accounting and fund administrative services and reimbursed $507,414 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 320,441,738 | | | $ | 23,182,502 | | | $ | — | | | $ | 343,624,240 | |
Foreign Currency Contracts* | | | — | | | | (173,753 | ) | | | — | | | | (173,753 | ) |
Total Investments | | $ | 320,441,738 | | | $ | 23,008,749 | | | $ | — | | | $ | 343,450,487 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign currency contracts(a) | | $ | — | | | $ | (173,753 | ) |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Foreign currency contracts outstanding. |
Invesco V.I. Diversified Dividend Fund
Effect of Derivative Instruments for the year ended December 31, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
| | | | |
| | | Location of Gain (Loss) on
Statement of Operations | |
| | | Foreign Currency
Contracts* | |
Realized Gain | | | | |
Currency risk | | $ | 267,509 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Currency risk | | $ | (173,753 | ) |
Total | | $ | 93,756 | |
| * | The average notional value of foreign currency contracts outstanding during the period was $6,433,207. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | Counterparty | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | | Deliver | | | Receive | | | |
01/15/2013 | | State Street Bank | | | EUR | | | | 6,815,305 | | | | USD | | | | 8,819,754 | | | $ | 8,993,507 | | | $ | (173,753 | ) |
Currency Abbreviations:
| | |
| EUR | | – Euro |
| USD | | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2012, the Fund engaged in securities purchases of $507,670 and securities sales of $19,770, which resulted in net realized gains of $5,372.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Diversified Dividend Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 6,665,581 | | | $ | 3,566,752 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 8,719,256 | |
Net unrealized appreciation — investments | | | 35,413,971 | |
Net unrealized appreciation (depreciation) — other investments | | | (437 | ) |
Temporary book/tax differences | | | (72,460 | ) |
Capital loss carryforward | | | (87,994,345 | ) |
Shares of beneficial interest | | | 387,981,829 | |
Total net assets | | $ | 344,047,814 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $14,474,166 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 36,133,758 | | | $ | — | | | $ | 36,133,758 | |
December 31, 2017 | | | 51,860,587 | | | | — | | | | 51,860,587 | |
| | | $ | 87,994,345 | | | $ | — | | | $ | 87,994,345 | |
| * | 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 are 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 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $34,730,703 and $61,148,387, 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 | | $ | 45,138,303 | |
Aggregate unrealized (depreciation) of investment securities | | | (9,724,332 | ) |
Net unrealized appreciation of investment securities | | $ | 35,413,971 | |
Cost of investments for tax purposes is $308,210,269.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and fair funds settlements, on December 31, 2012, undistributed net investment income was increased by $1,217,228 and undistributed net realized gain (loss) was decreased by $1,217,228. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Diversified Dividend Fund
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,577,471 | | | $ | 24,311,856 | | | | 600,069 | | | $ | 8,253,518 | |
Series II | | | 610,747 | | | | 9,439,806 | | | | 243,810 | | | | 3,335,950 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 336,320 | | | | 5,387,849 | | | | 195,688 | | | | 2,886,405 | |
Series II | | | 79,958 | | | | 1,277,732 | | | | 46,157 | | | | 680,347 | |
| | | | |
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 | | | (3,376,184 | ) | | | (51,960,868 | ) | | | (3,485,401 | ) | | | (49,401,287 | ) |
Series II | | | (1,116,302 | ) | | | (17,095,862 | ) | | | (1,246,445 | ) | | | (17,780,324 | ) |
Net increase (decrease) in share activity | | | (1,887,990 | ) | | $ | (28,639,487 | ) | | | 6,733,210 | | | $ | 105,824,040 | |
| (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 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 Fund 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 of the net assets of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund (the “Target Funds”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Funds 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 the Target Funds were exchanged for Series I and Series II shares of the Fund based on the relative net asset value of each Target 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 and $393,319,320 immediately after the acquisition. |
| The | pro forma results of operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 6,976,767 | |
Net realized/unrealized gains (losses) | | | (6,722,411 | ) |
Change in net assets resulting from operations | | $ | 254,356 | |
| The | combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts. |
Invesco V.I. Diversified Dividend Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or
expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or
expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 14.04 | | | $ | 0.35 | | | $ | 2.27 | | | $ | 2.62 | | | $ | (0.32 | ) | | $ | 16.34 | | | | 18.72 | % | | $ | 271,407 | | | | 0.67 | %(d) | | | 0.68 | %(d) | | | 2.29 | %(d) | | | 11 | % |
Year ended 12/31/11 | | | 14.24 | | | | 0.31 | | | | (0.27 | ) | | | 0.04 | | | | (0.24 | ) | | | 14.04 | | | | 0.20 | | | | 253,850 | | | | 0.66 | | | | 0.67 | | | | 2.24 | | | | 38 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 14.00 | | | | 0.31 | | | | 2.26 | | | | 2.57 | | | | (0.29 | ) | | | 16.28 | | | | 18.37 | | | | 72,641 | | | | 0.92 | (d) | | | 0.93 | (d) | | | 2.04 | (d) | | | 11 | |
Year ended 12/31/11 | | | 14.20 | | | | 0.28 | | | | (0.28 | ) | | | 0.00 | | | | (0.20 | ) | | | 14.00 | | | | (0.06 | ) | | | 68,424 | | | | 0.91 | | | | 0.92 | | | | 1.99 | | | | 38 | |
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 | |
| (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. Does not include sales charges 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. For the period ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $134,975,378 and sold of $57,441,776 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Financial Services Fund into the Fund. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $265,015 and $70,201 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Dividend Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Diversified Dividend Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Diversified Dividend Fund, (formerly known as Invesco V.I. Dividend Growth Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 26, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco V.I. Diversified Dividend Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,087.40 | | | $ | 3.78 | | | $ | 1,021.52 | | | $ | 3.66 | | | | 0.72 | % |
Series II | | | 1,000.00 | | | | 1,086.00 | | | | 5.09 | | | | 1,020.26 | | | | 4.93 | | | | 0.97 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Diversified Dividend Fund
Invesco V.I. Diversified Income Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Diversified Income Fund outperformed its style-specific index, the Barclays U.S. Credit Index. Security selection was the primary contributor to the Fund’s outperformance relative to its style-specific index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 10.71 | % |
| Series II Shares | | | | 10.38 | |
| Barclays U.S. Aggregate Index ‚ (Broad Market Index) | | | | 4.21 | |
| Barclays U.S. Credit Indexn (Style-Specific Index) | | | | 9.37 | |
| Lipper VUF Corporate Debt BBB-Rated Funds Indexn (Peer Group Index) | | | | 7.05 | |
Source(s): ‚Invesco, Barclays via FactSet Research Systems Inc.; nLipper Inc.
How we invest
We invest primarily in corporate bonds, US government securities, including US government agency mortgage-backed securities (MBS), and securities issued by foreign governments, their agencies or instrumentalities. Up to 50% of the Fund’s total assets may be invested in foreign securities, including up to 15% in securities of issuers located in developing markets, and up to 35% may be invested in lower quality, high yield debt securities (junk bonds). The Fund can also invest in derivative instruments, specifically credit default swaps, credit default swap indices, interest rate futures and forward foreign currency contracts.
Our security selection is supported by a team of independent specialists. Team members conduct top-down macroeconomic as well as bottom-up analysis on individual securities. Their recommendations are communicated to portfolio managers through proprietary technology that allows all investment professionals to communicate in a timely manner.
Portfolio construction begins with a well-defined Fund design that establishes
the target investment vehicles for generating the desired “alpha” (the extra return above a specific benchmark) as well as the risk parameters for the Fund. Investment vehicles are evaluated for liquidity and relative value.
Our sell decisions are based on:
| n | | A conscious decision to alter the Fund’s macro risk exposure (such as duration, yield curve positioning, sector exposure). |
| n | | The need to limit or reduce exposure to a particular sector or issuer. |
| n | | Degradation of an issuer’s credit quality. |
| n | | Realignment of a valuation target. |
| n | | Presentation of a better relative value opportunity. |
| n | | The Fund’s general liquidity needs. |
Market conditions and your Fund
During 2012, most major segments of the US bond market produced positive performance, buoyed by generally slow economic growth, sustained low interest rates and investor demand for yield. The US showed positive, if lethargic, economic and employment progress while
signs of recession across Europe and Japan, and slowing growth in China, weighed on global demand for US goods and services. With inflation expectations held in check by modest economic and employment growth prospects, the US Federal Reserve, along with other major central banks around the world, continued their accommodative monetary policies and bond buying programs aimed at spurring economic activity by keeping interest rates low.
Throughout the year, US Treasuries experienced mild rallies and sell-offs as uncertainties with the slowing global economies, the US presidential election, the pending “fiscal cliff” and geopolitical risks were reflected in market prices. Treasury yields ultimately remained very low and little changed across the maturity spectrum from start to finish.
The low yields provided by US Treasuries, and increased investor confidence that rates would remain low for an extended period, increased demand in the segments of the bond market that provided relative value and higher yields than comparable-maturity US Treasuries in return for the additional risks they carry. In lieu of significant rate declines, US bond market returns for 2012 were supported by demand for riskier assets . such as corporate bonds and MBS.
With this economic and market environment as a backdrop, the Fund generated positive returns for the reporting period and outperformed its style-specific benchmark. Outperformance from asset allocation and sector selection decisions was broad based but was mainly attributed to our consistent overweight allocation to investment-grade financials and a sustained underweight position to the government-related segments of the style-specific benchmark credit index, the Barclays U.S. Credit Index. Off-bench-
| | | | | |
| Portfolio Composition | | |
| By security type | | | | | |
| | | | | |
| US Dollar Denominated Bonds and Notes | | | | 85.8 | % |
| US Treasury Securities | | | | 9.3 | |
| Asset-Backed Securities | | | | 1.8 | |
| Preferred Stocks | | | | 1.3 | |
| Municipal Obligations | | | | 0.8 | |
| US Government Sponsored | | | | | |
| Mortgage-Backed Securities | | | | 0.8 | |
Non-US Dollar Denominated Bonds and Notes | | | | 0.2 | |
| Common Stocks and Other Equity Interests | | | | 0.1 | |
| Other Assets Less Liabilities | | | | -0.1 | |
| | | | | |
| Top 10 Fixed Income Issuers* |
| | | | | |
| | | | | |
| 1. US Treasury | | | | 9.1 | % |
| 2. Citigroup Inc. | | | | 2.5 | |
| 3. Morgan Stanley | | | | 2.1 | |
| 4. Bank of America Corp. | | | | 2.1 | |
| 5. COX Communications Inc. | | | | 1.5 | |
| 6. Hutchison Whampoa International Ltd. | | | | 1.3 | |
| 7. EPR Properties | | | | 1.2 | |
| 8. JM Smucker Co. (The) | | | | 1.2 | |
| 9. Goldman Sachs Group, Inc. (The) | | | | 1.2 | |
| 10. Prudential Financial, Inc. | | | | 1.2 | |
| | | | | |
| Total Net Assets | | | | $23.0 million | |
| |
| Total Number of Holdings* | | | | 562 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excludes US Treasury Bills
Invesco V.I. Diversified Income Fund
mark allocations to high yield corporate bonds and emerging market debt were maintained within ranges of 10% to 15% and 5% to 10% of market value, respectively. These allocations were also notable contributors to the positive relative performance of the Fund as each of those markets outperformed US investment-grade corporate bonds during the year.
Security selection was another valuable element of our active management throughout the year as it contributed positively to relative return within each of the major credit market sectors represented in the Fund. This was most remarkable within the financials sector where a diverse selection of banks, insurers and other financial companies were managed to meaningfully outperform the style-specific benchmark. Also within the context of security selection, our focus on the lower end of the investment-grade quality spectrum was a beneficial strategy as lower quality credit outperformed higher quality credit in 2012.
Throughout the year, we used several strategies to help modulate the overall credit risk of the Fund and manage liquidity needs. Our allocations to US Treasuries and cash as well as our limited use of credit default swaps (notional value of less than 5% of the Fund) as hedges against credit market volatility were small detractors from relative return for the year. Although the credit default swaps helped dampen portfolio volatility in May when credit markets were most unsettled, they dragged on relative returns during the second half of the year as credit markets recovered.
The Fund uses active duration and yield curve positioning for risk management and for generating alpha versus its style-specific benchmark. Duration measures a portfolio’s price sensitivity to interest rate changes, with a shorter duration portfolio tending to be less sensitive to these changes. The Fund’s duration and yield curve positioning were maintained close to the style-specific benchmark on average, but the timing of changes and degree of variance from the benchmark created a negligible positive contribution to relative returns as rates fluctuated throughout the reporting period. Buying and selling US Treasury futures contracts were important tools we used for the management of interest rate risk and to maintain our targeted portfolio duration.
Thank you for your investment in Invesco V.I. Diversified Income Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Chuck Burge Portfolio manager, is manager of Invesco V.I. Diversified Income Fund. He joined Invesco in 2002. Mr. Burge |
| earned a BS in economics from Texas A&M University and an MBA in finance and accounting from Rice University. |
| | |
 | | John Craddock Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Diversified Income Fund. He joined |
| Invesco in 1999. Mr. Craddock earned a BS in mechanical engineering from Clemson University and an MBA with a concentration in finance from Georgia Institute of Technology’s Dupree School of Management. |
| | |
 | | Darren Hughes Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Diversified Income Fund. He joined |
| Invesco in 1992. Mr. Hughes earned a BBA in finance and economics from Baylor University. |
| | |
 | | Scott Roberts Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Diversified Income Fund. He joined |
| Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston. |
Invesco V.I. Diversified Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/5/93) | | | | 4.55 | % |
| 10 Years | | | | 4.35 | |
| 5 Years | | | | 4.07 | |
| 1 Year | | | | 10.71 | |
| |
| Series II Shares | | | | | |
| Inception (3/14/02) | | | | 4.15 | % |
| 10 Years | | | | 4.09 | |
| 5 Years | | | | 3.80 | |
| 1 Year | | | | 10.38 | |
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 1.46% and 1.71%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares
of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
| 1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2013. See current prospectus for more information. |
Invesco V.I. Diversified Income Fund
Invesco V.I. Diversified Income Fund’s investment objective is total return, comprised of current income and capital appreciation.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
About indexes used in this report The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Dollar Denominated Bonds and Notes–85.80% | |
| Advertising–0.13% | |
Lamar Media Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 05/01/23(b) | | $ | 2,000 | | | $ | 2,071 | |
National CineMedia LLC, Sr. Sec. Global Notes, 6.00%, 04/15/22 | | | 1,000 | | | | 1,065 | |
Omnicom Group Inc., Sr. Unsec. Gtd. Global Notes, 3.63%, 05/01/22 | | | 25,000 | | | | 26,101 | |
| | | | | | | | 29,237 | |
|
| Aerospace & Defense–0.47% | |
BE Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | | | 3,000 | | | | 3,195 | |
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | | | 15,000 | | | | 17,100 | |
General Dynamics Corp., Sr. Unsec. Gtd. Global Notes, 2.25%, 11/15/22 | | | 60,000 | | | | 59,069 | |
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 03/15/18 | | | 5,000 | | | | 5,462 | |
7.13%, 03/15/21 | | | 10,000 | | | | 10,925 | |
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | | | 10,000 | | | | 10,750 | |
TransDigm Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 10/15/20(b) | | | 2,000 | | | | 2,090 | |
| | | | | | | | 108,591 | |
|
| Agricultural Products–0.36% | |
Ingredion Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 1.80%, 09/25/17 | | | 45,000 | | | | 44,878 | |
Sr. Unsec. Notes, 6.63%, 04/15/37 | | | 30,000 | | | | 37,155 | |
| | | | | | | | 82,033 | |
|
| Air Freight & Logistics–0.13% | |
United Parcel Service Inc., Sr. Unsec. Global Notes, 3.63%, 10/01/42 | | | 30,000 | | | | 29,415 | |
|
| Airlines–2.33% | |
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16
(Acquired 03/15/11-10/14/11;
Cost $9,181)(b)(c) | | | 10,000 | | | | 10,800 | |
American Airlines Pass Through Trust, | | | | | | | | |
Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | | | 38,603 | | | | 40,364 | |
Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | | | 76,053 | | | | 79,286 | |
Continental Airlines Pass Through Trust, | | | | | | | | |
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | | | 2,936 | | | | 3,033 | |
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | | | 102,893 | | | | 119,484 | |
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | | | 10,877 | | | | 12,052 | |
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.00%, 01/12/19 | | | 13,318 | | | | 13,717 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Airlines–(continued) | |
Series 2012-3, Class C, Sr. Sec. Pass
Through Ctfs., 6.13%, 04/29/18 | | $ | 3,000 | | | $ | 3,030 | |
Delta Air Lines Pass Through Trust, | | | | | | | | |
Series 2009-1, Class A, Sr. Sec. Pass Through Ctfs., 7.75%, 12/17/19 | | | 34,513 | | | | 39,884 | |
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | | | 5,000 | | | | 5,244 | |
Series 2010-2, Class A, Sec. Pass Through Ctfs., 4.95%, 05/23/19 | | | 52,160 | | | | 56,985 | |
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | | | 5,000 | | | | 5,225 | |
Series 2011-1, Class A, Sec. Pass Through Ctfs., 5.30%, 04/15/19 | | | 12,979 | | | | 14,325 | |
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 4.75%, 05/07/20 | | | 60,000 | | | | 64,537 | |
UAL Pass Through Trust, | | | | | | | | |
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | | | 31,788 | | | | 36,795 | |
Series 2009-2A, Sr. Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | | | 23,920 | | | | 27,553 | |
US Airways Pass Through Trust, | | | | | | | | |
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | | | 1,000 | | | | 1,092 | |
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | | | 1,000 | | | | 1,071 | |
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | | | 1,000 | | | | 1,040 | |
| | | | | | | | 535,517 | |
|
| Alternative Carriers–0.19% | |
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | | | 10,000 | | | | 11,025 | |
Level 3 Communications Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 11.88%, 02/01/19 | | | 12,000 | | | | 13,860 | |
Sr. Unsec. Notes, 8.88%, 06/01/19(b) | | | 4,000 | | | | 4,280 | |
Level 3 Financing Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 8.63%, 07/15/20 | | | 2,000 | | | | 2,235 | |
9.38%, 04/01/19 | | | 10,000 | | | | 11,250 | |
Sr. Unsec. Gtd. Notes, 7.00%, 06/01/20(b) | | | 2,000 | | | | 2,105 | |
| | | | | | | | 44,755 | |
|
| Aluminum–0.04% | |
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | | | 10,000 | | | | 10,081 | |
|
| Apparel Retail–0.21% | |
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 | | | 12,000 | | | | 13,747 | |
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | | | 14,000 | | | | 14,910 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Apparel Retail–(continued) | |
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | | $ | 10,000 | | | $ | 12,350 | |
| | | | | | | | 48,620 | |
|
| Apparel, Accessories & Luxury Goods–0.27% | |
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | | | 14,000 | | | | 15,470 | |
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | | | 20,000 | | | | 20,800 | |
Levi Strauss & Co., Sr. Unsec. Global Notes, 6.88%, 05/01/22 | | | 8,000 | | | | 8,620 | |
7.63%, 05/15/20 | | | 15,000 | | | | 16,537 | |
| | | | | | | | 61,427 | |
|
| Application Software–0.01% | |
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | | | 2,000 | | | | 2,100 | |
|
| Asset Management & Custody Banks–0.24% | |
Blackstone Holdings Finance Co. LLC,
Sr. Unsec. Gtd. Notes, 6.25%, 08/15/42(b) | | | 45,000 | | | | 50,554 | |
PQ Corp., Sr. Sec. Notes, 8.75%, 05/01/18(b) | | | 5,000 | | | | 5,275 | |
| | | | | | | | 55,829 | |
|
| Auto Parts & Equipment–0.11% | |
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | | | 14,000 | | | | 15,120 | |
American Axle & Manufacturing Inc., Sr. Unsec. Gtd. Notes, 6.63%, 10/15/22 | | | 3,000 | | | | 3,075 | |
CVR Refining LLC/Coffeyville Finance Inc., Sr. Sec. Gtd. Notes, 6.50%, 11/01/22(b) | | | 8,000 | | | | 8,000 | |
| | | | | | | | 26,195 | |
|
| Automobile Manufacturers–0.06% | |
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | | | 10,000 | | | | 12,750 | |
|
| Automotive Retail–0.44% | |
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | | | 95,000 | | | | 100,966 | |
|
| Biotechnology–0.02% | |
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | | | 5,000 | | | | 5,438 | |
|
| Brewers–1.23% | |
Anheuser-Busch InBev Worldwide Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 2.88%, 02/15/16 | | | 125,000 | | | | 132,682 | |
4.13%, 01/15/15 | | | 90,000 | | | | 96,280 | |
Heineken NV (Netherlands), Sr. Notes, 1.40%, 10/01/17(b) | | | 55,000 | | | | 54,946 | |
| | | | | | | | 283,908 | |
|
| Broadcasting–1.70% | |
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | | | 20,000 | | | | 21,800 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Broadcasting–(continued) | |
Clear Channel Worldwide Holdings Inc., | | | | | | | | |
Series A, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | | $ | 2,000 | | | $ | 2,090 | |
Series B, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | | | 6,000 | | | | 6,285 | |
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | | | 10,000 | | | | 10,125 | |
COX Communications Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | | | 30,000 | | | | 32,807 | |
Sr. Unsec. Notes,
8.38%, 03/01/39(b) | | | 75,000 | | | | 116,102 | |
9.38%, 01/15/19(b) | | | 140,000 | | | | 193,336 | |
LIN Television Corp., Sr. Unsec. Gtd. Notes, 6.38%, 01/15/21(b) | | | 2,000 | | | | 2,110 | |
Nielsen Finance LLC/Co. (Netherlands),
Sr. Unsec. Gtd. Notes, 4.50%, 10/01/20(b) | | | 4,000 | | | | 4,000 | |
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Notes, 5.00%, 09/15/19(b) | | | 2,000 | | | | 2,065 | |
| | | | | | | | 390,720 | |
|
| Building Products–0.69% | |
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | | | 15,000 | | | | 14,850 | |
Building Materials Corp. of America, Sr. Unsec. Gtd. Notes, 7.50%, 03/15/20(b) | | | 18,000 | | | | 19,957 | |
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | | | 15,000 | | | | 15,197 | |
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | | | 3,000 | | | | 3,341 | |
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | | | 23,000 | | | | 25,875 | |
Owens Corning Inc., Sr. Unsec. Gtd. Global Notes, 4.20%, 12/15/22 | | | 40,000 | | | | 40,862 | |
Ply Gem Industries Inc.,
Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | | | 8,000 | | | | 8,800 | |
Sr. Unsec. Gtd. Notes, 9.38%, 04/15/17(b) | | | 5,000 | | | | 5,450 | |
USG Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 7.88%, 03/30/20(b) | | | 12,000 | | | | 13,455 | |
Sr. Unsec. Notes, 9.75%, 01/15/18 | | | 10,000 | | | | 11,338 | |
| | | | | | | | 159,125 | |
|
| Cable & Satellite–2.26% | |
Cablevision Systems Corp., Sr. Unsec. Global Notes, 5.88%, 09/15/22 | | | 2,000 | | | | 2,020 | |
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 2.40%, 03/15/17 | | | 25,000 | | | | 25,608 | |
DISH DBS Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 4.63%, 07/15/17 | | | 10,000 | | | | 10,475 | |
5.88%, 07/15/22 | | | 5,000 | | | | 5,400 | |
Sr. Unsec. Notes, 5.00%, 03/15/23(b) | | | 2,000 | | | | 2,020 | |
Hughes Satellite Systems Corp., | | | | | | | | |
Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | | | 4,000 | | | | 4,430 | |
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | | | 5,000 | | | | 5,725 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Cable & Satellite–(continued) | |
Intelsat Jackson Holdings S.A. (Luxembourg), | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 7.25%, 10/15/20 | | $ | 8,000 | | | $ | 8,700 | |
7.50%, 04/01/21 | | | 15,000 | | | | 16,463 | |
Sr. Unsec. Gtd. Notes,
6.63%, 12/15/22(b) | | | 8,000 | | | | 8,300 | |
7.25%, 10/15/20(b) | | | 10,000 | | | | 10,850 | |
NBCUniversal Media LLC, | | | | | | | | |
Sr. Unsec. Global Notes,
2.10%, 04/01/14 | | | 35,000 | | | | 35,627 | |
5.95%, 04/01/41 | | | 35,000 | | | | 43,008 | |
Time Warner Cable, Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18 | | | 55,000 | | | | 68,895 | |
Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | | | 38,000 | | | | 44,327 | |
ViaSat Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.88%, 06/15/20 | | | 6,000 | | | | 6,300 | |
Sr. Unsec. Gtd. Notes, 6.88%, 06/15/20(b) | | | 5,000 | | | | 5,250 | |
Virgin Media Secured Finance PLC
(United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | | | 200,000 | | | | 217,547 | |
| | | | | | | | 520,945 | |
|
| Casinos & Gaming–0.67% | |
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | | | 10,000 | | | | 10,900 | |
Caesars Entertainment Operating Co. Inc., | | | | | | | | |
Sec. Gtd. Global Notes, 12.75%, 04/15/18 | | | 10,000 | | | | 7,450 | |
Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | | | 8,000 | | | | 8,060 | |
Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/13 | | | 1,000 | | | | 979 | |
Chester Downs & Marina LLC, Sr. Sec. Gtd. Notes, 9.25%, 02/01/20(b) | | | 2,000 | | | | 1,975 | |
CityCenter Holdings LLC/CityCenter Finance Corp., | | | | | | | | |
Sr. Sec. Gtd. Global Notes, 7.63%, 01/15/16 | | | 7,000 | | | | 7,490 | |
Sr. Sec. Gtd. Notes, 7.63%, 01/15/16(b) | | | 2,000 | | | | 2,140 | |
Sr. Sec. Gtd. PIK Global Notes, 10.75%, 01/15/17 | | | 10,137 | | | | 11,049 | |
MGM Resorts International, | | | | | | | | |
Sr. Unsec. Gtd. Global Notes,
6.63%, 07/15/15 | | | 25,000 | | | | 26,812 | |
6.63%, 12/15/21 | | | 5,000 | | | | 5,013 | |
Sr. Unsec. Gtd. Notes,
6.75%, 10/01/20(b) | | | 2,000 | | | | 2,045 | |
7.75%, 03/15/22 | | | 15,000 | | | | 16,050 | |
8.63%, 02/01/19(b) | | | 2,000 | | | | 2,235 | |
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | | | 10,000 | | | | 10,600 | |
Snoqualmie Entertainment Authority, | | | | | | | | |
Sr. Sec. Floating Rate Notes, 4.48%, 02/01/14(b)(d) | | | 7,000 | | | | 6,921 | |
Sr. Sec. Notes, 9.13%, 02/01/15(b) | | | 13,000 | | | | 13,114 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Casinos & Gaming–(continued) | |
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. First Mortgage Global Notes, 5.38%, 03/15/22 | | $ | 20,000 | | | $ | 21,275 | |
| | | | | | | | 154,108 | |
|
| Coal & Consumable Fuels–0.19% | |
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 9.75%, 04/15/18 | | | 2,000 | | | | 2,170 | |
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | | | 20,000 | | | | 21,750 | |
Peabody Energy Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes,
6.00%, 11/15/18 | | | 14,000 | | | | 14,910 | |
Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | | | 4,000 | | | | 4,330 | |
| | | | | | | | 43,160 | |
|
| Communications Equipment–0.07% | |
Avaya Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, | | | | | | | | |
7.00%, 04/01/19(b) | | | 10,000 | | | | 9,400 | |
9.00%, 04/01/19(b) | | | 3,000 | | | | 3,045 | |
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | | | 4,000 | | | | 3,580 | |
| | | | | | | | 16,025 | |
|
| Computer & Electronics Retail–0.07% | |
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | | | 15,000 | | | | 16,500 | |
|
| Computer Storage & Peripherals–0.07% | |
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.00%, 11/01/21 | | | 5,000 | | | | 5,388 | |
7.75%, 12/15/18 | | | 10,000 | | | | 11,025 | |
| | | | | | | | 16,413 | |
|
| Construction & Engineering–0.40% | |
Dycom Investments Inc., | | | | | | | | |
Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | | | 12,000 | | | | 12,720 | |
Sr. Unsec. Gtd. Sub. Notes, 7.13%, 01/15/21(b) | | | 3,000 | | | | 3,180 | |
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | | | 3,000 | | | | 3,086 | |
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | | | 25,000 | | | | 26,000 | |
URS Corp., Sr. Unsec. Notes, 5.00%, 04/01/22(b) | | | 45,000 | | | | 46,485 | |
| | | | | | | | 91,471 | |
|
| Construction & Farm Machinery & Heavy Trucks–1.01% | |
Caterpillar Financial Services Corp., Sr. Unsec. Notes, 0.70%, 11/06/15 | | | 85,000 | | | | 84,935 | |
CNH Capital LLC, Sr. Unsec. Gtd. Notes, 3.88%, 11/01/15(b) | | | 2,000 | | | | 2,070 | |
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | | | 8,000 | | | | 7,960 | |
Deere & Co., Sr. Unsec. Notes, 3.90%, 06/09/42 | | | 65,000 | | | | 66,389 | |
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–(continued) | |
John Deere Capital Corp., Sr. Unsec. Global Notes, 0.88%, 04/17/15 | | $ | 30,000 | | | $ | 30,107 | |
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | | | 5,000 | | | | 5,638 | |
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | | | 6,000 | | | | 5,820 | |
Terex Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | | | 2,000 | | | | 2,110 | |
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | | | 25,000 | | | | 26,656 | |
| | | | | | | | 231,685 | |
|
| Construction Materials–0.45% | |
CRH America Inc. (Ireland), Sr. Unsec. Gtd. Notes, 4.13%, 01/15/16 | | | 80,000 | | | | 83,839 | |
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | | | 19,000 | | | | 20,520 | |
| | | | | | | | 104,359 | |
|
| Consumer Finance–1.51% | |
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.00%, 03/15/20 | | | 2,000 | | | | 2,460 | |
8.00%, 11/01/31 | | | 35,000 | | | | 44,450 | |
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 4.25%, 09/20/22 | | | 200,000 | | | | 210,994 | |
General Motors Financial Co. Inc., Sr. Unsec. Gtd. Notes, 4.75%, 08/15/17(b) | | | 2,000 | | | | 2,110 | |
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | | | 5,000 | | | | 5,537 | |
SLM Corp., Sr. Unsec. Medium-Term Global Notes, 6.25%, 01/25/16 | | | 75,000 | | | | 81,658 | |
| | | | | | | | 347,209 | |
|
| Data Processing & Outsourced Services–0.39% | |
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | | | 30,000 | | | | 31,474 | |
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | | | 17,000 | | | | 18,594 | |
First Data Corp., | | | | | | | | |
Sec. Gtd. Notes, 8.25%, 01/15/21(b) | | | 9,000 | | | | 9,045 | |
Sr. Sec. Gtd. Notes, | | | | | | | | |
6.75%, 11/01/20(b) | | | 15,000 | | | | 15,263 | |
7.38%, 06/15/19(b) | | | 9,000 | | | | 9,383 | |
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/18 | | | 5,000 | | | | 5,381 | |
| | | | | | | | 89,140 | |
|
| Department Stores–0.06% | |
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | | | 15,000 | | | | 13,856 | |
|
| Distillers & Vintners–0.07% | |
Constellation Brands Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
4.63%, 03/01/23 | | | 2,000 | | | | 2,100 | |
7.25%, 05/15/17 | | | 10,000 | | | | 11,750 | |
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | | | 2,000 | | | | 2,303 | |
| | | | | | | | 16,153 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Diversified Banks–3.65% | |
Abbey National Treasury Services PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.88%, 04/25/14 | | $ | 25,000 | | | $ | 25,507 | |
ABN Amro Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.00%, 01/31/14(b) | | | 200,000 | | | | 203,241 | |
Bank of Montreal (Canada), Sr. Unsec. Medium-Term Notes, 0.80%, 11/06/15 | | | 75,000 | | | | 74,927 | |
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | | | 70,000 | | | | 71,319 | |
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/22 | | | 45,000 | | | | 49,101 | |
ING Bank N.V. (Netherlands), Unsec. Sub. Notes, 5.13%, 05/01/15(b) | | | 100,000 | | | | 104,580 | |
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | | | 10,000 | | | | 10,507 | |
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(b) | | | 130,000 | | | | 130,703 | |
Standard Chartered PLC (Hong Kong), Sr. Unsec. Notes, 5.50%, 11/18/14(b) | | | 55,000 | | | | 59,614 | |
VTB Bank OJSC Via VTB Capital S.A. (Russia), Sr. Unsec. Loan Participation Notes, 6.55%, 10/13/20(b) | | | 100,000 | | | | 111,365 | |
| | | | | | | | 840,864 | |
|
| Diversified Capital Markets–0.52% | |
UBS AG (Switzerland), Sr. Unsec. Medium-Term Global Bank Notes, 5.75%, 04/25/18 | | | 100,000 | | | | 118,509 | |
|
| Diversified Chemicals–0.37% | |
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 3.00%, 11/15/22 | | | 85,000 | | | | 85,231 | |
|
| Diversified Metals & Mining–1.58% | |
BHP Billition Finance USA Ltd. (Australia), Sr. Unsec. Gtd. Global Notes, 6.50%, 04/01/19 | | | 125,000 | | | | 159,410 | |
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. | | | | | | | | |
Gtd. Notes, | | | | | | | | |
6.38%, 02/01/16(b) | | | 7,000 | | | | 7,280 | |
6.88%, 04/01/22(b) | | | 9,000 | | | | 9,270 | |
7.00%, 11/01/15(b) | | | 7,000 | | | | 7,420 | |
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | | | 1,000 | | | | 610 | |
Rio Tinto Finance USA PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 3.50%, 03/22/22 | | | 80,000 | | | | 84,289 | |
Southern Copper Corp., Sr. Unsec. Global Notes, 5.25%, 11/08/42 | | | 70,000 | | | | 70,137 | |
Xstrata Finance Canada Ltd. (Canada), Sr. Unsec. Gtd. Notes, 5.30%, 10/25/42(b) | | | 25,000 | | | | 25,119 | |
| | | | | | | | 363,535 | |
|
| Diversified REIT’s–1.17% | |
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(b) | | | 180,000 | | | | 194,145 | |
Liberty Property L.P., Sr. Unsec. Global Notes, 3.38%, 06/15/23 | | | 75,000 | | | | 74,394 | |
| | | | | | | | 268,539 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Drug Retail–1.12% | |
CVS Caremark Corp., Sr. Unsec. Global Notes, 2.75%, 12/01/22 | | $ | 60,000 | | | $ | 60,600 | |
CVS Pass-Through Trust, Sr. Sec. Mortgage Pass Through Ctfs., 5.77%, 01/10/33(b) | | | 166,991 | | | | 197,519 | |
| | | | | | | | 258,119 | |
|
| Electric Utilities–2.81% | |
Appalachian Power Co., Sr. Unsec. Floating Rate Notes, 0.69%, 08/16/13(d) | | | 50,000 | | | | 50,063 | |
DCP Midstream LLC, Sr. Unsec. Notes, 9.70%, 12/01/13(b) | | | 100,000 | | | | 106,744 | |
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, 3.88%, 10/07/14(b) | | | 100,000 | | | | 103,059 | |
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(c) | | | 25,000 | | | | 0 | |
Mississippi Power Co., Series 12, Class A, Sr. Unsec. Notes, 4.25%, 03/15/42 | | | 60,000 | | | | 61,948 | |
NextEra Energy Capital Holdings Inc., Sr. Unsec. Gtd. Notes, 1.20%, 06/01/15 | | | 25,000 | | | | 25,175 | |
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | | | 100,000 | | | | 121,443 | |
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | | | 45,000 | | | | 61,320 | |
System Energy Resources Inc., Sec. First Mortgage Bonds, 4.10%, 04/01/23 | | | 50,000 | | | | 52,103 | |
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | | | 55,000 | | | | 65,642 | |
| | | | | | | | 647,497 | |
|
| Electrical Components & Equipment–0.07% | |
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | | | 5,000 | | | | 5,175 | |
General Cable Corp., Sr. Unsec. Gtd. Notes, 5.75%, 10/01/22(b) | | | 5,000 | | | | 5,188 | |
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | | | 5,000 | | | | 5,462 | |
| | | | | | | | 15,825 | |
|
| Electronic Components–0.25% | |
Corning, Inc., Sr. Unsec. Notes, 4.75%, 03/15/42 | | | 55,000 | | | | 57,597 | |
|
| Electronic Manufacturing Services–0.04% | |
Sanmina Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | | | 10,000 | | | | 10,250 | |
|
| Environmental & Facilities Services–0.31% | |
Clean Harbors Inc., Sr. Unsec. Gtd. Notes, 5.13%, 06/01/21(b) | | | 3,000 | | | | 3,128 | |
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | | | 65,000 | | | | 68,320 | |
| | | | | | | | 71,448 | |
|
| Forest Products–0.04% | |
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | | | 10,000 | | | | 9,100 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Gas Utilities–0.15% | |
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | | $ | 8,000 | | | $ | 7,950 | |
Suburban Propane Partners, L.P./Suburban
Energy Finance Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.38%, 08/01/21 | | | 5,000 | | | | 5,463 | |
Sr. Unsec. Notes, 7.38%, 03/15/20 | | | 20,000 | | | | 21,750 | |
| | | | | | | | 35,163 | |
|
| General Merchandise Stores–0.12% | |
Dollar General Corp., Sr. Unsec. Gtd. Global Notes, 4.13%, 07/15/17 | | | 25,000 | | | | 26,375 | |
|
| Gold–2.92% | |
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, | | | | | | | | |
2.90%, 05/30/16 | | | 65,000 | | | | 68,319 | |
3.85%, 04/01/22 | | | 35,000 | | | | 37,217 | |
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | | | 50,000 | | | | 57,030 | |
Eldorado Gold Corp. (Canada), Sr. Unsec. Notes, 6.13%, 12/15/20(b) | | | 5,000 | | | | 5,125 | |
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(b) | | | 200,000 | | | | 195,460 | |
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
5.13%, 09/01/21 | | | 75,000 | | | | 77,415 | |
6.88%, 09/01/41 | | | 75,000 | | | | 77,641 | |
Newcrest Finance Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.75%, 11/15/41(b) | | | 35,000 | | | | 38,942 | |
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | | | 110,000 | | | | 113,811 | |
| | | | | | | | 670,960 | |
|
| Health Care Distributors–0.56% | |
AmerisourceBergen Corp., Sr. Unsec. Gtd. Notes, 3.50%, 11/15/21 | | | 120,000 | | | | 129,409 | |
|
| Health Care Equipment–0.08% | |
Biomet Inc., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 6.50%, 08/01/20(b) | | | 2,000 | | | | 2,130 | |
Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/20(b) | | | 5,000 | | | | 5,000 | |
DJO Finance LLC/Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/18 | | | 2,000 | | | | 1,935 | |
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | | | 10,000 | | | | 8,925 | |
| | | | | | | | 17,990 | |
|
| Health Care Facilities–0.35% | |
HCA, Inc., | | | | | | | | |
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | | | 5,000 | | | | 5,475 | |
Sr. Unsec. Gtd. Global Notes, 5.88%, 05/01/23 | | | 30,000 | | | | 31,125 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Health Care Facilities–(continued) | |
HealthSouth Corp., Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.25%, 10/01/18 | | $ | 13,000 | | | $ | 14,235 | |
7.75%, 09/15/22 | | | 13,000 | | | | 14,332 | |
Radiation Therapy Services Inc., Sr. Sec. Gtd. Global Notes, 8.88%, 01/15/17 | | | 7,000 | | | | 6,895 | |
Tenet Healthcare Corp., | | | | | | | | |
Sr. Sec. Gtd. Notes, 4.75%, 06/01/20(b) | | | 2,000 | | | | 2,035 | |
Sr. Unsec. Notes, 6.75%, 02/01/20(b) | | | 7,000 | | | | 7,245 | |
| | | | | | | | 81,342 | |
|
| Health Care Services–1.65% | |
Express Scripts Holding Co., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | | | 125,000 | | | | 134,674 | |
Sr. Unsec. Gtd. Notes, 2.65%, 02/15/17(b) | | | 100,000 | | | | 104,082 | |
Medco Health Solutions Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | | | 35,000 | | | | 36,597 | |
Orlando Lutheran Towers Inc., Bonds, 8.00%, 07/01/17 | | | 100,000 | | | | 99,760 | |
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | | | 5,000 | | | | 5,300 | |
| | | | | | | | 380,413 | |
|
| Health Care Technology–0.07% | |
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | | | 15,000 | | | | 16,388 | |
|
| Homebuilding–0.40% | |
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 07/15/15 | | | 5,000 | | | | 5,056 | |
8.13%, 06/15/16 | | | 15,000 | | | | 16,125 | |
K. Hovnanian Enterprises Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, 7.25%, 10/15/20(b) | | | 9,000 | | | | 9,799 | |
Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/16 | | | 12,000 | | | | 11,835 | |
Sr. Unsec. Gtd. Notes, 11.88%, 10/15/15 | | | 2,000 | | | | 2,185 | |
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | | | 10,000 | | | | 11,275 | |
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | | | 10,000 | | | | 10,937 | |
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/22 | | | 3,000 | | | | 3,293 | |
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | | 4,000 | | | | 4,130 | |
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 7.75%, 04/15/20(b) | | | 12,000 | | | | 12,825 | |
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | | | 3,000 | | | | 3,424 | |
| | | | | | | | 90,884 | |
|
| Hotels, Resorts & Cruise Lines–1.17% | |
Caesars Operating Escrow LLC/Caesars Escrow Corp., Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | | | 5,000 | | | | 5,050 | |
Carnival Corp., Sr. Unsec. Gtd Global Notes, 1.88%, 12/15/17 | | | 45,000 | | | | 45,113 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Hotels, Resorts & Cruise Line–(continued) | |
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | | $ | 2,000 | | | $ | 2,223 | |
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, | | | | | | | | |
5.25%, 11/15/22 | | | 25,000 | | | | 26,500 | |
7.50%, 10/15/27 | | | 13,000 | | | | 14,787 | |
Wyndham Worldwide Corp., Sr. Unsec. Notes, | | | | | | | | |
5.63%, 03/01/21 | | | 100,000 | | | | 110,299 | |
7.38%, 03/01/20 | | | 55,000 | | | | 66,169 | |
| | | | | | | | 270,141 | |
|
| Household Products–0.14% | |
Central Garden & Pet Co., Sr. Unsec. Gtd. Sub. Notes, 8.25%, 03/01/18 | | | 25,000 | | | | 26,563 | |
Reynolds Group Holdings Inc., Sr. Sec. Gtd. Notes, 5.75%, 10/15/20(b) | | | 5,000 | | | | 5,181 | |
| | | | | | | | 31,744 | |
|
| Housewares & Specialties–0.03% | |
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | | | 5,000 | | | | 5,213 | |
Spectrum Brands Escrow Corp., Sr. Unsec. Notes, 6.38%, 11/15/20(b) | | | 2,000 | | | | 2,135 | |
| | | | | | | | 7,348 | |
|
| Independent Power Producers & Energy Traders–0.22% | |
AES Corp. (The), Sr. Unsec. Global Notes, 8.00%, 10/15/17 | | | 25,000 | | | | 29,000 | |
Calpine Corp., Sr. Sec. Gtd. Notes, 7.50%, 02/15/21(b) | | | 8,000 | | | | 8,880 | |
NRG Energy Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | | | 9,000 | | | | 9,990 | |
Sr. Unsec. Gtd. Notes, 6.63%, 03/15/23(b) | | | 2,000 | | | | 2,150 | |
| | | | | | | | 50,020 | |
|
| Industrial Conglomerates–1.40% | |
General Electric Co., Sr. Unsec. Global Notes, 2.70%, 10/09/22 | | | 35,000 | | | | 35,695 | |
Hutchison Whampoa International Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, | | | | | | | | |
5.75%, 09/11/19(b) | | | 100,000 | | | | 119,048 | |
7.63%, 04/09/19(b) | | | 130,000 | | | | 167,315 | |
| | | | | | | | 322,058 | |
|
| Industrial Machinery–0.74% | |
Actuant Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/15/22 | | | 3,000 | | | | 3,116 | |
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | | | 2,000 | | | | 2,065 | |
Pentair Finance S.A., Sr. Unsec. Gtd. Notes, | | | | | | | | |
1.35%, 12/01/15(b) | | | 110,000 | | | | 110,182 | |
3.15%, 09/15/22(b) | | | 55,000 | | | | 54,660 | |
| | | | | | | | 170,023 | |
|
| Insurance Brokers–0.62% | |
Hub International Ltd., Sr. Unsec. Gtd. Notes, 8.13%, 10/15/18(b) | | | 3,000 | | | | 3,097 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Insurance Brokers–(continued) | |
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 9.25%, 04/15/19 | | $ | 100,000 | | | $ | 135,399 | |
Onex USI Acquisition Corp., Sr. Unsec. Notes, 7.75%, 01/15/21(b) | | | 5,000 | | | | 5,019 | |
| | | | | | | | 143,515 | |
|
| Integrated Oil & Gas–0.34% | |
Northern Tier Energy LLC/Northern Tier Finance Corp., Sr. Sec. Gtd. Notes, 7.13%, 11/15/20(b) | | | 2,000 | | | | 2,070 | |
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | | | 65,000 | | | | 75,950 | |
| | | | | | | | 78,020 | |
|
| Integrated Telecommunication Services–2.07% | |
AT&T Inc., Sr. Unsec. Global Notes, | | | | | | | | |
1.70%, 06/01/17 | | | 60,000 | | | | 60,947 | |
2.50%, 08/15/15 | | | 60,000 | | | | 62,634 | |
2.95%, 05/15/16 | | | 35,000 | | | | 37,025 | |
4.45%, 05/15/21 | | | 15,000 | | | | 17,394 | |
Telefonica Emisiones S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Global Notes, 5.46%, 02/16/21 | | | 90,000 | | | | 96,284 | |
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 5.50%, 10/23/20(b) | | | 161,000 | | | | 168,383 | |
Verizon Communications, Inc., Sr. Unsec. Global Notes, 4.75%, 11/01/41 | | | 30,000 | | | | 34,113 | |
| | | | | | | | 476,780 | |
|
| Internet Retail–0.26% | |
Amazon.com Inc., Sr. Unsec. Global Notes, 2.50%, 11/29/22 | | | 60,000 | | | | 58,949 | |
|
| Investment Banking & Brokerage–5.07% | |
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(e) | | | 115,000 | | | | 131,388 | |
Goldman Sachs Group, Inc. (The),
Sr. Unsec. Global Notes, | | | | | | | | |
5.13%, 01/15/15 | | | 50,000 | | | | 53,751 | |
5.25%, 07/27/21 | | | 55,000 | | | | 62,901 | |
5.75%, 01/24/22 | | | 100,000 | | | | 118,016 | |
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | | | 45,000 | | | | 47,390 | |
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, | | | | | | | | |
6.00%, 01/14/20(b) | | | 105,000 | | | | 113,254 | |
7.30%, 08/01/14(b) | | | 110,000 | | | | 118,605 | |
Morgan Stanley, | | | | | | | | |
Sr. Unsec. Global Notes, 6.38%, 07/24/42 | | | 80,000 | | | | 94,332 | |
Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | | | 230,000 | | | | 243,581 | |
Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | | | 130,000 | | | | 147,411 | |
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | | | 35,000 | | | | 36,859 | |
| | | | | | | | 1,167,488 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Leisure Facilities–0.02% | |
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | | $ | 5,000 | | | $ | 5,325 | |
|
| Leisure Products–0.08% | |
Toys R Us-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | | | 17,000 | | | | 17,404 | |
|
| Life & Health Insurance–2.73% | |
MetLife Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 4.13%, 08/13/42 | | | 110,000 | | | | 110,487 | |
Sr. Unsec. Notes, 6.75%, 06/01/16 | | | 55,000 | | | | 65,222 | |
Nationwide Financial Services, Inc., Sr. Unsec. Notes, 5.38%, 03/25/21(b) | | | 165,000 | | | | 177,774 | |
Prudential Financial, Inc., | | | | | | | | |
Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38 | | | 130,000 | | | | 158,925 | |
Series D, Sr. Unsec. Medium-Term Notes, 7.38%, 06/15/19 | | | 90,000 | | | | 114,959 | |
| | | | | | | | 627,367 | |
|
| Life Sciences Tools & Services–0.62% | |
Life Technologies Corp., Sr. Unsec. Notes, 6.00%, 03/01/20 | | | 120,000 | | | | 141,974 | |
|
| Managed Health Care–1.35% | |
Cigna Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 5.38%, 02/15/42 | | | 40,000 | | | | 46,519 | |
Sr. Unsec. Notes, | | | | | | | | |
4.50%, 03/15/21 | | | 45,000 | | | | 50,481 | |
5.88%, 03/15/41 | | | 35,000 | | | | 42,267 | |
Humana Inc., Sr. Unsec. Global Notes, 4.63%, 12/01/42 | | | 35,000 | | | | 35,147 | |
UnitedHealth Group Inc.,
Sr. Unsec. Global Notes, 2.75%, 02/15/23 | | | 60,000 | | | | 60,648 | |
Sr. Unsec. Notes, 5.95%, 02/15/41 | | | 60,000 | | | | 76,187 | |
| | | | | | | | 311,249 | |
|
| Marine–0.01% | |
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Global Notes, 8.63%, 11/01/17 | | | 3,000 | | | | 2,820 | |
|
| Movies & Entertainment–0.18% | |
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | | | 15,000 | | | | 16,650 | |
Cinemark USA Inc., Sr. Unsec. Gtd. Notes, 5.13%, 12/15/22(b) | | | 2,000 | | | | 2,035 | |
Live Nation Entertainment Inc., Sr. Unsec. Gtd. Notes, 7.00%, 09/01/20(b) | | | 8,000 | | | | 8,380 | |
NAI Entertainment Holdings LLC, Sr. Sec. Gtd. Notes, 8.25%, 12/15/17(b) | | | 13,000 | | | | 14,365 | |
| | | | | | | | 41,430 | |
|
| Multi-Line Insurance–1.17% | |
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | | | 180,000 | | | | 233,329 | |
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | | | 10,000 | | | | 11,563 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Multi-Line Insurance–(continued) | |
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | | $ | 15,000 | | | $ | 17,025 | |
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | | | 5,000 | | | | 7,302 | |
| | | | | | | | 269,219 | |
|
| Office Services & Supplies–0.11% | |
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | | | 2,000 | | | | 2,165 | |
Ricoh USA Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | | | 25,000 | | | | 24,125 | |
| | | | | | | | 26,290 | |
|
| Oil & Gas Drilling–0.24% | |
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | | | 2,000 | | | | 2,160 | |
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | | | 8,000 | | | | 8,560 | |
Transocean Inc., Sr. Unsec. Gtd. Global Notes, 4.95%, 11/15/15 | | | 40,000 | | | | 43,810 | |
| | | | | | | | 54,530 | |
|
| Oil & Gas Equipment & Services–0.12% | |
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | | | 7,000 | | | | 7,499 | |
Gulfmark Offshore Inc., Sr. Unsec. Notes, 6.38%, 03/15/22(b) | | | 5,000 | | | | 5,162 | |
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | | | 15,000 | | | | 15,075 | |
| | | | | | | | 27,736 | |
|
| Oil & Gas Exploration & Production–3.42% | |
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
5.88%, 04/15/21 | | | 9,000 | | | | 9,607 | |
6.13%, 07/15/22 | | | 2,000 | | | | 2,165 | |
Anadarko Petroleum Corp.,
Sr. Unsec. Global Notes, | | | | | | | | |
5.75%, 06/15/14 | | | 95,000 | | | | 101,456 | |
5.95%, 09/15/16 | | | 50,000 | | | | 57,571 | |
Sr. Unsec. Notes, 7.63%, 03/15/14 | | | 15,000 | | | | 16,180 | |
Apache Corp., Sr. Unsec. Global Notes, 4.75%, 04/15/43 | | | 60,000 | | | | 65,308 | |
Berry Petroleum Co., Sr. Unsec. Notes, 6.38%, 09/15/22 | | | 8,000 | | | | 8,380 | |
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.63%, 11/15/22 | | | 7,000 | | | | 7,402 | |
8.25%, 09/01/21 | | | 13,000 | | | | 14,202 | |
Chesapeake Energy Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | | | 5,000 | | | | 5,463 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.13%, 02/15/21 | | | 5,000 | | | | 5,231 | |
6.63%, 08/15/20 | | | 10,000 | | | | 10,800 | |
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | | | 11,000 | | | | 12,100 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Oil & Gas Exploration & Production–(continued) | |
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | | $ | 15,000 | | | $ | 16,856 | |
EOG Resources, Inc., Sr. Unsec. Notes, 4.10%, 02/01/21 | | | 45,000 | | | | 51,420 | |
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | | | 7,000 | | | | 7,420 | |
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | | | 12,000 | | | | 11,670 | |
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | | | 2,000 | | | | 2,013 | |
Halcon Resources Corp., Sr. Unsec. Gtd. Notes, 8.88%, 05/15/21(b) | | | 12,000 | | | | 12,750 | |
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | | | 2,000 | | | | 2,185 | |
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | | | 9,000 | | | | 9,602 | |
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/24 | | | 2,000 | | | | 2,169 | |
Oasis Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 01/15/23 | | | 5,000 | | | | 5,388 | |
Pemex Project Funding Master Trust (Mexico), Sr. Unsec. Gtd. Global Bonds, 6.63%, 06/15/35 | | | 65,000 | | | | 82,724 | |
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
3.50%, 02/06/17 | | | 70,000 | | | | 73,486 | |
5.75%, 01/20/20 | | | 40,000 | | | | 45,616 | |
6.88%, 01/20/40 | | | 45,000 | | | | 57,455 | |
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.50%, 11/15/20 | | | 15,000 | | | | 16,612 | |
8.63%, 10/15/19 | | | 15,000 | | | | 17,100 | |
QEP Resources Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 5.25%, 05/01/23 | | | 5,000 | | | | 5,338 | |
Sr. Unsec. Notes, 5.38%, 10/01/22 | | | 7,000 | | | | 7,560 | |
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, | | | | | | | | |
5.00%, 08/15/22 | | | 2,000 | | | | 2,105 | |
5.75%, 06/01/21 | | | 10,000 | | | | 10,750 | |
SM Energy Co., Sr. Unsec. Global Notes, | | | | | | | | |
6.50%, 11/15/21 | | | 4,000 | | | | 4,300 | |
6.63%, 02/15/19 | | | 12,000 | | | | 12,870 | |
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | | | 8,000 | | | | 8,630 | |
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | | | 5,000 | | | | 5,425 | |
| | | | | | | | 787,309 | |
|
| Oil & Gas Refining & Marketing–0.73% | |
Crosstex Energy, L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 06/01/22(b) | | | 6,000 | | | | 6,285 | |
Petronas Capital Ltd. (Malaysia), Sr. Unsec. Gtd. Notes, 5.25%, 08/12/19(b) | | | 100,000 | | | | 119,360 | |
Tesoro Corp., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | | 3,000 | | | | 3,210 | |
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 Refining & Marketing–(continued) | |
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | | $ | 2,000 | | | $ | 2,205 | |
Valero Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 06/15/37 | | | 30,000 | | | | 37,084 | |
| | | | | | | | 168,144 | |
|
| Oil & Gas Storage & Transportation–1.71% | |
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, 4.88%, 05/15/23 | | | 5,000 | | | | 5,113 | |
Atlas Pipeline Escrow LLC, Sr. Sec. Notes, 6.63%, 10/01/20(b) | | | 5,000 | | | | 5,250 | |
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | | | 18,000 | | | | 19,395 | |
Eagle Rock Energy Partners L.P./Eagle Rock Energy Finance Corp., Sr. Unsec. Gtd. Notes, 8.38%, 06/01/19(b) | | | 3,000 | | | | 3,075 | |
El Paso Pipeline Partners Operating Co. LLC, Sr. Unsec. Gtd. Notes, 4.70%, 11/01/42 | | | 35,000 | | | | 34,398 | |
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | | | 10,000 | | | | 11,562 | |
Energy Transfer Partners L.P., Sr. Unsec. Global Notes, 6.05%, 06/01/41 | | | 60,000 | | | | 68,610 | |
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | | | 70,000 | | | | 88,223 | |
Inergy Midstream L.P./NRGM Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 12/15/20(b) | | | 5,000 | | | | 5,194 | |
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, | | | | | | | | |
5.50%, 02/15/23 | | | 5,000 | | | | 5,444 | |
6.25%, 06/15/22 | | | 5,000 | | | | 5,519 | |
6.50%, 08/15/21 | | | 15,000 | | | | 16,462 | |
Plains All American Pipeline L.P./PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | | | 15,000 | | | | 15,953 | |
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | | | 5,000 | | | | 5,481 | |
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | | | 15,000 | | | | 16,500 | |
Sr. Unsec. Gtd. Notes, 6.38%, 08/01/22(b) | | | 2,000 | | | | 2,190 | |
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | | | 5,000 | | | | 5,300 | |
Williams Partners L.P., Sr. Unsec. Global Notes, 3.80%, 02/15/15 | | | 75,000 | | | | 79,387 | |
| | | | | | | | 393,056 | |
|
| Other Diversified Financial Services–7.34% | |
Bank of America Corp., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
3.70%, 09/01/15 | | | 25,000 | | | | 26,518 | |
4.50%, 04/01/15 | | | 240,000 | | | | 255,939 | |
6.50%, 08/01/16 | | | 130,000 | | | | 150,996 | |
Sr. Unsec. Notes, 5.88%, 01/05/21 | | | 35,000 | | | | 42,031 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Other Diversified Financial Services–(continued) | |
Citigroup Inc., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
6.01%, 01/15/15 | | $ | 150,000 | | | $ | 163,872 | |
6.13%, 05/15/18 | | | 65,000 | | | | 78,017 | |
Sr. Unsec. Notes, 6.38%, 08/12/14 | | | 255,000 | | | | 276,017 | |
Series A, Jr. Unsec. Sub. Global Notes, 5.95%(f) | | | 65,000 | | | | 65,682 | |
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | | | 100,000 | | | | 118,656 | |
ING US Inc. (Netherlands), Sr. Unsec. Gtd. Notes, 5.50%, 07/15/22(b) | | | 90,000 | | | | 97,459 | |
JPMorgan Chase & Co., Sr. Unsec. Global Notes, | | | | | | | | |
3.25%, 09/23/22 | | | 50,000 | | | | 51,688 | |
3.45%, 03/01/16 | | | 25,000 | | | | 26,625 | |
4.75%, 05/01/13 | | | 15,000 | | | | 15,201 | |
5.60%, 07/15/41 | | | 95,000 | | | | 119,142 | |
Merrill Lynch & Co., Inc., Series C, Sr. Unsec. Medium-Term Global Notes, 5.45%, 02/05/13 | | | 200,000 | | | | 200,765 | |
| | | | | | | | 1,688,608 | |
|
| Packaged Foods & Meats–1.91% | |
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | | | 7,000 | | | | 7,333 | |
JM Smucker Co. (The), Sr. Unsec. Gtd. Global Notes., 3.50%, 10/15/21 | | | 265,000 | | | | 282,371 | |
Mondelez International Inc., Sr. Unsec. Global Notes, | | | | | | | | |
2.63%, 05/08/13 | | | 70,000 | | | | 70,518 | |
6.50%, 02/09/40 | | | 50,000 | | | | 67,413 | |
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | | | 11,000 | | | | 12,127 | |
| | | | | | | | 439,762 | |
|
| Paper Packaging–0.20% | |
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | | | 10,000 | | | | 10,725 | |
Rock-Tenn Co., Sr. Unsec. Gtd. Notes, 4.00%, 03/01/23(b) | | | 35,000 | | | | 35,365 | |
| | | | | | | | 46,090 | |
|
| Paper Products–0.36% | |
Boise Cascade LLC/Boise Cascade Finance Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/01/20(b) | | | 2,000 | | | | 2,070 | |
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | | | 5,000 | | | | 5,488 | |
International Paper Co., Sr. Unsec. Global Notes, | | | | | | | | |
4.75%, 02/15/22 | | | 35,000 | | | | 39,540 | |
6.00%, 11/15/41 | | | 20,000 | | | | 23,731 | |
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | | | 12,000 | | | | 12,750 | |
| | | | | | | | 83,579 | |
|
| Personal Products–0.30% | |
Estee Lauder Cos. Inc. (The), Sr. Unsec. Global Notes, 3.70%, 08/15/42 | | | 60,000 | | | | 58,531 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Personal Products–(continued) | |
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | | $ | 10,000 | | | $ | 11,400 | |
| | | | | | | | 69,931 | |
|
| Pharmaceuticals–1.23% | |
AbbVie Inc., Sr. Unsec. Gtd. Notes, 1.20%, 11/06/15(b) | | | 180,000 | | | | 181,258 | |
Watson Pharmaceuticals Inc., Sr. Unsec. Global Notes, 1.88%, 10/01/17 | | | 100,000 | | | | 101,387 | |
| | | | | | | | 282,645 | |
|
| Property & Casualty Insurance–1.08% | |
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | | | 160,000 | | | | 200,401 | |
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | | | 40,000 | | | | 48,581 | |
| | | | | | | | 248,982 | |
|
| Railroads–1.04% | |
Canadian Pacific Railway Co. (Canada), Sr. Unsec. Notes, 4.45%, 03/15/23 | | | 20,000 | | | | 22,293 | |
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | | | 55,000 | | | | 65,142 | |
Union Pacific Corp., Sr. Unsec. Notes, 4.00%, 02/01/21 | | | 135,000 | | | | 151,563 | |
| | | | | | | | 238,998 | |
|
| Real Estate Services–0.02% | |
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | | | 5,000 | | | | 5,488 | |
|
| Regional Banks–1.91% | |
Fifth Third Bancorp, | | | | | | | | |
Sr. Unsec. Notes, 3.50%, 03/15/22 | | | 70,000 | | | | 73,572 | |
Unsec. Sub. Notes, 4.50%, 06/01/18 | | | 55,000 | | | | 61,204 | |
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/21 | | | 35,000 | | | | 41,529 | |
PNC Preferred Funding Trust III, Jr. Unsec. Sub. Variable Rate Notes, 8.70%(b)(d)(e) | | | 200,000 | | | | 204,500 | |
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | | | 30,000 | | | | 32,700 | |
Synovus Financial Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.88%, 02/15/19 | | | 5,000 | | | | 5,550 | |
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | | | 20,000 | | | | 19,800 | |
| | | | | | | | 438,855 | |
|
| Research & Consulting Services–0.05% | |
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | | | 10,000 | | | | 10,725 | |
|
| Residential REIT’s–0.50% | |
Essex Portfolio L.P., Unsec. Gtd. Notes, 3.63%, 08/15/22(b) | | | 115,000 | | | | 115,622 | |
|
| Retail REIT’s–0.39% | |
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/18 | | | 90,000 | | | | 90,080 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Semiconductor Equipment–0.20% | |
Amkor Technology Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 6.63%, 06/01/21 | | $ | 9,000 | | | $ | 9,045 | |
Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/18 | | | 15,000 | | | | 15,637 | |
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | | | 20,000 | | | | 21,400 | |
| | | | | | | | 46,082 | |
|
| Semiconductors–0.12% | |
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | | | 25,000 | | | | 27,438 | |
|
| Soft Drinks–0.15% | |
Dr. Pepper Snapple Group Inc., Sr. Unsec. Gtd. Global Notes, 2.00%, 01/15/20 | | | 35,000 | | | | 34,754 | |
|
| Sovereign Debt–1.52% | |
Mexico Government International Bond (Mexico), | | | | | | | | |
Sr. Unsec. Global Notes, 3.63%, 03/15/22 | | | 150,000 | | | | 163,924 | |
Series A, Sr. Unsec. Medium-Term Global Notes, 6.05%, 01/11/40 | | | 60,000 | | | | 80,700 | |
Russian Foreign Bond (Russia), Sr. Unsec. Euro Bonds, 3.63%, 04/29/15(b) | | | 100,000 | | | | 105,900 | |
| | | | | | | | 350,524 | |
|
| Specialized Finance–2.20% | |
Air Lease Corp., Sr. Unsec. Global Notes, 5.63%, 04/01/17 | | | 11,000 | | | | 11,715 | |
Aircastle Ltd., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
6.75%, 04/15/17 | | | 17,000 | | | | 18,360 | |
7.63%, 04/15/20 | | | 4,000 | | | | 4,500 | |
Sr. Unsec. Notes, 6.25%, 12/01/19(b) | | | 2,000 | | | | 2,095 | |
CIT Group Inc., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
4.25%, 08/15/17 | | | 5,000 | | | | 5,188 | |
5.00%, 08/15/22 | | | 5,000 | | | | 5,387 | |
5.25%, 03/15/18 | | | 13,000 | | | | 14,040 | |
Sr. Unsec. Notes, 5.50%, 02/15/19(b) | | | 10,000 | | | | 10,900 | |
General Electric Capital Corp., Sr. Unsec. Global Notes, 2.15%, 01/09/15 | | | 70,000 | | | | 71,867 | |
International Lease Finance Corp., | | | | | | | | |
Sr. Sec. Gtd. Notes, 6.50%, 09/01/14(b) | | | 115,000 | | | | 122,834 | |
Sr. Unsec. Global Notes, | | | | | | | | |
4.88%, 04/01/15 | | | 45,000 | | | | 46,744 | |
5.88%, 04/01/19 | | | 10,000 | | | | 10,547 | |
5.88%, 08/15/22 | | | 10,000 | | | | 10,637 | |
8.63%, 09/15/15 | | | 5,000 | | | | 5,631 | |
8.75%, 03/15/17 | | | 27,000 | | | | 31,236 | |
Sr. Unsec. Notes, 8.25%, 12/15/20 | | | 10,000 | | | | 11,950 | |
Moody’s Corp., Sr. Unsec. Notes, 5.50%, 09/01/20 | | | 110,000 | | | | 123,112 | |
| | | | | | | | 506,743 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Specialized REIT’s–2.94% | |
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | | $ | 90,000 | | | $ | 95,688 | |
EPR Properties, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | | | 245,000 | | | | 282,944 | |
Felcor Lodging L.P., Sr. Sec. Notes, 5.63%, 03/01/23(b) | | | 2,000 | | | | 2,013 | |
HCP, Inc., Sr. Unsec. Notes, 3.75%, 02/01/16 | | | 25,000 | | | | 26,529 | |
Host Hotels & Resorts L.P., | | | | | | | | |
Sr. Unsec. Global Notes, 5.25%, 03/15/22 | | | 5,000 | | | | 5,544 | |
Sr. Unsec. Gtd. Global Notes, 6.00%, 11/01/20 | | | 10,000 | | | | 11,025 | |
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | | | 5,000 | | | | 5,450 | |
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | | | 5,000 | | | | 5,456 | |
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | | | 75,000 | | | | 77,737 | |
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, | | | | | | | | |
2.00%, 02/15/18 | | | 65,000 | | | | 64,998 | |
4.75%, 06/01/21 | | | 90,000 | | | | 98,834 | |
| | | | | | | | 676,218 | |
|
| Specialty Chemicals–0.25% | |
Ashland Inc., Sr. Unsec. Gtd. Notes, 4.75%, 08/15/22(b) | | | 2,000 | | | | 2,085 | |
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | | | 15,000 | | | | 16,538 | |
RPM International Inc., Sr. Unsec. Global Notes, 3.45%, 11/15/22 | | | 40,000 | | | | 39,642 | |
| | | | | | | | 58,265 | |
|
| Specialty Stores–0.17% | |
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | | | 10,000 | | | | 11,050 | |
Staples Inc., Sr. Unsec. Global Notes, 9.75%, 01/15/14 | | | 25,000 | | | | 27,203 | |
| | | | | | | | 38,253 | |
|
| Steel–1.18% | |
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | | | | | | | | |
6.13%, 06/01/18 | | | 55,000 | | | | 56,705 | |
6.75%, 02/25/22 | | | 3,000 | | | | 3,149 | |
7.25%, 03/01/41 | | | 60,000 | | | | 55,809 | |
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 8.25%, 11/01/19(b) | | | 6,000 | | | | 6,435 | |
Steel Dynamics Inc., Sr. Unsec. Gtd. Notes, 6.13%, 08/15/19(b) | | | 9,000 | | | | 9,563 | |
United States Steel Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.50%, 03/15/22 | | | 3,000 | | | | 3,180 | |
Sr. Unsec. Notes, 7.00%, 02/01/18 | | | 6,000 | | | | 6,360 | |
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | | | 55,000 | | | | 59,509 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Steel–(continued) | |
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | | $ | 65,000 | | | $ | 70,746 | |
| | | | | | | | 271,456 | |
|
| Systems Software–0.04% | |
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16
(Acquired 11/12/10-12/16/10;
Cost $13,163)(b) | | | 13,000 | | | | 9,555 | |
|
| Technology Distributors–0.01% | |
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | | | 2,000 | | | | 2,115 | |
|
| Tobacco–0.47% | |
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/05/21 | | | 95,000 | | | | 107,795 | |
|
| Trading Companies & Distributors–0.06% | |
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/18 | | | 5,000 | | | | 5,400 | |
United Rentals North America Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, 5.75%, 07/15/18(b) | | | 2,000 | | | | 2,165 | |
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | | | 5,000 | | | | 5,663 | |
| | | | | | | | 13,228 | |
|
| Trucking–0.22% | |
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.25%, 01/15/19 | | | 17,000 | | | | 18,870 | |
9.75%, 03/15/20 | | | 2,000 | | | | 2,320 | |
Hertz Corp. (The),
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.75%, 04/15/19 | | | 12,000 | | | | 13,230 | |
7.38%, 01/15/21 | | | 10,000 | | | | 11,050 | |
7.50%, 10/15/18 | | | 2,000 | | | | 2,220 | |
Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | | | 3,000 | | | | 3,262 | |
| | | | | | | | 50,952 | |
|
| Wireless Telecommunication Services–1.31% | |
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | | | 3,000 | | | | 3,236 | |
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | | | 25,000 | | | | 25,687 | |
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | | | 120,000 | | | | 136,050 | |
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.63%, 11/15/20 | | | 13,000 | | | | 13,942 | |
7.88%, 09/01/18 | | | 5,000 | | | | 5,422 | |
SBA Communications Corp., Sr. Unsec. Notes, 5.63%, 10/01/19(b) | | | 5,000 | | | | 5,263 | |
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 11/15/28 | | | 14,000 | | | | 14,647 | |
6.90%, 05/01/19 | | | 5,000 | | | | 5,463 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Wireless Telecommunication Services–(continued) | |
Sprint Nextel Corp., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
6.00%, 11/15/22 | | $ | 10,000 | | | $ | 10,300 | |
7.00%, 08/15/20 | | | 3,000 | | | | 3,293 | |
11.50%, 11/15/21 | | | 2,000 | | | | 2,730 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.00%, 03/01/20(b) | | | 8,000 | | | | 9,400 | |
9.00%, 11/15/18(b) | | | 7,000 | | | | 8,680 | |
Sr. Unsec. Notes, 8.38%, 08/15/17 | | | 5,000 | | | | 5,825 | |
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | | | 50,000 | | | | 52,625 | |
| | | | | | | | 302,563 | |
Total U.S. Dollar Denominated Bonds and Notes (Cost $18,131,474) | | | | 19,748,414 | |
|
U.S. Treasury Securities–9.28% | |
| U.S. Treasury Bills–0.22% | |
0.18%, 11/14/13(f)(g) | | | 50,000 | | | | 49,938 | |
|
| U.S. Treasury Notes–5.58% | |
2.00%, 04/30/16 | | | 160,000 | | | | 168,345 | |
1.00%, 08/31/16 | | | 250,000 | | | | 254,800 | |
3.63%, 02/15/21 | | | 600,000 | | | | 704,282 | |
2.00%, 02/15/22 | | | 55,000 | | | | 56,877 | |
1.75%, 05/15/22 | | | 100,000 | | | | 100,866 | |
| | | | | | | | 1,285,170 | |
|
| U.S. Treasury Bonds–3.48% | |
4.75%, 02/15/41 | | | 375,000 | | | | 516,147 | |
2.75%, 08/15/42 | | | 25,000 | | | | 24,100 | |
4.25%, 05/15/39 | | | 100,000 | | | | 127,418 | |
4.50%, 08/15/39 | | | 100,000 | | | | 132,341 | |
| | | | | | | | 800,006 | |
Total U.S. Treasury Securities
(Cost $1,896,147) | | | | 2,135,114 | |
|
Asset-Backed Securities–1.80% | |
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 04/25/47 | | | 7,396 | | | | 7,371 | |
Credit Suisse Mortgage Capital Ctfs., Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.63%, 09/26/34(b)(d) | | | 63,581 | | | | 60,481 | |
Santander Drive Auto Receivables Trust, Series 2011-1, Class D, Pass Through Ctfs., 4.01%, 02/15/17 | | | 80,000 | | | | 83,608 | |
Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.24%, 10/15/44(d) | | | 110,000 | | | | 117,305 | |
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.62%, 12/25/34(d) | | | 142,855 | | | | 145,483 | |
Total Asset-Backed Securities
(Cost $373,370) | | | | 414,248 | |
| | | | | | | | |
| | |
Shares | | | Value | |
Preferred Stocks–1.34% | |
| Diversified Banks–0.92% | |
CoBank ACB, Series F, 6.25% Pfd.(b) | | | 2,000 | | | $ | 209,312 | |
Royal Bank of Scotland PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | | | 135 | | | | 3,228 | |
| | | | | | | | 212,540 | |
|
| Multi-Line Insurance–0.05% | |
Hartford Financial Services Group Inc. (The), 7.88% Jr. Sub. Pfd. | | | 440 | | | | 12,632 | |
|
| Office REIT’s–0.01% | |
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | | | 95 | | | | 2,534 | |
|
| Regional Banks–0.10% | |
Zions Bancorp., Series C, 9.50% Pfd. | | | 920 | | | | 23,810 | |
|
| Reinsurance–0.24% | |
Reinsurance Group of America, Inc., Unsec. Sub. 6.20% Variable Rate Pfd.(d) | | | 2,000 | | | | 54,220 | |
|
| Tires & Rubber–0.02% | |
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | | | 75 | | | | 3,541 | |
Total Preferred Stocks
(Cost $295,123) | | | | 309,277 | |
| | |
| | | Principal Amount | | | | |
Municipal Obligations–0.81% | |
Alameda (County of), California Joint Powers Authority (Multiple Capital); Series 2010 A, Lease RB, 7.05%, 12/01/44 | | $ | 55,000 | | | | 68,899 | |
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 | | | 65,000 | | | | 58,603 | |
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J); Series 2010 A, Taxable RB, 6.64%, 04/01/57 | | | 50,000 | | | | 59,557 | |
Total Municipal Obligations
(Cost $169,523) | | | | 187,059 | |
|
U.S. Government Sponsored Mortgage-Backed Securities–0.80% | |
| Federal Home Loan Mortgage Corp. (FHLMC)–0.29% | |
Pass Through Ctfs., | | | | | | | | |
6.50%, 05/01/16 to 08/01/32 | | | 6,438 | | | | 7,372 | |
6.00%, 05/01/17 to 12/01/31 | | | 37,314 | | | | 41,275 | |
5.50%, 09/01/17 | | | 15,485 | | | | 16,657 | |
| | | | | | | | 65,304 | |
|
| Federal National Mortgage Association (FNMA)–0.40% | |
Pass Through Ctfs., | | | | | | | | |
7.00%, 02/01/16 to 09/01/32 | | | 15,019 | | | | 17,256 | |
6.50%, 05/01/16 to 09/01/31 | | | 4,960 | | | | 5,501 | |
5.00%, 11/01/18 | | | 18,099 | | | | 19,672 | |
7.50%, 04/01/29 to 10/01/29 | | | 40,396 | | | | 43,898 | |
8.00%, 04/01/32 | | | 5,749 | | | | 6,439 | |
| | | | | | | | 92,766 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Government National Mortgage Association (GNMA)–0.11% | |
Pass Through Ctfs., | | | | | | | | |
7.50%, 06/15/23 | | | $ 7,294 | | | $ | 8,527 | |
8.50%, 11/15/24 | | | 5,547 | | | | 6,505 | |
7.00%, 07/15/31 to 08/15/31 | | | 1,939 | | | | 2,312 | |
6.50%, 11/15/31 to 03/15/32 | | | 4,738 | | | | 5,618 | |
6.00%, 11/15/32 | | | 1,859 | | | | 2,100 | |
| | | | | | | | 25,062 | |
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $167,948) | | | | 183,132 | |
|
Non-U.S. Dollar Denominated Bonds & Notes–0.23%(h) | |
| Casinos & Gaming–0.05% | |
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22(b) | | | CAD 12,000 | | | | 12,587 | |
|
| Distillers & Vintners–0.18% | |
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 8.88%, 12/01/16(b) | | | EUR 50,000 | | | | 40,242 | |
Total Non-U.S. Dollar Denominated Bonds & Notes
(Cost $64,205) | | | | 52,829 | |
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–0.01% | |
| Broadcasting–0.00% | |
Adelphia Communications Corp.(i) | | | 900 | | | $ | 702 | |
Adelphia Recovery Trust Series ACC-1(i) | | | 87,412 | | | | 87 | |
| | | | | | | | 789 | |
|
| Paper Products–0.01% | |
NewPage Holdings Inc.
(Acquired 07/21/11-08/29/11;
Cost $6,004)(b)(j) | | | 28 | | | | 2,754 | |
Total Common Stocks & Other Equity Interests
(Cost $28,185) | | | | 3,543 | |
TOTAL INVESTMENTS–100.07%
(Cost $21,125,975) | | | | 23,033,616 | |
OTHER ASSETS LESS LIABILITIES–(0.07)% | | | | (16,238 | ) |
NET ASSETS–100.00% | | | $ | 23,017,378 | |
Investment Abbreviations:
| | |
| CAD | | – Canadian Dollar |
| Ctfs. | | – Certificates |
| Conv. | | – Convertible |
| Deb. | | – Debentures |
| EUR | | – Euro |
| 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 |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $5,430,180, which represented 23.59% 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 December 31, 2012 was $10,800, which represented less than 1% of the Fund’s Net Assets. |
| (d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2012. |
| (e) | Perpetual bond with no specified maturity date. |
| (f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (g) | 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. |
| (h) | Foreign denominated security. Principal amount is denominated in currency indicated. |
| (i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
| (j) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
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
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $21,125,975) | | $ | 23,033,616 | |
Foreign currencies, at value (Cost $7,615) | | | 7,660 | |
Receivable for: | | | | |
Investments sold | | | 302,821 | |
Fund shares sold | | | 1,233 | |
Dividends and interest | | | 278,017 | |
Premiums paid on swap agreements | | | 17,417 | |
Investment for trustee deferred compensation and retirement plans | | | 51,414 | |
Other assets | | | 369 | |
Total assets | | | 23,692,547 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 14,374 | |
Amount due custodian | | | 530,149 | |
Swap agreements | | | 83 | |
Foreign currency contracts | | | 1,130 | |
Variation margin | | | 2,094 | |
Accrued fees to affiliates | | | 7,016 | |
Accrued other operating expenses | | | 44,744 | |
Trustee deferred compensation and retirement plans | | | 60,003 | |
Unrealized depreciation on swap agreements | | | 15,576 | |
Total liabilities | | | 675,169 | |
Net assets applicable to shares outstanding | | $ | 23,017,378 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 29,303,928 | |
Undistributed net investment income | | | 915,244 | |
Undistributed net realized gain (loss) | | | (9,087,248 | ) |
Unrealized appreciation | | | 1,885,454 | |
| | | $ | 23,017,378 | |
|
Net Assets: | |
Series I | | $ | 22,740,737 | |
Series II | | $ | 276,641 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 3,476,892 | |
Series II | | | 42,546 | |
Series I: | | | | |
Net asset value per share | | $ | 6.54 | |
Series II: | | | | |
Net asset value per share | | $ | 6.50 | |
| | | | |
Investment income: | |
Interest | | $ | 1,145,251 | |
Dividends | | | 5,959 | |
Dividends from affiliated money market funds | | | 587 | |
Total investment income | | | 1,151,797 | |
| |
Expenses: | | | | |
Advisory fees | | | 140,005 | |
Administrative services fees | | | 90,017 | |
Custodian fees | | | 12,745 | |
Distribution fees — Series II | | | 633 | |
Transfer agent fees | | | 8,544 | |
Trustees’ and officers’ fees and benefits | | | 21,771 | |
Professional services fees | | | 47,768 | |
Other | | | 26,923 | |
Total expenses | | | 348,406 | |
Less: Fees waived and expenses reimbursed | | | (173,431 | ) |
Net expenses | | | 174,975 | |
Net investment income | | | 976,822 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities | | | 487,730 | |
Foreign currencies | | | (12 | ) |
Foreign currency contracts | | | 3,433 | |
Futures contracts | | | (16,437 | ) |
Swap agreements | | | (20,124 | ) |
| | | | 454,590 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 919,652 | |
Foreign currencies | | | 266 | |
Foreign currency contracts | | | (3,513 | ) |
Futures contracts | | | 19,927 | |
Swap agreements | | | (15,576 | ) |
| | | | 920,756 | |
Net realized and unrealized gain | | | 1,375,346 | |
Net increase in net assets resulting from operations | | $ | 2,352,168 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 976,822 | | | $ | 1,098,197 | |
Net realized gain | | | 454,590 | | | | 567,811 | |
Change in net unrealized appreciation (depreciation) | | | 920,756 | | | | (87,842 | ) |
Net increase in net assets resulting from operations | | | 2,352,168 | | | | 1,578,166 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (1,073,630 | ) | | | (1,215,874 | ) |
Series ll | | | (11,794 | ) | | | (10,587 | ) |
Total distributions from net investment income | | | (1,085,424 | ) | | | (1,226,461 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (845,476 | ) | | | (1,245,046 | ) |
Series ll | | | 36,977 | | | | (8,207 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (808,499 | ) | | | (1,253,253 | ) |
Net increase (decrease) in net assets | | | 458,245 | | | | (901,548 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 22,559,133 | | | | 23,460,681 | |
End of year (includes undistributed net investment income of $915,244 and $1,034,647, respectively) | | $ | 23,017,378 | | | $ | 22,559,133 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations 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.
Invesco V.I. Diversified Income Fund
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) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 |
Invesco V.I. Diversified Income Fund
| | 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 the 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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
A CDS is an agreement between 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
Invesco V.I. Diversified Income Fund
(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. 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 designation of collateral by the counterparty to cover the Fund’s exposure to the counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
| N. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| O. | Collateral — To the extent the Fund has designated 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. (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, 2014, 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2014.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $140,005 and reimbursed Fund expenses of $33,426.
Invesco V.I. Diversified Income Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $40,017 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 100,052 | | | $ | 210,014 | | | $ | 2,754 | | | $ | 312,820 | |
U.S. Treasury Securities | | | — | | | | 2,135,114 | | | | — | | | | 2,135,114 | |
U.S. Government Sponsored Securities | | | — | | | | 183,132 | | | | — | | | | 183,132 | |
Corporate Debt Securities | | | — | | | | 19,450,719 | | | | 0 | | | | 19,450,719 | |
Foreign Sovereign Debt Securities | | | — | | | | 350,524 | | | | — | | | | 350,524 | |
Asset Backed Securities | | | — | | | | 414,248 | | | | — | | | | 414,248 | |
Municipal Obligations | | | — | | | | 187,059 | | | | — | | | | 187,059 | |
| | | $ | 100,052 | | | $ | 22,930,810 | | | $ | 2,754 | | | $ | 23,033,616 | |
Foreign Currency Contracts* | | | — | | | | (1,109 | ) | | | — | | | | (1,109 | ) |
Futures Contracts* | | | (5,550 | ) | | | — | | | | — | | | | (5,550 | ) |
Swap Agreements* | | | — | | | | (15,576 | ) | | | — | | | | (15,576 | ) |
Total Investments | | $ | 94,502 | | | $ | 22,914,125 | | | $ | 2,754 | | | $ | 23,011,381 | |
| * | Unrealized appreciation (depreciation). |
Invesco V.I. Diversified Income Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Credit risk | | | | | | | | |
Swap agreements(a) | | $ | — | | | $ | (15,576 | ) |
Currency risk | | | | | | | | |
Foreign currency contracts(a) | | | — | | | | (1,130 | ) |
Interest rate risk | | | | | | | | |
Futures contracts(b) | | $ | 5,358 | | | $ | (10,908 | ) |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the Unrealized depreciation on swap agreements and Foreign currency contracts. |
| (b) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2012
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
Contracts* | | | Foreign Currency
Contracts* | | | Swap
Agreements* | |
Realized Gain (Loss) | | | | | | | | | | | | |
Credit risk | | $ | — | | | $ | — | | | $ | (20,124 | ) |
Currency risk | | | — | | | | 3,433 | | | | — | |
Interest rate risk | | | (16,437 | ) | | | — | | | | — | |
Change in Unrealized Appreciation (Depreciation) | | | | | | | | | | | | |
Credit risk | | $ | — | | | $ | — | | | $ | (15,576 | ) |
Currency risk | | | — | | | | (3,513 | ) | | | — | |
Interest rate risk | | | 19,927 | | | | — | | | | — | |
Total | | $ | 3,490 | | | $ | (80 | ) | | $ | (35,700 | ) |
| * | The average notional value of futures contracts, foreign currency contracts and swap agreements outstanding during the period was $5,914,522, $43,268 and $595,833, respectively. |
| | | | | | | | | | | | | | | | |
| Open Futures Contracts | |
| Long Contracts | | Number of
Contracts | | | Expiration
Month | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
U.S. Treasury Ultra Bonds | | | 3 | | | | March-2013 | | | $ | 487,781 | | | $ | (10,858 | ) |
U.S. Treasury 5 Year Notes | | | 24 | | | | March-2013 | | | | 2,985,938 | | | | (50 | ) |
Subtotal | | | | | | | | | | $ | 3,473,719 | | | $ | (10,908 | ) |
| | | | |
| | | | | | | | | | | | | | | | |
| Short Contracts | | | | | | | | | | | | |
U.S. Treasury 10 Year Notes | | | 8 | | | | March-2013 | | | $ | (1,062,250 | ) | | $ | 5,358 | |
Total | | | | | | | | | | | | | | $ | (5,550 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | Counterparty | | Deliver | | Receive | | | |
| 02/08/13 | | RBC Capital Markets Corp. | | | EUR | | | 26,000 | | | USD | | | | 33,209 | | | $ | 34,318 | | | $ | (1,109 | ) |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Closed Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Realized Gain
(Loss) | |
| | Counterparty | | Deliver | | Receive | | | |
| 02/08/13 | | RBC Capital Markets Corp. | | | EUR | | | 6,000 | | | USD | | | | 7,663 | | | $ | 7,684 | | | $ | (21 | ) |
Total foreign currency contracts | | | | | | | | | | | | | | | | | | | | $ | (1,130 | ) |
Currency Abbreviations:
| | |
| EUR | | – Euro |
| USD | | – U.S. Dollar |
Invesco V.I. Diversified Income Fund
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Credit Default Swap Agreements | |
| Counterpary | | Reference Entity | | | Buy/Sell Protection | | | (Pay)/Receive Fixed Rate | | | Expiration Date | | | Implied Credit
Spread(a) | | | Notional Value | | | Upfront
Payments | | | Value
Unrealized Appreciation (Depreciation) | |
Bank of America, N.A. | | | Citigroup Inc. | | | | Buy | | | | (1.00 | )% | | | 06/20/17 | | | | 1.17 | % | | $ | 250,000 | | | $ | 17,417 | | | $ | (15,576 | ) |
| (a) | Implied credit spreads represent the current level as of December 31, 2012 at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit 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 generally. |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund 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 State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 1,085,424 | | | $ | 1,226,461 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 969,121 | |
Net unrealized appreciation — investments | | | 1,868,533 | |
Net unrealized appreciation (depreciation) — other investments | | | (15,527 | ) |
Temporary book/tax differences | | | (53,877 | ) |
Capital loss carryforward | | | (9,054,800 | ) |
Shares of beneficial interest | | | 29,303,928 | |
Total net assets | | $ | 23,017,378 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales and straddle loss deferrals.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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. Diversified Income Fund
The Fund utilized $482,894 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 1,695,708 | | | $ | — | | | $ | 1,695,708 | |
December 31, 2017 | | | 7,359,092 | | | | — | | | | 7,359,092 | |
| | | $ | 9,054,800 | | | $ | — | | | $ | 9,054,800 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $13,618,027 and $13,943,699, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $1,354,182 and $2,030,815, 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 | | $ | 1,950,736 | |
Aggregate unrealized (depreciation) of investment securities | | | (82,203 | ) |
Net unrealized appreciation of investment securities | | $ | 1,868,533 | |
Cost of investments for tax purposes is $21,165,083.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of paydown reclasses, on December 31, 2012, undistributed net investment income was decreased by $10,801 and undistributed net realized gain (loss) was increased by $10,801. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 384,940 | | | $ | 2,485,982 | | | | 348,442 | | | $ | 2,182,267 | |
Series II | | | 8,680 | | | | 55,663 | | | | 5,383 | | | | 33,498 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 166,713 | | | | 1,073,630 | | | | 198,025 | | | | 1,215,874 | |
Series II | | | 1,842 | | | | 11,794 | | | | 1,730 | | | | 10,587 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (680,152 | ) | | | (4,405,088 | ) | | | (746,622 | ) | | | (4,643,187 | ) |
Series II | | | (4,745 | ) | | | (30,480 | ) | | | (8,507 | ) | | | (52,292 | ) |
Net increase (decrease) in share activity | | | (122,722 | ) | | $ | (808,499 | ) | | | (201,549 | ) | | $ | (1,253,253 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 84% 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 Fund 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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 6.19 | | | $ | 0.27 | | | $ | 0.39 | | | $ | 0.66 | | | $ | (0.31 | ) | | $ | 6.54 | | | | 10.71 | % | | $ | 22,741 | | | | 0.75 | %(d) | | | 1.49 | %(d) | | | 4.19 | %(d) | | | 66 | % |
Year ended 12/31/11 | | | 6.10 | | | | 0.29 | | | | 0.13 | | | | 0.42 | | | | (0.33 | ) | | | 6.19 | | | | 7.02 | | | | 22,333 | | | | 0.75 | | | | 1.46 | | | | 4.71 | | | | 59 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 6.16 | | | | 0.25 | | | | 0.38 | | | | 0.63 | | | | (0.29 | ) | | | 6.50 | | | | 10.38 | | | | 277 | | | | 1.00 | (d) | | | 1.74 | (d) | | | 3.94 | (d) | | | 66 | |
Year ended 12/31/11 | | | 6.07 | | | | 0.28 | | | | 0.13 | | | | 0.41 | | | | (0.32 | ) | | | 6.16 | | | | 6.72 | | | | 227 | | | | 1.00 | | | | 1.71 | | | | 4.46 | | | | 59 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $23,081 and $253 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Diversified Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Diversified Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,049.50 | | | $ | 3.86 | | | $ | 1,021.37 | | | $ | 3.81 | | | | 0.75 | % |
| Series II | | | 1,000.00 | | | | 1,047.70 | | | | 5.15 | | | | 1,020.11 | | | | 5.08 | | | | 1.00 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 0.00 | % |
U.S. Treasury Obligations* | | | 5.42 | % |
| | * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Diversified Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Diversified Income Fund
Invesco V.I. Equally-Weighted S&P 500 Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-VIEWSP-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Equally-Weighted S&P 500 Fund performed generally in line with its style-specific benchmark, the S&P 500 Equal Weight Index. The Fund seeks to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 17.09 | % |
| Series II Shares | | | | 16.82 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| S&P 500 Equal Weight Index‚ (Style-Specific Index) | | | | 17.65 | |
| Lipper VUF Multi-Cap Core Funds Indexn (Peer Group Index) | | | | 15.33 | |
| Source(s): | ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc. |
How we invest
The Fund invests in a diversified portfolio of common stocks represented in the S&P 500 Index (the S&P 500). The S&P 500 is a well-known stock market index that includes common stocks of 500 companies. The Fund generally invests in each stock included in the S&P 500 in approximately equal proportions. This approach differs from the S&P 500 because stocks in the S&P 500 are represented in proportion to their market value or market capitalization. For example, the 50 largest companies in the S&P 500 represent approximately 50 percent of the S&P 500’s value; however, the same 50 companies represent roughly 10 percent of the Fund’s value. The Fund may invest in foreign securities represented in the S&P 500, including depositary receipts. Changes to the Fund’s portfolio are the result of Standard & Poor’s either adding a security to, or deleting a security from, the S&P 500. Changes are not the result of any stock selection model.
The Fund also may invest in S&P 500 futures contracts. This type of investment is a derivative instrument since the
price is derived from one or more underlying assets. The purpose of this investment is to provide full stock market exposure to the Fund’s nominal cash holdings.
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures.
At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year-end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
The Fund stayed true to its process by maintaining balanced exposure to all constituents of the S&P 500. On an absolute basis, the Fund posted positive returns for the reporting period. Sectors that contributed the most to overall Fund performance were the consumer discretionary, health care, financials and industrials sectors. The telecommunication services and utilities sectors contributed the least to the Fund’s overall performance. In addition, the Fund’s allocation to Equally Weighted S&P 500 futures contracts was a slight contributor to Fund performance.
In the consumer discretionary sector, several stocks were strong contributors for the reporting period, including, Pulte Group, Whirlpool and Expedia. Meritage Homes (not a Fund holding) announced that it had selected Whirlpool as the exclusive appliance provider to the builder’s wide range of homes, including first-time, move-up, luxury and active-adult. Whirlpool will provide Jenn-Air, KitchenAid, Maytag and Whirlpool brand appliances to Meritage Homes’ communities throughout the southern and western states.2
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Consumer Discretionary | | | | 14.7 | % |
| Financials | | | | 14.0 | |
| Information Technology | | | | 12.1 | |
| Industrials | | | | 10.5 | |
| Health Care | | | | 9.1 | |
| Energy | | | | 7.5 | |
| Consumer Staples | | | | 7.1 | |
| Materials | | | | 5.5 | |
| Utilities | | | | 5.3 | |
| Telecommunication Services | | | | 1.4 | |
| Money Market Funds Plus Other Assets Less Liabilities | | | | 12.8 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
1. NYSE Euronext | | | | 0.2 | % |
2. Ford Motor Co. | | | | 0.2 | |
3. Cliffs Natural Resources Inc. | | | | 0.2 | |
4. Western Digital Corp. | | | | 0.2 | |
5. Delphi Automotive PLC | | | | 0.2 | |
6. Seagate Technology PLC | | | | 0.2 | |
7. Jabil Circuit, Inc. | | | | 0.2 | |
8. Bank of America Corp. | | | | 0.2 | |
9. FLIR Systems, Inc. | | | | 0.2 | |
10. CBS Corp.-Class B | | | | 0.2 | |
| | | | | |
| Total Net Assets | | | | $71.3 million | |
| |
| Total Number of Holdings* | | | | 501 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Equally-Weighted S&P 500 Fund
Also contributing to Fund performance were telecommunications company Sprint Nextel and financial giant Bank of America. During the reporting period, Sprint Nextel acquired Clearwire, (not a Fund holding) a wireless high speed Inter-net service provider.
Several stocks delivering negative performance during the reporting period included information technology companies Advanced Micro Devices and Hewlett Packard. Hewlett Packard struggled during the reporting period due to a year of management upheavals and disappointing earnings, mostly tied to the company writing down approximately $8.8 billion of its acquisition of Autonomy (not a Fund holding).
Also detracting from performance were Apollo Group and Alpha Natural Resources. (We sold Alpha Natural Resources before the close of the reporting period.) Alpha Natural Resources, a coal producer, was hampered as increased use of natural gas for power generation hurt demand for coal.
At the close of the year, central banks around the globe remained accommodative and market valuations remained attractive from an historical perspective. That said, underlying issues plaguing markets over the past several years such as high sovereign debt levels across the developed markets (particularly in Europe) have not been resolved, and could continue to weigh on global economic growth and add to market volatility.
We welcome new investors who joined the Fund during the year and thank all of our shareholders for your investment in Invesco V.I. Equally-Weighted S&P 500 Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Anthony Munchak Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Equally-Weighted S&P 500 |
| Fund. He joined Invesco in 2000. Mr. Munchak earned a BS and an MS in finance from Boston College and an MBA from Bentley College. |
| | |
 | | Glen Murphy Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Equally-Weighted S&P 500 |
| Fund. He joined Invesco in 1995. Mr. Murphy earned a BBA from the University of Massachusetts Amherst and an MS in finance from Boston College. |
| | |
 | | Francis Orlando Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Equally-Weighted S&P 500 |
| Fund. He joined Invesco in 1987. Mr. Orlando earned a BBA from Merrimack College and an MBA from Boston University. |
| | |
 | | Daniel Tsai Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Equally-Weighted S&P 500 |
| Fund. He joined Invesco in 2000. Mr. Tsai earned a BS in mechanical engineering from National Taiwan University, an MS in mechanical engineering from the University of Michigan and an MS in computer science from Wayne State University. |
| | |
 | | Anne Unflat Portfolio manager, is manager of Invesco V.I. Equally-Weighted S&P 500 Fund. She joined Invesco in 1998. |
| Ms. Unflat earned a BA in economics from Queens College and an MBA in finance from St. John’s University. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| |
| Series I Shares | | | | | |
| Inception (11/9/94) | | | | 9.79 | % |
| 10 Years | | | | 9.59 | |
| 5 Years | | | | 4.29 | |
| 1 Year | | | | 17.09 | |
| |
| Series II Shares | | | | | |
| Inception (7/24/00) | | | | 6.58 | % |
| 10 Years | | | | 9.31 | |
| 5 Years | | | | 4.02 | |
| 1 Year | | | | 16.82 | |
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 (renamed Invesco V.I. Equally-Weighted S&P 500 Fund on April 30,
2012). 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 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. 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.
Invesco V.I. Equally-Weighted S&P 500 Fund
Invesco V.I. Equally-Weighted S&P 500 Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives. Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment; general economic and market conditions; regional or global instability; and currency and interest rate fluctuations.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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 Funds Index is an unmanaged index considered representative of multicap 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s
Invesco V.I. Equally-Weighted S&P 500 Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–99.38% | |
| Advertising–0.40% | |
Interpublic Group of Cos., Inc. (The) | | | 12,816 | | | $ | 141,232 | |
Omnicom Group Inc. | | | 2,839 | | | | 141,837 | |
| | | | | | | | 283,069 | |
|
| Aerospace & Defense–2.20% | |
Boeing Co. (The) | | | 1,886 | | | | 142,129 | |
General Dynamics Corp. | | | 2,069 | | | | 143,320 | |
Honeywell International Inc. | | | 2,269 | | | | 144,013 | |
L-3 Communications Holdings, Inc. | | | 1,854 | | | | 142,054 | |
Lockheed Martin Corp. | | | 1,569 | | | | 144,803 | |
Northrop Grumman Corp. | | | 2,091 | | | | 141,310 | |
Precision Castparts Corp. | | | 758 | | | | 143,580 | |
Raytheon Co. | | | 2,429 | | | | 139,813 | |
Rockwell Collins, Inc. | | | 2,477 | | | | 144,087 | |
Textron Inc. | | | 5,757 | | | | 142,716 | |
United Technologies Corp. | | | 1,745 | | | | 143,107 | |
| | | | | | | | 1,570,932 | |
|
| Agricultural Products–0.20% | |
Archer-Daniels-Midland Co. | | | 5,156 | | | | 141,223 | |
| | |
| Air Freight & Logistics–0.80% | | | | | | | | |
C.H. Robinson Worldwide, Inc. | | | 2,270 | | | | 143,509 | |
Expeditors International of Washington, Inc. | | | 3,654 | | | | 144,516 | |
FedEx Corp. | | | 1,549 | | | | 142,074 | |
United Parcel Service, Inc.–Class B | | | 1,916 | | | | 141,267 | |
| | | | | | | | 571,366 | |
|
| Airlines–0.20% | |
Southwest Airlines Co. | | | 13,709 | | | | 140,380 | |
|
| Aluminum–0.19% | |
Alcoa Inc. | | | 15,983 | | | | 138,732 | |
|
| Apparel Retail–1.17% | |
Abercrombie & Fitch Co.–Class A | | | 2,985 | | | | 143,190 | |
Gap, Inc. (The) | | | 4,441 | | | | 137,849 | |
Limited Brands, Inc. | | | 2,770 | | | | 130,356 | |
Ross Stores, Inc. | | | 2,626 | | | | 142,198 | |
TJX Cos., Inc. (The) | | | 3,278 | | | | 139,151 | |
Urban Outfitters, Inc.(b) | | | 3,618 | | | | 142,405 | |
| | | | | | | | 835,149 | |
|
| Apparel, Accessories & Luxury Goods–0.79% | |
Coach, Inc. | | | 2,448 | | | | 135,888 | |
Fossil, Inc.(b) | | | 1,540 | | | | 143,374 | |
Ralph Lauren Corp. | | | 930 | | | | 139,426 | |
VF Corp. | | | 942 | | | | 142,214 | |
| | | | | | | | 560,902 | |
|
| Application Software–0.99% | |
Adobe Systems Inc.(b) | | | 3,716 | | | | 140,019 | |
Autodesk, Inc.(b) | | | 4,082 | | | | 144,299 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Application Software–(continued) | |
Citrix Systems, Inc.(b) | | | 2,148 | | | $ | 141,231 | |
Intuit Inc. | | | 2,321 | | | | 138,099 | |
Salesforce.com, Inc.(b) | | | 837 | | | | 140,700 | |
| | | | | | | | 704,348 | |
|
| Asset Management & Custody Banks–1.81% | |
Ameriprise Financial, Inc. | | | 2,281 | | | | 142,859 | |
Bank of New York Mellon Corp. (The) | | | 5,650 | | | | 145,205 | |
BlackRock, Inc. | | | 692 | | | | 143,043 | |
Franklin Resources, Inc. | | | 1,099 | | | | 138,144 | |
Invesco Ltd.(c) | | | 5,486 | | | | 143,130 | |
Legg Mason, Inc. | | | 5,569 | | | | 143,235 | |
Northern Trust Corp. | | | 2,964 | | | | 148,674 | |
State Street Corp. | | | 3,073 | | | | 144,462 | |
T. Rowe Price Group Inc. | | | 2,183 | | | | 142,179 | |
| | | | | | | | 1,290,931 | |
|
| Auto Parts & Equipment–0.64% | |
BorgWarner, Inc.(b) | | | 2,101 | | | | 150,474 | |
Delphi Automotive PLC (United Kingdom)(b) | | | 4,077 | | | | 155,945 | |
Johnson Controls, Inc. | | | 4,953 | | | | 152,057 | |
| | | | | | | | 458,476 | |
|
| Automobile Manufacturers–0.23% | |
Ford Motor Co. | | | 12,585 | | | | 162,976 | |
|
| Automotive Retail–0.80% | |
AutoNation, Inc.(b) | | | 3,635 | | | | 144,310 | |
AutoZone, Inc.(b) | | | 390 | | | | 138,228 | |
CarMax, Inc.(b) | | | 3,982 | | | | 149,484 | |
O’Reilly Automotive, Inc.(b) | | | 1,560 | | | | 139,495 | |
| | | | | | | | 571,517 | |
|
| Biotechnology–0.96% | |
Alexion Pharmaceuticals, Inc.(b) | | | 1,495 | | | | 140,246 | |
Amgen Inc. | | | 1,565 | | | | 135,091 | |
Biogen Idec Inc.(b) | | | 923 | | | | 135,376 | |
Celgene Corp.(b) | | | 1,759 | | | | 138,451 | |
Gilead Sciences, Inc.(b) | | | 1,881 | | | | 138,159 | |
| | | | | | | | 687,323 | |
|
| Brewers–0.19% | |
Molson Coors Brewing Co.–Class B | | | 3,245 | | | | 138,854 | |
|
| Broadcasting–0.61% | |
CBS Corp.–Class B | | | 4,010 | | | | 152,580 | |
Discovery Communications, Inc.–Class A(b) | | | 2,296 | | | | 145,750 | |
Scripps Networks Interactive–Class A | | | 2,406 | | | | 139,356 | |
| | | | | | | | 437,686 | |
|
| Building Products–0.20% | |
Masco Corp. | | | 8,636 | | | | 143,876 | |
|
| Cable & Satellite–0.80% | |
Cablevision Systems Corp.–Class A | | | 9,638 | | | | 143,992 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Cable & Satellite–(continued) | |
Comcast Corp.–Class A | | | 3,823 | | | $ | 142,904 | |
DIRECTV(b) | | | 2,803 | | | | 140,598 | |
Time Warner Cable Inc. | | | 1,484 | | | | 144,230 | |
| | | | | | | | 571,724 | |
|
| Casinos & Gaming–0.39% | |
International Game Technology | | | 9,658 | | | | 136,854 | |
Wynn Resorts Ltd. | | | 1,227 | | | | 138,025 | |
| | | | | | | | 274,879 | |
|
| Coal & Consumable Fuels–0.38% | |
CONSOL Energy Inc. | | | 4,145 | | | | 133,055 | |
Peabody Energy Corp. | | | 5,046 | | | | 134,274 | |
| | | | | | | | 267,329 | |
|
| Communications Equipment–1.42% | |
Cisco Systems, Inc. | | | 7,033 | | | | 138,198 | |
F5 Networks, Inc.(b) | | | 1,544 | | | | 150,000 | |
Harris Corp. | | | 2,899 | | | | 141,935 | |
JDS Uniphase Corp.(b) | | | 11,094 | | | | 150,213 | |
Juniper Networks, Inc.(b) | | | 7,130 | | | | 140,247 | |
Motorola Solutions, Inc. | | | 2,584 | | | | 143,877 | |
QUALCOMM, Inc. | | | 2,334 | | | | 144,755 | |
| | | | | | | | 1,009,225 | |
|
| Computer & Electronics Retail–0.37% | |
Best Buy Co., Inc. | | | 11,586 | | | | 137,294 | |
GameStop Corp.–Class A | | | 5,077 | | | | 127,382 | |
| | | | | | | | 264,676 | |
|
| Computer Hardware–0.58% | |
Apple Inc. | | | 274 | | | | 146,036 | |
Dell Inc. | | | 13,393 | | | | 135,671 | |
Hewlett-Packard Co. | | | 9,447 | | | | 134,620 | |
| | | | | | | | 416,327 | |
|
| Computer Storage & Peripherals–1.04% | |
EMC Corp.(b) | | | 5,650 | | | | 142,945 | |
NetApp, Inc.(b) | | | 4,234 | | | | 142,051 | |
SanDisk Corp.(b) | | | 3,273 | | | | 142,572 | |
Seagate Technology PLC | | | 5,052 | | | | 153,985 | |
Western Digital Corp. | | | 3,696 | | | | 157,043 | |
| | | | | | | | 738,596 | |
|
| Construction & Engineering–0.60% | |
Fluor Corp. | | | 2,446 | | | | 143,678 | |
Jacobs Engineering Group, Inc.(b) | | | 3,378 | | | | 143,802 | |
Quanta Services, Inc.(b) | | | 5,156 | | | | 140,707 | |
| | | | | | | | 428,187 | |
|
| Construction & Farm Machinery & Heavy Trucks–1.00% | |
Caterpillar Inc. | | | 1,568 | | | | 140,461 | |
Cummins Inc. | | | 1,313 | | | | 142,264 | |
Deere & Co. | | | 1,624 | | | | 140,346 | |
Joy Global Inc. | | | 2,266 | | | | 144,525 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Construction & Farm Machinery & Heavy Trucks–(continued) | |
PACCAR Inc. | | | 3,180 | | | $ | 143,768 | |
| | | | | | | | 711,364 | |
|
| Construction Materials–0.20% | |
Vulcan Materials Co. | | | 2,707 | | | | 140,899 | |
|
| Consumer Electronics–0.40% | |
Garmin Ltd.(d) | | | 3,433 | | | | 140,135 | |
Harman International Industries, Inc. | | | 3,319 | | | | 148,160 | |
| | | | | | | | 288,295 | |
|
| Consumer Finance–0.79% | |
American Express Co. | | | 2,465 | | | | 141,688 | |
Capital One Financial Corp. | | | 2,458 | | | | 142,392 | |
Discover Financial Services | | | 3,532 | | | | 136,159 | |
SLM Corp. | | | 8,337 | | | | 142,813 | |
| | | | | | | | 563,052 | |
|
| Data Processing & Outsourced Services–1.76% | |
Automatic Data Processing, Inc. | | | 2,433 | | | | 138,705 | |
Computer Sciences Corp. | | | 3,527 | | | | 141,256 | |
Fidelity National Information Services, Inc. | | | 3,936 | | | | 137,012 | |
Fiserv, Inc.(b) | | | 1,752 | | | | 138,460 | |
MasterCard, Inc.–Class A | | | 289 | | | | 141,980 | |
Paychex, Inc. | | | 4,144 | | | | 129,044 | |
Total System Services, Inc. | | | 6,361 | | | | 136,253 | |
Visa Inc.–Class A | | | 951 | | | | 144,153 | |
Western Union Co. (The) | | | 10,642 | | | | 144,838 | |
| | | | | | | | 1,251,701 | |
|
| Department Stores–0.78% | |
JC Penney Co., Inc.(d) | | | 6,658 | | | | 131,229 | |
Kohl’s Corp. | | | 3,188 | | | | 137,020 | |
Macy’s, Inc. | | | 3,668 | | | | 143,125 | |
Nordstrom, Inc. | | | 2,675 | | | | 143,113 | |
| | | | | | | | 554,487 | |
|
| Distillers & Vintners–0.59% | |
Beam Inc. | | | 2,287 | | | | 139,713 | |
Brown-Forman Corp.–Class B | | | 2,207 | | | | 139,592 | |
Constellation Brands, Inc.–Class A(b) | | | 3,956 | | | | 140,003 | |
| | | | | | | | 419,308 | |
|
| Distributors–0.20% | |
Genuine Parts Co. | | | 2,234 | | | | 142,038 | |
|
| Diversified Banks–0.61% | |
Comerica Inc. | | | 4,874 | | | | 147,877 | |
U.S. Bancorp | | | 4,448 | | | | 142,069 | |
Wells Fargo & Co. | | | 4,214 | | | | 144,035 | |
| | | | | | | | 433,981 | |
|
| Diversified Chemicals–1.01% | |
Dow Chemical Co. (The) | | | 4,465 | | | | 144,309 | |
E. I. du Pont de Nemours and Co. | | | 3,168 | | | | 142,465 | |
Eastman Chemical Co. | | | 2,159 | | | | 146,920 | |
FMC Corp. | | | 2,459 | | | | 143,900 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Diversified Chemicals–(continued) | |
PPG Industries, Inc. | | | 1,074 | | | $ | 145,366 | |
| | | | | | | | 722,960 | |
|
| Diversified Metals & Mining–0.20% | |
Freeport-McMoRan Copper & Gold Inc. | | | 4,135 | | | | 141,417 | |
|
| Diversified REIT’s–0.20% | |
Vornado Realty Trust | | | 1,806 | | | | 144,624 | |
|
| Diversified Support Services–0.39% | |
Cintas Corp. | | | 3,359 | | | | 137,383 | |
Iron Mountain Inc. | | | 4,515 | | | | 140,191 | |
| | | | | | | | 277,574 | |
|
| Drug Retail–0.39% | |
CVS Caremark Corp. | | | 2,836 | | | | 137,121 | |
Walgreen Co. | | | 3,799 | | | | 140,601 | |
| | | | | | | | 277,722 | |
|
| Education Services–0.19% | |
Apollo Group, Inc.–Class A(b) | | | 6,637 | | | | 138,846 | |
|
| Electric Utilities–2.56% | |
American Electric Power Co., Inc. | | | 3,260 | | | | 139,137 | |
Duke Energy Corp. | | | 2,189 | | | | 139,658 | |
Edison International | | | 3,117 | | | | 140,857 | |
Entergy Corp. | | | 2,203 | | | | 140,441 | |
Exelon Corp. | | | 4,709 | | | | 140,046 | |
FirstEnergy Corp. | | | 3,426 | | | | 143,070 | |
NextEra Energy, Inc. | | | 2,009 | | | | 139,003 | |
Northeast Utilities | | | 3,610 | | | | 141,079 | |
Pepco Holdings, Inc. | | | 7,178 | | | | 140,760 | |
Pinnacle West Capital Corp. | | | 2,752 | | | | 140,297 | |
PPL Corp. | | | 4,852 | | | | 138,913 | |
Southern Co. (The) | | | 3,252 | | | | 139,218 | |
Xcel Energy, Inc. | | | 5,185 | | | | 138,491 | |
| | | | | | | | 1,820,970 | |
|
| Electrical Components & Equipment–0.80% | |
Eaton Corp. PLC | | | 2,657 | | | | 144,010 | |
Emerson Electric Co. | | | 2,699 | | | | 142,939 | |
Rockwell Automation, Inc. | | | 1,697 | | | | 142,531 | |
Roper Industries, Inc. | | | 1,269 | | | | 141,468 | |
| | | | | | | | 570,948 | |
|
| Electronic Components–0.40% | |
Amphenol Corp.–Class A | | | 2,233 | | | | 144,475 | |
Corning Inc. | | | 11,059 | | | | 139,565 | |
| | | | | | | | 284,040 | |
|
| Electronic Equipment & Instruments–0.21% | |
FLIR Systems, Inc. | | | 6,861 | | | | 153,069 | |
|
| Electronic Manufacturing Services–0.62% | |
Jabil Circuit, Inc. | | | 7,942 | | | | 153,201 | |
Molex Inc. | | | 5,231 | | | | 142,963 | |
TE Connectivity Ltd. (Switzerland) | | | 3,879 | | | | 143,989 | |
| | | | | | | | 440,153 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Environmental & Facilities Services–0.59% | |
Republic Services, Inc. | | | 4,795 | | | $ | 140,638 | |
Stericycle, Inc.(b) | | | 1,497 | | | | 139,625 | |
Waste Management, Inc. | | | 4,161 | | | | 140,392 | |
| | | | | | | | 420,655 | |
|
| Fertilizers & Agricultural Chemicals–0.60% | |
CF Industries Holdings, Inc. | | | 677 | | | | 137,539 | |
Monsanto Co. | | | 1,566 | | | | 148,222 | |
Mosaic Co. (The) | | | 2,514 | | | | 142,368 | |
| | | | | | | | 428,129 | |
|
| Food Distributors–0.20% | |
Sysco Corp. | | | 4,398 | | | | 139,241 | |
|
| Food Retail–0.60% | |
Kroger Co. (The) | | | 5,313 | | | | 138,244 | |
Safeway Inc.(d) | | | 7,879 | | | | 142,531 | |
Whole Foods Market, Inc. | | | 1,577 | | | | 144,028 | |
| | | | | | | | 424,803 | |
|
| Footwear–0.21% | |
NIKE, Inc.–Class B | | | 2,880 | | | | 148,608 | |
|
| Gas Utilities–0.39% | |
AGL Resources Inc. | | | 3,522 | | | | 140,775 | |
ONEOK, Inc. | | | 3,255 | | | | 139,151 | |
| | | | | | | | 279,926 | |
|
| General Merchandise Stores–0.99% | |
Big Lots, Inc.(b) | | | 5,131 | | | | 146,028 | |
Dollar General Corp.(b) | | | 3,186 | | | | 140,471 | |
Dollar Tree, Inc.(b) | | | 3,615 | | | | 146,624 | |
Family Dollar Stores, Inc. | | | 2,121 | | | | 134,493 | |
Target Corp. | | | 2,308 | | | | 136,564 | |
| | | | | | | | 704,180 | |
|
| Gold–0.21% | |
Newmont Mining Corp. | | | 3,153 | | | | 146,425 | |
|
| Health Care Distributors–0.78% | |
AmerisourceBergen Corp. | | | 3,221 | | | | 139,083 | |
Cardinal Health, Inc. | | | 3,300 | | | | 135,894 | |
McKesson Corp. | | | 1,421 | | | | 137,780 | |
Patterson Cos. Inc. | | | 4,196 | | | | 143,629 | |
| | | | | | | | 556,386 | |
|
| Health Care Equipment–2.54% | |
Baxter International Inc. | | | 2,118 | | | | 141,186 | |
Becton, Dickinson and Co. | | | 1,796 | | | | 140,429 | |
Boston Scientific Corp.(b) | | | 24,638 | | | | 141,176 | |
C.R. Bard, Inc. | | | 1,451 | | | | 141,821 | |
CareFusion Corp.(b) | | | 4,974 | | | | 142,157 | |
Covidien PLC | | | 2,440 | | | | 140,885 | |
Edwards Lifesciences Corp.(b) | | | 1,534 | | | | 138,321 | |
Intuitive Surgical, Inc.(b) | | | 261 | | | | 127,986 | |
Medtronic, Inc. | | | 3,336 | | | | 136,843 | |
St. Jude Medical, Inc. | | | 3,951 | | | | 142,789 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Health Care Equipment–(continued) | |
Stryker Corp. | | | 2,504 | | | $ | 137,269 | |
Varian Medical Systems, Inc.(b) | | | 1,966 | | | | 138,092 | |
Zimmer Holdings, Inc. | | | 2,077 | | | | 138,453 | |
| | | | | | | | 1,807,407 | |
|
| Health Care Facilities–0.21% | |
Tenet Healthcare Corp.(b) | | | 4,560 | | | | 148,063 | |
|
| Health Care Services–0.78% | |
DaVita HealthCare Partners Inc.(b) | | | 1,280 | | | | 141,478 | |
Express Scripts Holding Co.(b) | | | 2,550 | | | | 137,700 | |
Laboratory Corp. of America Holdings(b) | | | 1,603 | | | | 138,852 | |
Quest Diagnostics Inc. | | | 2,360 | | | | 137,517 | |
| | | | | | | | 555,547 | |
|
| Health Care Supplies–0.20% | |
DENTSPLY International Inc. | | | 3,517 | | | | 139,308 | |
|
| Health Care Technology–0.20% | |
Cerner Corp.(b) | | | 1,808 | | | | 140,373 | |
|
| Home Entertainment Software–0.19% | |
Electronic Arts Inc.(b) | | | 9,104 | | | | 132,281 | |
|
| Home Furnishings–0.20% | |
Leggett & Platt, Inc. | | | 5,299 | | | | 144,239 | |
|
| Home Improvement Retail–0.40% | |
Home Depot, Inc. (The) | | | 2,250 | | | | 139,163 | |
Lowe’s Cos., Inc. | | | 4,054 | | | | 143,998 | |
| | | | | | | | 283,161 | |
|
| Homebuilding–0.62% | |
D.R. Horton, Inc. | | | 7,415 | | | | 146,669 | |
Lennar Corp.–Class A | | | 3,743 | | | | 144,742 | |
PulteGroup Inc.(b) | | | 8,116 | | | | 147,386 | |
| | | | | | | | 438,797 | |
|
| Homefurnishing Retail–0.19% | |
Bed Bath & Beyond Inc.(b) | | | 2,399 | | | | 134,128 | |
|
| Hotels, Resorts & Cruise Lines–0.81% | |
Carnival Corp. | | | 3,702 | | | | 136,122 | |
Marriott International Inc.–Class A | | | 3,867 | | | | 144,123 | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 2,584 | | | | 148,218 | |
Wyndham Worldwide Corp. | | | 2,779 | | | | 147,871 | |
| | | | | | | | 576,334 | |
|
| Household Appliances–0.20% | |
Whirlpool Corp. | | | 1,394 | | | | 141,839 | |
|
| Household Products–0.77% | |
Clorox Co. (The) | | | 1,851 | | | | 135,530 | |
Colgate-Palmolive Co. | | | 1,319 | | | | 137,888 | |
Kimberly-Clark Corp. | | | 1,641 | | | | 138,550 | |
Procter & Gamble Co. (The) | | | 1,996 | | | | 135,509 | |
| | | | | | | | 547,477 | |
|
| Housewares & Specialties–0.20% | |
Newell Rubbermaid Inc. | | | 6,358 | | | | 141,593 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Human Resource & Employment Services–0.21% | |
Robert Half International, Inc. | | | 4,697 | | | $ | 149,459 | |
|
| Hypermarkets & Super Centers–0.39% | |
Costco Wholesale Corp. | | | 1,440 | | | | 142,229 | |
Wal-Mart Stores, Inc. | | | 2,032 | | | | 138,643 | |
| | | | | | | | 280,872 | |
|
| Independent Power Producers & Energy Traders–0.39% | |
AES Corp. (The) | | | 13,007 | | | | 139,175 | |
NRG Energy, Inc. | | | 6,073 | | | | 139,618 | |
| | | | | | | | 278,793 | |
|
| Industrial Conglomerates–0.59% | |
3M Co. | | | 1,513 | | | | 140,482 | |
Danaher Corp. | | | 2,562 | | | | 143,216 | |
General Electric Co.(e) | | | 6,461 | | | | 135,616 | |
| | | | | | | | 419,314 | |
|
| Industrial Gases–0.60% | |
Air Products & Chemicals, Inc. | | | 1,691 | | | | 142,078 | |
Airgas, Inc. | | | 1,569 | | | | 143,234 | |
Praxair, Inc. | | | 1,305 | | | | 142,832 | |
| | | | | | | | 428,144 | |
|
| Industrial Machinery–2.00% | |
Dover Corp. | | | 2,187 | | | | 143,708 | |
Flowserve Corp. | | | 982 | | | | 144,157 | |
Illinois Tool Works Inc. | | | 2,335 | | | | 141,991 | |
Ingersoll-Rand PLC | | | 2,934 | | | | 140,715 | |
Pall Corp. | | | 2,318 | | | | 139,683 | |
Parker Hannifin Corp. | | | 1,672 | | | | 142,220 | |
Pentair Ltd. | | | 2,912 | | | | 143,125 | |
Snap-on Inc. | | | 1,792 | | | | 141,550 | |
Stanley Black & Decker Inc. | | | 1,958 | | | | 144,833 | |
Xylem, Inc. | | | 5,219 | | | | 141,435 | |
| | | | | | | | 1,423,417 | |
|
| Industrial REIT’s–0.20% | |
Prologis, Inc. | | | 3,979 | | | | 145,194 | |
|
| Insurance Brokers–0.39% | |
Aon PLC | | | 2,485 | | | | 138,166 | |
Marsh & McLennan Cos., Inc. | | | 4,083 | | | | 140,741 | |
| | | | | | | | 278,907 | |
|
| Integrated Oil & Gas–0.98% | |
Chevron Corp. | | | 1,294 | | | | 139,933 | |
Exxon Mobil Corp. | | | 1,585 | | | | 137,182 | |
Hess Corp. | | | 2,718 | | | | 143,945 | |
Murphy Oil Corp. | | | 2,353 | | | | 140,121 | |
Occidental Petroleum Corp. | | | 1,833 | | | | 140,426 | |
| | | | | | | | 701,607 | |
|
| Integrated Telecommunication Services–0.95% | |
AT&T Inc. | | | 4,107 | | | | 138,447 | |
CenturyLink Inc. | | | 3,575 | | | | 139,854 | |
Frontier Communications Corp.(d) | | | 30,369 | | | | 129,979 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Integrated Telecommunication Services–(continued) | |
Verizon Communications Inc. | | | 3,159 | | | $ | 136,690 | |
Windstream Corp.(d) | | | 15,874 | | | | 131,437 | |
| | | | | | | | 676,407 | |
|
| Internet Retail–0.99% | |
Amazon.com, Inc.(b) | | | 560 | | | | 140,711 | |
Expedia, Inc. | | | 2,368 | | | | 145,514 | |
Netflix Inc.(b)(d) | | | 1,496 | | | | 138,799 | |
Priceline.com Inc.(b) | | | 227 | | | | 140,996 | |
TripAdvisor Inc.(b) | | | 3,351 | | | | 140,608 | |
| | | | | | | | 706,628 | |
|
| Internet Software & Services–1.01% | |
Akamai Technologies, Inc.(b) | | | 3,585 | | | | 146,662 | |
eBay Inc.(b) | | | 2,773 | | | | 141,479 | |
Google Inc.–Class A(b) | | | 198 | | | | 140,471 | |
VeriSign, Inc.(b) | | | 3,890 | | | | 151,010 | |
Yahoo! Inc.(b) | | | 7,112 | | | | 141,529 | |
| | | | | | | | 721,151 | |
|
| Investment Banking & Brokerage–0.83% | |
Charles Schwab Corp. (The) | | | 10,179 | | | | 146,170 | |
E*TRADE Financial Corp.(b) | | | 16,770 | | | | 150,091 | |
Goldman Sachs Group, Inc. (The) | | | 1,169 | | | | 149,118 | |
Morgan Stanley | | | 7,766 | | | | 148,486 | |
| | | | | | | | 593,865 | |
|
| IT Consulting & Other Services–0.98% | |
Accenture PLC–Class A | | | 1,988 | | | | 132,202 | |
Cognizant Technology Solutions Corp.–Class A(b) | | | 1,925 | | | | 142,546 | |
International Business Machines Corp. | | | 728 | | | | 139,448 | |
SAIC, Inc. | | | 11,967 | | | | 135,467 | |
Teradata Corp.(b) | | | 2,350 | | | | 145,442 | |
| | | | | | | | 695,105 | |
|
| Leisure Products–0.38% | |
Hasbro, Inc.(d) | | | 3,777 | | | | 135,595 | |
Mattel, Inc. | | | 3,781 | | | | 138,460 | |
| | | | | | | | 274,055 | |
|
| Life & Health Insurance–1.40% | |
Aflac, Inc. | | | 2,624 | | | | 139,387 | |
Lincoln National Corp. | | | 5,523 | | | | 143,045 | |
MetLife, Inc. | | | 4,387 | | | | 144,508 | |
Principal Financial Group, Inc. | | | 5,077 | | | | 144,796 | |
Prudential Financial, Inc. | | | 2,743 | | | | 146,284 | |
Torchmark Corp. | | | 2,761 | | | | 142,661 | |
Unum Group | | | 6,706 | | | | 139,619 | |
| | | | | | | | 1,000,300 | |
|
| Life Sciences Tools & Services–0.98% | |
Agilent Technologies, Inc. | | | 3,504 | | | | 143,454 | |
Life Technologies Corp.(b) | | | 2,824 | | | | 138,602 | |
PerkinElmer, Inc. | | | 4,444 | | | | 141,052 | |
Thermo Fisher Scientific, Inc. | | | 2,175 | | | | 138,721 | |
Waters Corp.(b) | | | 1,598 | | | | 139,218 | |
| | | | | | | | 701,047 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Managed Health Care–1.20% | |
Aetna Inc. | | | 3,064 | | | $ | 141,863 | |
Cigna Corp. | | | 2,634 | | | | 140,814 | |
Coventry Health Care, Inc. | | | 3,142 | | | | 140,856 | |
Humana Inc. | | | 2,113 | | | | 145,015 | |
UnitedHealth Group Inc. | | | 2,584 | | | | 140,156 | |
WellPoint, Inc. | | | 2,388 | | | | 145,477 | |
| | | | | | | | 854,181 | |
|
| Metal & Glass Containers–0.41% | |
Ball Corp. | | | 3,156 | | | | 141,231 | |
Owens-Illinois, Inc.(b) | | | 6,956 | | | | 147,954 | |
| | | | | | | | 289,185 | |
|
| Motorcycle Manufacturers–0.20% | |
Harley-Davidson, Inc. | | | 2,920 | | | | 142,613 | |
|
| Movies & Entertainment–0.80% | |
News Corp.–Class A | | | 5,736 | | | | 146,497 | |
Time Warner Inc. | | | 2,986 | | | | 142,820 | |
Viacom Inc.–Class B | | | 2,636 | | | | 139,023 | |
Walt Disney Co. (The) | | | 2,869 | | | | 142,848 | |
| | | | | | | | 571,188 | |
|
| Multi-Line Insurance–1.02% | |
American International Group, Inc.(b) | | | 4,116 | | | | 145,295 | |
Assurant, Inc. | | | 4,043 | | | | 140,292 | |
Genworth Financial Inc.–Class A(b) | | | 20,071 | | | | 150,733 | |
Hartford Financial Services Group, Inc. (The) | | | 6,561 | | | | 147,229 | |
Loews Corp. | | | 3,436 | | | | 140,017 | |
| | | | | | | | 723,566 | |
|
| Multi-Sector Holdings–0.20% | |
Leucadia National Corp. | | | 6,027 | | | | 143,382 | |
|
| Multi-Utilities–2.75% | |
Ameren Corp. | | | 4,748 | | | | 145,859 | |
CenterPoint Energy, Inc. | | | 7,101 | | | | 136,694 | |
CMS Energy Corp. | | | 5,812 | | | | 141,697 | |
Consolidated Edison, Inc. | | | 2,489 | | | | 138,239 | |
Dominion Resources, Inc. | | | 2,728 | | | | 141,310 | |
DTE Energy Co. | | | 2,307 | | | | 138,535 | |
Integrys Energy Group, Inc. | | | 2,642 | | | | 137,965 | |
NiSource Inc. | | | 5,783 | | | | 143,939 | |
PG&E Corp. | | | 3,447 | | | | 138,501 | |
Public Service Enterprise Group Inc. | | | 4,647 | | | | 142,198 | |
SCANA Corp. | | | 3,060 | | | | 139,658 | |
Sempra Energy | | | 1,952 | | | | 138,475 | |
TECO Energy, Inc. | | | 8,383 | | | | 140,499 | |
Wisconsin Energy Corp. | | | 3,769 | | | | 138,888 | |
| | | | | | | | 1,962,457 | |
|
| Office Electronics–0.19% | |
Xerox Corp. | | | 20,042 | | | | 136,686 | |
|
| Office REIT’s–0.20% | |
Boston Properties, Inc. | | | 1,342 | | | | 141,997 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Office Services & Supplies–0.40% | |
Avery Dennison Corp. | | | 4,108 | | | $ | 143,452 | |
Pitney Bowes Inc.(d) | | | 13,080 | | | | 139,171 | |
| | | | | | | | 282,623 | |
|
| Oil & Gas Drilling–1.21% | |
Diamond Offshore Drilling, Inc. | | | 2,072 | | | | 140,813 | |
Ensco PLC–Class A (United Kingdom) | | | 2,434 | | | | 144,287 | |
Helmerich & Payne, Inc. | | | 2,602 | | | | 145,738 | |
Nabors Industries Ltd.(b) | | | 10,172 | | | | 146,985 | |
Noble Corp. | | | 4,124 | | | | 143,598 | |
Rowan Cos. PLC–Class A(b) | | | 4,439 | | | | 138,808 | |
| | | | | | | | 860,229 | |
|
| Oil & Gas Equipment & Services–1.22% | |
Baker Hughes Inc. | | | 3,399 | | | | 138,815 | |
Cameron International Corp.(b) | | | 2,625 | | | | 148,208 | |
FMC Technologies, Inc.(b) | | | 3,440 | | | | 147,335 | |
Halliburton Co. | | | 4,183 | | | | 145,108 | |
National Oilwell Varco Inc. | | | 2,153 | | | | 147,158 | |
Schlumberger Ltd. | | | 2,027 | | | | 140,451 | |
| | | | | | | | 867,075 | |
|
| Oil & Gas Exploration & Production–3.38% | |
Anadarko Petroleum Corp. | | | 1,872 | | | | 139,108 | |
Apache Corp. | | | 1,812 | | | | 142,242 | |
Cabot Oil & Gas Corp. | | | 2,985 | | | | 148,474 | |
Chesapeake Energy Corp.(d) | | | 8,404 | | | | 139,674 | |
ConocoPhillips | | | 2,421 | | | | 140,394 | |
Denbury Resources Inc.(b) | | | 8,768 | | | | 142,042 | |
Devon Energy Corp. | | | 2,690 | | | | 139,988 | |
EOG Resources, Inc. | | | 1,173 | | | | 141,687 | |
EQT Corp. | | | 2,464 | | | | 145,327 | |
Marathon Oil Corp. | | | 4,532 | | | | 138,951 | |
Newfield Exploration Co.(b) | | | 5,422 | | | | 145,201 | |
Noble Energy, Inc. | | | 1,396 | | | | 142,029 | |
Pioneer Natural Resources Co. | | | 1,356 | | | | 144,536 | |
QEP Resources Inc. | | | 4,708 | | | | 142,511 | |
Range Resources Corp. | | | 2,248 | | | | 141,242 | |
Southwestern Energy Co.(b) | | | 4,242 | | | | 141,725 | |
WPX Energy Inc.(b) | | | 8,991 | | | | 133,786 | |
| | | | | | | | 2,408,917 | |
|
| Oil & Gas Refining & Marketing–0.79% | |
Marathon Petroleum Corp. | | | 2,223 | | | | 140,049 | |
Phillips 66 | | | 2,612 | | | | 138,697 | |
Tesoro Corp. | | | 3,199 | | | | 140,916 | |
Valero Energy Corp. | | | 4,186 | | | | 142,826 | |
| | | | | | | | 562,488 | |
|
| Oil & Gas Storage & Transportation–0.61% | |
Kinder Morgan Inc. | | | 4,142 | | | | 146,337 | |
Spectra Energy Corp. | | | 5,137 | | | | 140,651 | |
Williams Cos., Inc. (The) | | | 4,436 | | | | 145,235 | |
| | | | | | | | 432,223 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Other Diversified Financial Services–0.62% | |
Bank of America Corp. | | | 13,203 | | | $ | 153,155 | |
Citigroup Inc. | | | 3,714 | | | | 146,926 | |
JPMorgan Chase & Co. | | | 3,262 | | | | 143,430 | |
| | | | | | | | 443,511 | |
|
| Packaged Foods & Meats–2.70% | |
Campbell Soup Co.(d) | | | 3,925 | | | | 136,943 | |
ConAgra Foods, Inc. | | | 4,633 | | | | 136,674 | |
Dean Foods Co.(b) | | | 8,455 | | | | 139,592 | |
General Mills, Inc. | | | 3,369 | | | | 136,141 | |
H.J. Heinz Co. | | | 2,362 | | | | 136,240 | |
Hershey Co. (The) | | | 1,886 | | | | 136,207 | |
Hormel Foods Corp. | | | 4,491 | | | | 140,164 | |
JM Smucker Co. (The) | | | 1,605 | | | | 138,415 | |
Kellogg Co. | | | 2,462 | | | | 137,503 | |
Kraft Foods Group, Inc. | | | 2,996 | | | | 136,228 | |
McCormick & Co., Inc. | | | 2,168 | | | | 137,733 | |
Mead Johnson Nutrition Co. | | | 2,121 | | | | 139,753 | |
Mondelez International Inc.–Class A | | | 5,366 | | | | 136,672 | |
Tyson Foods, Inc.–Class A | | | 7,109 | | | | 137,915 | |
| | | | | | | | 1,926,180 | |
|
| Paper Packaging–0.41% | |
Bemis Co., Inc. | | | 4,283 | | | | 143,309 | |
Sealed Air Corp. | | | 8,630 | | | | 151,111 | |
| | | | | | | | 294,420 | |
|
| Paper Products–0.41% | |
International Paper Co. | | | 3,669 | | | | 146,173 | |
MeadWestvaco Corp. | | | 4,611 | | | | 146,953 | |
| | | | | | | | 293,126 | |
|
| Personal Products–0.39% | |
Avon Products, Inc. | | | 9,909 | | | | 142,293 | |
Estee Lauder Cos. Inc. (The)–Class A | | | 2,292 | | | | 137,199 | |
| | | | | | | | 279,492 | |
|
| Pharmaceuticals–2.53% | |
Abbott Laboratories(b) | | | 2,425 | | | | 76,145 | |
Abbott Laboratories | | | 2,137 | | | | 139,973 | |
AbbVie Inc.(b) | | | 1,996 | | | | 68,183 | |
Allergan, Inc. | | | 1,524 | | | | 139,797 | |
Bristol-Myers Squibb Co. | | | 4,268 | | | | 139,094 | |
Eli Lilly & Co. | | | 2,922 | | | | 144,113 | |
Forest Laboratories, Inc.(b) | | | 3,912 | | | | 138,172 | |
Hospira, Inc.(b) | | | 4,387 | | | | 137,050 | |
Johnson & Johnson | | | 1,975 | | | | 138,448 | |
Merck & Co., Inc. | | | 3,208 | | | | 131,336 | |
Mylan Inc.(b) | | | 4,994 | | | | 137,235 | |
Perrigo Co. | | | 1,340 | | | | 139,400 | |
Pfizer Inc. | | | 5,551 | | | | 139,219 | |
Watson Pharmaceuticals, Inc.(b) | | | 1,591 | | | | 136,826 | |
| | | | | | | | 1,804,991 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Property & Casualty Insurance–1.57% | |
ACE Ltd. | | | 1,768 | | | $ | 141,086 | |
Allstate Corp. (The) | | | 3,476 | | | | 139,631 | |
Berkshire Hathaway Inc.–Class B(b) | | | 1,566 | | | | 140,470 | |
Chubb Corp. (The) | | | 1,834 | | | | 138,137 | |
Cincinnati Financial Corp. | | | 3,525 | | | | 138,039 | |
Progressive Corp. (The) | | | 6,655 | | | | 140,421 | |
Travelers Cos., Inc. (The) | | | 1,903 | | | | 136,673 | |
XL Group PLC | | | 5,750 | | | | 144,095 | |
| | | | | | | | 1,118,552 | |
|
| Publishing–0.59% | |
Gannett Co., Inc. | | | 7,901 | | | | 142,297 | |
McGraw-Hill Cos., Inc. (The) | | | 2,587 | | | | 141,432 | |
Washington Post Co. (The)–Class B | | | 382 | | | | 139,510 | |
| | | | | | | | 423,239 | |
|
| Railroads–0.59% | |
CSX Corp. | | | 7,065 | | | | 139,392 | |
Norfolk Southern Corp. | | | 2,276 | | | | 140,748 | |
Union Pacific Corp. | | | 1,123 | | | | 141,184 | |
| | | | | | | | 421,324 | |
|
| Real Estate Services–0.20% | |
CBRE Group, Inc.–Class A(b) | | | 7,275 | | | | 144,772 | |
|
| Regional Banks–2.04% | |
BB&T Corp. | | | 4,937 | | | | 143,716 | |
Fifth Third Bancorp | | | 9,706 | | | | 147,434 | |
First Horizon National Corp. | | | 14,861 | | | | 147,273 | |
Huntington Bancshares Inc. | | | 22,678 | | | | 144,913 | |
KeyCorp | | | 17,162 | | | | 144,504 | |
M&T Bank Corp. | | | 1,426 | | | | 140,418 | |
PNC Financial Services Group, Inc. | | | 2,501 | | | | 145,833 | |
Regions Financial Corp. | | | 20,850 | | | | 148,452 | |
SunTrust Banks, Inc. | | | 5,160 | | | | 146,286 | |
Zions Bancorp. | | | 6,781 | | | | 145,113 | |
| | | | | | | | 1,453,942 | |
|
| Research & Consulting Services–0.39% | |
Dun & Bradstreet Corp. (The) | | | 1,734 | | | | 136,379 | |
Equifax Inc. | | | 2,635 | | | | 142,606 | |
| | | | | | | | 278,985 | |
|
| Residential REIT’s–0.61% | |
Apartment Investment & Management Co.–Class A | | | 5,464 | | | | 147,856 | |
AvalonBay Communities, Inc. | | | 1,053 | | | | 142,776 | |
Equity Residential | | | 2,517 | | | | 142,638 | |
| | | | | | | | 433,270 | |
|
| Restaurants–0.98% | |
Chipotle Mexican Grill, Inc.(b) | | | 503 | | | | 149,622 | |
Darden Restaurants, Inc. | | | 3,006 | | | | 135,480 | |
McDonald’s Corp. | | | 1,571 | | | | 138,578 | |
Starbucks Corp. | | | 2,617 | | | | 140,324 | |
Yum! Brands, Inc. | | | 2,057 | | | | 136,585 | |
| | | | | | | | 700,589 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Retail REIT’s–0.40% | |
Kimco Realty Corp. | | | 7,241 | | | $ | 139,896 | |
Simon Property Group, Inc. | | | 906 | | | | 143,230 | |
| | | | | | | | 283,126 | |
|
| Security & Alarm Services–0.40% | |
ADT Corp. (The) | | | 3,043 | | | | 141,469 | |
Tyco International Ltd. | | | 4,892 | | | | 143,091 | |
| | | | | | | | 284,560 | |
|
| Semiconductor Equipment–0.80% | |
Applied Materials, Inc. | | | 12,610 | | | | 144,258 | |
KLA-Tencor Corp. | | | 2,960 | | | | 141,370 | |
Lam Research Corp.(b) | | | 3,840 | | | | 138,739 | |
Teradyne, Inc.(b) | | | 8,440 | | | | 142,552 | |
| | | | | | | | 566,919 | |
|
| Semiconductors–2.57% | |
Advanced Micro Devices, Inc.(b) | | | 58,452 | | | | 140,285 | |
Altera Corp. | | | 4,251 | | | | 146,404 | |
Analog Devices, Inc. | | | 3,377 | | | | 142,037 | |
Broadcom Corp.–Class A | | | 4,357 | | | | 144,696 | |
First Solar, Inc.(b) | | | 4,290 | | | | 132,475 | |
Intel Corp. | | | 6,807 | | | | 140,428 | |
Linear Technology Corp. | | | 4,176 | | | | 143,237 | |
LSI Corp.(b) | | | 20,696 | | | | 146,528 | |
Microchip Technology Inc. | | | 4,417 | | | | 143,950 | |
Micron Technology, Inc.(b) | | | 20,424 | | | | 129,692 | |
NVIDIA Corp. | | | 11,085 | | | | 136,235 | |
Texas Instruments Inc. | | | 4,538 | | | | 140,406 | |
Xilinx, Inc. | | | 3,948 | | | | 141,733 | |
| | | | | | | | 1,828,106 | |
|
| Soft Drinks–0.97% | |
Coca-Cola Co. (The) | | | 3,708 | | | | 134,415 | |
Coca-Cola Enterprises, Inc. | | | 4,510 | | | | 143,102 | |
Dr. Pepper Snapple Group, Inc. | | | 3,129 | | | | 138,239 | |
Monster Beverage Corp.(b) | | | 2,614 | | | | 138,229 | |
PepsiCo, Inc. | | | 1,990 | | | | 136,176 | |
| | | | | | | | 690,161 | |
|
| Specialized Consumer Services–0.19% | |
H&R Block, Inc. | | | 7,471 | | | | 138,736 | |
|
| Specialized Finance–1.05% | |
CME Group Inc. | | | 2,725 | | | | 138,185 | |
IntercontinentalExchange Inc.(b) | | | 1,091 | | | | 135,077 | |
Moody’s Corp. | | | 2,899 | | | | 145,877 | |
NASDAQ OMX Group, Inc. (The) | | | 5,769 | | | | 144,283 | |
NYSE Euronext | | | 5,956 | | | | 187,852 | |
| | | | | | | | 751,274 | |
|
| Specialized REIT’s–1.61% | |
American Tower Corp. | | | 1,821 | | | | 140,709 | |
HCP, Inc. | | | 3,160 | | | | 142,769 | |
Health Care REIT, Inc. | | | 2,398 | | | | 146,973 | |
Host Hotels & Resorts Inc. | | | 9,128 | | | | 143,036 | |
Plum Creek Timber Co., Inc. | | | 3,296 | | | | 146,244 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Specialized REIT’s–(continued) | |
Public Storage | | | 996 | | | $ | 144,380 | |
Ventas, Inc. | | | 2,228 | | | | 144,196 | |
Weyerhaeuser Co. | | | 5,111 | | | | 142,188 | |
| | | | | | | | 1,150,495 | |
|
| Specialty Chemicals–1.01% | |
Ecolab Inc. | | | 1,980 | | | | 142,362 | |
International Flavors & Fragrances Inc. | | | 2,126 | | | | 141,464 | |
LyondellBasell Industries N.V.–Class A | | | 2,596 | | | | 148,206 | |
Sherwin-Williams Co. (The) | | | 942 | | | | 144,898 | |
Sigma-Aldrich Corp. | | | 1,923 | | | | 141,494 | |
| | | | | | | | 718,424 | |
|
| Specialty Stores–0.58% | |
PetSmart, Inc. | | | 2,016 | | | | 137,774 | |
Staples, Inc. | | | 11,946 | | | | 136,184 | |
Tiffany & Co. | | | 2,404 | | | | 137,845 | |
| | | | | | | | 411,803 | |
|
| Steel–0.83% | |
Allegheny Technologies, Inc. | | | 4,911 | | | | 149,098 | |
Cliffs Natural Resources Inc. | | | 4,113 | | | | 158,597 | |
Nucor Corp. | | | 3,303 | | | | 142,623 | |
United States Steel Corp. | | | 5,856 | | | | 139,783 | |
| | | | | | | | 590,101 | |
|
| Systems Software–1.19% | |
BMC Software, Inc.(b) | | | 3,476 | | | | 137,858 | |
CA, Inc. | | | 6,390 | | | | 140,452 | |
Microsoft Corp. | | | 5,210 | | | | 139,263 | |
Oracle Corp. | | | 4,371 | | | | 145,642 | |
Red Hat, Inc.(b) | | | 2,781 | | | | 147,282 | |
Symantec Corp.(b) | | | 7,478 | | | | 140,661 | |
| | | | | | | | 851,158 | |
|
| Thrifts & Mortgage Finance–0.39% | |
Hudson City Bancorp, Inc. | | | 17,484 | | | | 142,145 | |
People’s United Financial Inc. | | | 11,466 | | | | 138,624 | |
| | | | | | | | 280,769 | |
|
| Tires & Rubber–0.21% | |
Goodyear Tire & Rubber Co. (The)(b) | | | 10,774 | | | | 148,789 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Tobacco–0.75% | |
Altria Group, Inc. | | | 4,212 | | | $ | 132,341 | |
Lorillard, Inc. | | | 1,169 | | | | 136,387 | |
Philip Morris International Inc. | | | 1,591 | | | | 133,071 | |
Reynolds American Inc. | | | 3,275 | | | | 135,684 | |
| | | | | | | | 537,483 | |
|
| Trading Companies & Distributors–0.42% | |
Fastenal Co. | | | 3,253 | | | | 151,883 | |
W.W. Grainger, Inc. | | | 733 | | | | 148,337 | |
| | | | | | | | 300,220 | |
|
| Trucking–0.20% | |
Ryder System, Inc. | | | 2,816 | | | | 140,603 | |
|
| Wireless Telecommunication Services–0.59% | |
Crown Castle International Corp.(b) | | | 1,962 | | | | 141,578 | |
MetroPCS Communications, Inc.(b) | | | 13,899 | | | | 138,156 | |
Sprint Nextel Corp.(b) | | | 25,171 | | | | 142,720 | |
| | | | | | | | 422,454 | |
Total Common Stocks & Other Equity Interests
(Cost $34,340,162) | | | | 70,829,680 | |
|
Money Market Funds–0.83% | |
Liquid Assets Portfolio–Institutional Class(f) | | | 296,881 | | | | 296,881 | |
Premier Portfolio–Institutional Class(f) | | | 296,882 | | | | 296,882 | |
Total Money Market Funds
(Cost $593,763) | | | | 593,763 | |
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.21%
(Cost $34,933,925) | | | | 71,423,443 | |
| |
Investments Purchased with Cash Collateral from Securities on Loan | | | | | |
Money Market Funds–1.52% | |
Liquid Assets Portfolio–Institutional Class (Cost $1,085,087)(f)(g) | | | 1,085,087 | | | | 1,085,087 | |
TOTAL INVESTMENTS–101.73%
(Cost $36,019,012) | | | | 72,508,530 | |
OTHER ASSETS LESS LIABILITIES–(1.73)% | | | | (1,232,236 | ) |
NET ASSETS–100.00% | | | $ | 71,276,294 | |
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 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 this security was out on loan at December 31, 2012. |
| (e) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 5. |
| (f) | The money market fund and the Fund are affiliated by having the same investment adviser. |
| (g) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $34,244,615)* | | $ | 70,686,550 | |
Investments in affiliates, at value (Cost $1,774,397) | | | 1,821,980 | |
Total investments, at value (Cost $36,019,012) | | | 72,508,530 | |
Receivable for: | | | | |
Investments sold | | | 143,685 | |
Variation margin | | | 14,440 | |
Fund shares sold | | | 3,429 | |
Dividends | | | 71,099 | |
Investment for trustee deferred compensation and retirement plans | | | 12,338 | |
Total assets | | | 72,753,521 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 144,328 | |
Fund shares reacquired | | | 55,572 | |
Amount due custodian | | | 73,864 | |
Collateral upon return of securities loaned | | | 1,085,087 | |
Accrued fees to affiliates | | | 58,831 | |
Accrued other operating expenses | | | 42,600 | |
Trustee deferred compensation and retirement plans | | | 16,945 | |
Total liabilities | | | 1,477,227 | |
Net assets applicable to shares outstanding | | $ | 71,276,294 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 25,770,153 | |
Undistributed net investment income | | | 1,188,219 | |
Undistributed net realized gain | | | 7,826,080 | |
Unrealized appreciation | | | 36,491,842 | |
| | | $ | 71,276,294 | |
|
Net Assets: | |
Series I | | $ | 34,914,155 | |
Series II | | $ | 36,362,139 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 1,915,031 | |
Series II | | | 2,022,699 | |
Series I: | | | | |
Net asset value per share | | $ | 18.23 | |
Series II: | | | | |
Net asset value per share | | $ | 17.98 | |
| * | At December 31, 2012, securities with an aggregate value of $1,080,902 were on loan to brokers. |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $1,296) | | $ | 1,617,459 | |
Dividends from affiliates (includes securities lending income of $1,104) | | | 5,784 | |
Total investment income | | | 1,623,243 | |
| |
Expenses: | | | | |
Advisory fees | | | 90,774 | |
Administrative services fees | | | 199,845 | |
Custodian fees | | | 59,615 | |
Distribution fees — Series II | | | 98,475 | |
Transfer agent fees | | | 2,175 | |
Trustees’ and officers’ fees and benefits | | | 23,679 | |
Professional services fees | | | 38,894 | |
Other | | | 32,339 | |
Total expenses | | | 545,796 | |
Less: Fees waived and expenses reimbursed | | | (95,583 | ) |
Net expenses | | | 450,213 | |
Net investment income | | | 1,173,030 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 9,604,743 | |
Futures contracts | | | 79,231 | |
| | | | 9,683,974 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 1,172,802 | |
Futures contracts | | | (3,573 | ) |
| | | | 1,169,229 | |
Net realized and unrealized gain | | | 10,853,203 | |
Net increase in net assets resulting from operations | | $ | 12,026,233 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 1,173,030 | | | $ | 1,215,626 | |
Net realized gain | | | 9,683,974 | | | | 10,927,207 | |
Change in net unrealized appreciation (depreciation) | | | 1,169,229 | | | | (12,112,953 | ) |
Net increase in net assets resulting from operations | | | 12,026,233 | | | | 29,880 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (624,483 | ) | | | (694,111 | ) |
Series ll | | | (555,223 | ) | | | (682,257 | ) |
Total distributions from net investment income | | | (1,179,706 | ) | | | (1,376,368 | ) |
| | |
Distributions to shareholders net realized gain: | | | | | | | | |
Series I | | | (4,763,390 | ) | | | — | |
Series ll | | | (5,162,134 | ) | | | — | |
Total distributions from net realized gain | | | (9,925,524 | ) | | | — | |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (1,430,456 | ) | | | (6,950,303 | ) |
Series ll | | | (5,735,184 | ) | | | (13,497,863 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (7,165,640 | ) | | | (20,448,166 | ) |
Net increase (decrease) in net assets | | | (6,244,637 | ) | | | (21,794,654 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 77,520,931 | | | | 99,315,585 | |
End of year (includes undistributed net investment income of $1,188,219 and $1,220,027, respectively) | | $ | 71,276,294 | | | $ | 77,520,931 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco V.I. Equally-Weighted S&P 500 Fund, formerly 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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to achieve a high level of 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. |
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. Equally-Weighted S&P 500 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 |
Invesco V.I. Equally-Weighted S&P 500 Fund
| | 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 the 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 affiliated money market funds 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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| K. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. This practice does not apply to securities pledged as collateral for securities lending transactions. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | |
| Average 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. (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 each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2012, 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 0.37% 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, including
Invesco V.I. Equally-Weighted S&P 500 Fund
litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $90,774 and reimbursed Fund expenses of $4,809.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $149,845 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 72,508,530 | | | $ | — | | | $ | — | | | $ | 72,508,530 | |
Futures* | | | 2,324 | | | | — | | | | — | | | | 2,324 | |
Total Investments | | $ | 72,510,854 | | | $ | — | | | $ | — | | | $ | 72,510,854 | |
| * | Unrealized appreciation. |
NOTE 4—Investments in Affiliates
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 year ended December 31, 2012.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Value 12/31/11 | | | Purchases
at Cost | | | Proceeds
from Sales | | | Change in
Unrealized
Appreciation | | | Realized
Gain (Loss) | | | Value 12/31/12 | | | Dividend
Income | |
Invesco Ltd. | | $ | 156,802 | | | $ | 9,327 | | | $ | (67,346 | ) | | $ | 46,803 | | | $ | (2,456 | ) | | $ | 143,130 | | | $ | 4,020 | |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 5—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Equity risk | | | | | | | | |
Futures contracts(a) | | $ | 2,324 | | | $ | — | |
| (a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2012
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 | | | | |
Equity risk | | $ | 79,231 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Equity risk | | | (3,573 | ) |
Total | | $ | 75,658 | |
| * | The average notional value of futures outstanding during the period was $638,106. |
| | | | | | | | | | | | | | | | |
| Open Futures Contracts | |
| Long Contracts | | Number of
Contracts | | | Expiration
Month | | | Notional
Value | | | Unrealized
Appreciation | |
E-Mini S&P 500 Index | | | 8 | | | | March-2013 | | | $ | 568,040 | | | $ | 2,324 | |
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 1,179,706 | | | $ | 1,376,368 | |
Long-term capital gain | | | 9,925,524 | | | | — | |
Total distributions | | $ | 11,105,230 | | | $ | 1,376,368 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 2,093,872 | |
Undistributed long-term gain | | | 8,555,409 | |
Net unrealized appreciation — investments | | | 34,872,333 | |
Temporary book/tax differences | | | (15,473 | ) |
Shares of beneficial interest | | | 25,770,153 | |
Total net assets | | $ | 71,276,294 | |
Invesco V.I. Equally-Weighted S&P 500 Fund
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and REIT.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 does not have a capital loss carryforward at period-end.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $17,075,720 and $34,480,088, 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 | | $ | 35,472,398 | |
Aggregate unrealized (depreciation) of investment securities | | | (600,065 | ) |
Net unrealized appreciation of investment securities | | $ | 34,872,333 | |
Cost of investments for tax purposes is $37,636,197.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of REIT distributions, on December 31, 2012, undistributed net investment income was decreased by $25,132 and undistributed net realized gain was increased by $25,132. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 20,002 | | | $ | 390,107 | | | | 15,291 | | | $ | 301,389 | |
Series II | | | 58,484 | | | | 1,111,155 | | | | 70,617 | | | | 1,284,479 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 302,180 | | | | 5,387,873 | | | | 42,093 | | | | 694,111 | |
Series II | | | 325,034 | | | | 5,717,357 | | | | 41,882 | | | | 682,257 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (371,514 | ) | | | (7,208,436 | ) | | | (418,313 | ) | | | (7,945,803 | ) |
Series II | | | (655,598 | ) | | | (12,563,696 | ) | | | (820,784 | ) | | | (15,464,599 | ) |
Net increase (decrease) in share activity | | | (321,412 | ) | | $ | (7,165,640 | ) | | | (1,069,214 | ) | | $ | (20,448,166 | ) |
| (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 Fund 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. Equally-Weighted S&P 500 Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with
fee waivers
and/or
expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or
expenses absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 18.33 | | | $ | 0.33 | | | $ | 2.73 | | | $ | 3.06 | | | $ | (0.37 | ) | | $ | (2.79 | ) | | $ | (3.16 | ) | | $ | 18.23 | | | | 17.09 | % | | $ | 34,914 | | | | 0.46 | %(d) | | | 0.59 | %(d) | | | 1.69 | %(d) | | | 23 | % |
Year ended 12/31/11 | | | 18.78 | | | | 0.29 | | | | (0.40 | ) | | | (0.11 | ) | | | (0.34 | ) | | | — | | | | (0.34 | ) | | | 18.33 | | | | (0.36 | ) | | | 35,998 | | | | 0.37 | | | | 0.51 | | | | 1.50 | | | | 21 | |
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) | | | 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) | | | 1.70 | (e) | | | 32 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 18.09 | | | | 0.27 | | | | 2.71 | | | | 2.98 | | | | (0.30 | ) | | | (2.79 | ) | | | (3.09 | ) | | | 17.98 | | | | 16.88 | | | | 36,362 | | | | 0.71 | (d) | | | 0.84 | (d) | | | 1.44 | (d) | | | 23 | |
Year ended 12/31/11 | | | 18.53 | | | | 0.23 | | | | (0.38 | ) | | | (0.15 | ) | | | (0.29 | ) | | | — | | | | (0.29 | ) | | | 18.09 | | | | (0.66 | ) | | | 41,523 | | | | 0.62 | | | | 0.76 | | | | 1.25 | | | | 21 | |
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) | | | 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) | | | 1.45 | (e) | | | 32 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $36,255 and $39,390 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 rebate on the ratios was less than 0.005% for the years ended December 31, 2009 and 2008, respectively. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Equally-Weighted S&P 500 Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Equally-Weighted S&P 500 Fund, (formerly known as Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 26, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco V.I. 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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,085.00 | | | $ | 2.97 | | | $ | 1,022.29 | | | $ | 2.88 | | | | 0.57 | % |
| Series II | | | 1,000.00 | | | | 1,083.70 | | | | 4.28 | | | | 1,021.03 | | | | 4.15 | | | | 0.82 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Long-Term Capital Gain Dividends | | $ | 9,925,524 | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Equally-Weighted S&P 500 Fund
Invesco V.I. Global Core Equity Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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.
VIGCE-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Global Core Equity Fund underperformed the MSCI World Index and the Lipper VUF Global Core Funds Index. Stock selection during the volatile fiscal year was a hindrance to the Fund’s performance. Stock selection within the energy, financials and utilities sectors contributed positively to Fund performance, while holdings in the consumer discretionary, consumer staples, industrials and health care sectors detracted during the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 13.75 | % |
| Series II Shares | | | | 13.41 | |
| MSCI World Index‚ (Broad Market/Style-Specific Index) | | | | 15.83 | |
| Lipper VUF Global Core Funds Index¡ (Peer Group Index) | | | | 20.64 | |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; ¡Lipper Inc.
How we invest
The Fund invests primarily in stocks of mid- and large-cap global companies with a record of stable earnings and strong balance sheets that are offering attractive valuations relative to the broad market and peers. We take a bottom-up, research-driven approach. We begin with a universe of global equity securities with greater than $1 billion in market capitalization and up to 10 years of financial statement information from both developed and emerging markets. We make adjustments to each company’s financial history for inflation rates and select accounting conventions to create a comparable basis for analysis. We then rank the universe using a proprietary three-factor valuation ranking model that combines a company’s implied return, price/book ratio and price/ earnings ratio. Attractively ranked companies are then subjected to rigorous fundamental research focused on evaluating the sustainability of company profitability. The most attractive stocks from the valuation screen that have also successfully
passed rigorous fundamental research are candidates for inclusion in the portfolio.
At the portfolio level, we seek to achieve appropriate diversification relative to the style-specific index and take a long-term investment horizon in evaluating companies, resulting in relatively low portfolio turnover. We strive to maintain a consistent investment discipline through varying market conditions and an appropriate level of overall portfolio diversification. Individual holdings are selected based on their own merits, however, and not on projections of country or sector performance.
Our sell discipline is a replication of the security selection process in that we look to trim or liquidate positions in the portfolio based on valuation, fundamentals or portfolio design considerations.
Market conditions and your Fund
Global equity markets rebounded in the beginning of 2012 following a difficult and volatile year in 2011. Improvements in global economic indicators and continued
accommodative policy measures from central banks provided support for the rally in stocks, with some of the worst performing areas of the market in recent years leading the way in the beginning of 2012. During the year, macroeconomic concerns stemming largely from Greece and Spain eased somewhat as the pro-euro party won the Greek elections and Spanish banks were provided a bailout of up to 100 billion euros. Eurozone leaders also took steps during their most recent summit to allow for the direct recapitalization of banks through the European Stability Mechanism (the bailout fund) and to move closer to a regional banking union. In addition, the European Central Bank (ECB) announced new measures to support eurozone economies through potentially unlimited purchases of sovereign debt, with ECB President Mario Draghi pledging to “do whatever it takes” to save the euro (although key details of the plan remain unresolved). The US Federal Reserve announced a third round of quantitative easing with a promise to continue until the labor market outlook improved materially, and the Bank of Japan took steps to increase its asset purchase program. These easing measures were well received by investors and helped to drive equity markets higher during the year.
The Fund stayed true to its process and benefited from its quality orientation in stock selection. During the year, select holdings in the energy, financials and utilities sectors contributed to Fund performance. In the energy sector, one of the leading performers was Valero Energy, a US-based petroleum refining company.
Also contributing to Fund performance was consumer discretionary sector holding Porsche. The German luxury manufacturer was the top contributor for the
| | | | | |
| Portfolio Composition | | |
| By country | | | | | |
| | | | | |
| United States | | | | 41.6 | % |
| Japan | | | | 12.0 | |
| United Kingdom | | | | 10.5 | |
| France | | | | 6.3 | |
| Germany | | | | 4.0 | |
| Australia | | | | 3.5 | |
| Switzerland | | | | 3.1 | |
| Hong Kong | | | | 2.5 | |
| Canada | | | | 2.3 | |
| Norway | | | | 2.3 | |
| Countries each less than 2.0% of portfolio | | | | 9.9 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 2.0 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| |
1. Corning Inc. | | | | 3.1 | % |
2. Western Digital Corp. | | | | 2.6 | |
3. ACE Ltd. | | | | 2.4 | |
4. Chevron Corp. | | | | 2.2 | |
5. Asahi Group Holdings, Ltd. | | | | 2.0 | |
6. Barclays PLC | | | | 1.9 | |
7. Imperial Tobacco Group PLC | | | | 1.9 | |
8. DeNA Co., Ltd. | | | | 1.8 | |
9. Royal Dutch Shell PLC-Class A | | | | 1.8 | |
10. JPMorgan Chase & Co. | | | | 1.8 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| |
1. Diversified Banks | | | | 9.1 | % |
2. Integrated Oil & Gas | | | | 8.2 | |
3. Pharmaceuticals | | | | 5.5 | |
4. Integrated Telecommunication Services | | | | 4.5 | |
5. Oil & Gas Exploration & Production | | | | 3.3 | |
| | | | | |
| Total Net Assets | | | | $95.5 million | |
| |
| Total Number of Holdings* | | | | 116 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Global Core Equity Fund
fourth quarter and a main contributor for the fiscal year. The company’s strong performance came on the back of its progress in a longstanding ownership saga with Volkswagen (not a Fund holding), positive legal rulings mitigating outstanding litigation expense risks and strong performance of Volkswagen shares of which Porsche owns a significant stake. We believe the stock remains undervalued with excess litigation risk priced in, despite the positive legal rulings.
From a geographic perspective, Fund returns were aided by holdings in Australia, Canada and Germany.
The largest detractors from Fund performance came from the consumer discretionary, consumer staples, industrials, health care and information technology (IT) sectors. Within the IT sector, Hewlett Packard was one of the largest detractors for the year. The company struggled due to a year of management upheavals and disappointing earnings, mostly tied to its writing down approximately $8.8 billion of its acquisition of Autonomy (not a Fund holding).
Geographically, the UK, US and Japan were the weakest performing markets for the Fund, accounting for the majority of the underperformance for the year. Japan-based Yamada Denki and Nippon Telegraph and Telephone were some of the Fund’s larger detractors for the year. Holdings in Spain also weighed on Fund returns.
Shifts in sector and country weights, which are driven by our bottom-up stock selection approach, were relatively minor during the year. At the end of the reporting period, the Fund remained overweight in the energy and materials sectors, and underweight in the consumer discretionary, consumer staples and industrials sectors.
From a geographic perspective, the Fund maintained an overweight exposure to Japan and a meaningful underweight position in the US – positions that were in place throughout 2012. The Fund’s underweight position in the US was a detractor from Fund performance for the year relative to its style-specific benchmark.
Global markets ended 2012 on a strong note, with the MSCI World Index generating positive returns in six of the last seven months of the year.1 Accommodative monetary policy from global central banks is likely to continue, and market valuations remain attractive from a historic perspective. That said, underlying issues plaguing markets over the past several years such
as high sovereign debt levels across the developed markets (particularly within Europe) have not been resolved, and could continue to weigh on global economic growth and add to market volatility.
Regardless of the macroeconomic environment, the Fund’s bottom-up approach to stock selection continues to provide us with attractive investment opportunities.
Our focus on building portfolios with above-average profitability and valuation characteristics has not generated satisfactory returns for the full year, but we are encouraged by progress in the third and fourth quarters and continue to believe we are positioned well for the long term. We caution investors against making investment decisions based on short-term performance.
We welcome any new investors who joined the Fund during the year, and to all of our shareholders we say thank you for your continued investment in Invesco V.I. Global Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Ingrid Baker Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Core Equity Fund. |
| She joined Invesco in 1999. Ms. Baker earned a BA in international politics from Oberlin College and an MBA in finance from the University of Navarra. |
| | |
 | | W. Lindsay Davidson Portfolio manager, is manager of Invesco V.I. Global Core Equity Fund. He joined Invesco in 1984. |
| Mr. Davidson earned an economics degree from Edinburgh University. |
| | |
 | | E. Sargent McGowan Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Core Equity Fund. |
| He joined Invesco in 2002. Mr. McGowan earned a BS in commerce from the University of Virginia and an MBA in investment management from the University of North Carolina. |
| | |
 | | Anuja Singha Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Core Equity Fund. |
| She joined Invesco in 1998. Ms. Singha earned a BA in economics from Mills College and a PhD in economics from Emory University. |
| | |
 | | Stephen Thomas Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Core Equity Fund. |
| He joined Invesco in 2000. Mr. Thomas earned a BBA in banking and finance and an MBA from the University of Mississippi. |
Invesco V.I. Global Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (1/2/97) | | | | 4.13 | % |
| 10 Years | | | | 4.57 | |
| 5 Years | | | | -4.83 | |
| 1 Year | | | | 13.75 | |
| |
| Series II Shares | | | | | |
| 10 Years | | | | 4.31 | % |
| 5 Years | | | | -5.07 | |
| 1 Year | | | | 13.41 | |
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 (renamed Invesco V.I. Global Core Equity Fund on April 30, 2012). Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II share 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 share 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 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 1.01% and 1.26%, 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 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. Global Core Equity Fund
Invesco V.I. Global Core Equity Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including US issuers.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Equity securities risk. In general, prices of equity securities are more volatile than those of fixed income securities. Investing in securities of small- and mid-sized companies involves greater risks than is customarily associated with investing in larger, more established companies.
Value investing risk. Value stocks can react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks. Value stocks can continue to be undervalued for long periods of time and may not ever realize their full value.
Foreign and emerging markets risk. Investing in the securities of foreign issuers, particularly those located in emerging market or developing countries, entails the risk that news and events unique to a country or region will affect those markets and their issuers. In addition, the Fund’s investments in foreign issuers generally will be denominated in foreign currencies. As a result, changes in the value of a country’s currency compared to the US dollar may affect the value of the Fund’s investments.
Geographic concentration risk. Because the Fund has a significant level of investment issuers in the developed countries of Western Europe and Japan, the Fund’s performance is expected to be closely tied to social, political and economic conditions within countries in those regions and to be more volatile than the performance of more geographically diversified funds.
Investing in European Union risk. Many countries in the European Union are susceptible to high economic risks associated with high levels of debt, notably due to investments in sovereign debts of European countries such as Greece, Italy and Spain. One or more member states
might exit the European Union, placing its currency and banking system in jeopardy. The European Union faces major issues involving its membership, structure, procedures and policies, including the adoption, abandonment or adjustment of the new constitutional treaty, the European Union’s enlargement to the south and east, and resolution of the European Union’s problematic fiscal and democratic accountability. Efforts of the member states to further unify their economic and monetary policies may increase the potential for the downward movement of one member state’s market to cause a similar effect on other member states’ markets. European countries that are part of the European Economic and Monetary Union may be significantly affected by the tight fiscal and monetary controls that the union seeks to impose on its members.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Investing in real estate investment trusts (REITs) risk. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general. In addition, REITs depend upon specialized management skills, may not be diversified, may have less trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets. REITs must comply with certain requirements of the federal income tax law to maintain their federal income tax status. Investments in REITs may involve duplication of management fees and certain other expenses.
Small- and mid-capitalization risk. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause
difficulty when establishing or closing a position at a desirable price.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Global Core Equity Fund
Schedule of Investments
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–97.98% | |
| Australia–3.53% | |
Australia & New Zealand Banking Group Ltd. | | | 33,696 | | | $ | 883,169 | |
Macquarie Group Ltd. | | | 35,496 | | | | 1,321,575 | |
Telstra Corp. Ltd. | | | 256,842 | | | | 1,171,341 | |
| | | | | | | | 3,376,085 | |
|
| Brazil–0.87% | |
Banco do Brasil S.A. | | | 10,200 | | | | 129,862 | |
Companhia Paranaense de Energia–Copel–Class B–Preference Shares | | | 8,200 | | | | 126,074 | |
PDG Realty S.A. Empreendimentos e Participacoes | | | 39,600 | | | | 65,335 | |
Petroleo Brasileiro S.A.–ADR | | | 9,950 | | | | 193,727 | |
Telefonica Brasil S.A.–Preference Shares | | | 5,300 | | | | 127,554 | |
Vale S.A.–ADR | | | 8,984 | | | | 188,305 | |
| | | | | | | | 830,857 | |
|
| Canada–2.34% | |
Barrick Gold Corp. | | | 35,557 | | | | 1,247,199 | |
Toronto-Dominion Bank (The) | | | 11,726 | | | | 989,274 | |
| | | | | | | | 2,236,473 | |
|
| China–1.26% | |
China Agri-Industries Holdings Ltd. | | | 168,000 | | | | 94,484 | |
China Communications Construction Co. Ltd.–Class H | | | 155,000 | | | | 152,216 | |
China Construction Bank Corp.–Class H | | | 235,000 | | | | 191,540 | |
China Minsheng Banking Corp., Ltd.–Class H | | | 111,500 | | | | 131,834 | |
China Mobile Ltd. | | | 26,000 | | | | 304,582 | |
CNOOC Ltd. | | | 100,000 | | | | 219,591 | |
KWG Property Holding Ltd. | | | 138,500 | | | | 105,024 | |
| | | | | | | | 1,199,271 | |
|
| France–6.33% | |
BNP Paribas S.A. | | | 23,171 | | | | 1,305,538 | |
Bouygues S.A. | | | 34,874 | | | | 1,027,884 | |
Sanofi | | | 13,125 | | | | 1,244,193 | |
Total S.A. | | | 26,991 | | | | 1,396,405 | |
Vallourec S.A. | | | 20,642 | | | | 1,075,512 | |
| | | | | | | | 6,049,532 | |
|
| Germany–3.96% | |
Deutsche Lufthansa AG | | | 67,585 | | | | 1,269,804 | |
Porsche Automobil Holding SE–Preference Shares | | | 20,688 | | | | 1,685,089 | |
Salzgitter AG | | | 15,864 | | | | 826,334 | |
| | | | | | | | 3,781,227 | |
|
| Hong Kong–2.46% | |
Cheung Kong (Holdings) Ltd. | | | 57,000 | | | | 882,358 | |
First Pacific Co. Ltd. | | | 58,000 | | | | 64,040 | |
Standard Chartered PLC | | | 55,205 | | | | 1,399,761 | |
| | | | | | | | 2,346,159 | |
| | | | | | | | |
| | | Shares | | | Value | |
| India–0.63% | |
Tata Motors Ltd.–ADR | | | 6,641 | | | $ | 190,730 | |
WisdomTree India Earnings Fund–ETF | | | 21,100 | | | | 408,707 | |
| | | | | | | | 599,437 | |
|
| Indonesia–0.12% | |
PT Telekomunikasi Indonesia Persero Tbk | | | 119,000 | | | | 110,189 | |
|
| Italy–1.03% | |
Eni S.p.A. | | | 40,056 | | | | 987,751 | |
|
| Japan–12.01% | |
Asahi Group Holdings, Ltd. | | | 88,000 | | | | 1,863,469 | |
DeNA Co., Ltd.(a) | | | 53,000 | | | | 1,740,375 | |
JSR Corp. | | | 47,500 | | | | 896,177 | |
Mitsubishi Corp. | | | 45,500 | | | | 873,429 | |
Mitsubishi UFJ Financial Group, Inc. | | | 220,000 | | | | 1,182,281 | |
Nippon Telegraph & Telephone Corp. | | | 26,200 | | | | 1,099,104 | |
Nippon Yusen Kabushiki Kaisha | | | 296,000 | | | | 695,707 | |
Nissan Motor Co., Ltd. | | | 153,700 | | | | 1,456,902 | |
Seven & I Holdings Co., Ltd. | | | 28,700 | | | | 806,247 | |
Yamada Denki Co., Ltd.(a) | | | 22,190 | | | | 854,575 | |
| | | | | | | | 11,468,266 | |
|
| Mexico–0.18% | |
America Movil S.A.B. de C.V.–Series L | | | 144,700 | | | | 167,600 | |
|
| Norway–2.28% | |
Statoil ASA | | | 32,797 | | | | 822,707 | |
Yara International ASA | | | 27,235 | | | | 1,351,345 | |
| | | | | | | | 2,174,052 | |
|
| Poland–0.17% | |
KGHM Polska Miedz S.A. | | | 2,657 | | | | 165,350 | |
|
| Russia–0.60% | |
Magnitogorsk Iron & Steel Works–REGS–GDR(b) | | | 19,078 | | | | 84,657 | |
Rosneft Oil Co.–REGS–GDR(b) | | | 23,572 | | | | 212,838 | |
Sberbank of Russia–ADR | | | 11,229 | | | | 139,579 | |
Sistema JSFC–REGS–GDR(b) | | | 6,727 | | | | 136,299 | |
| | | | | | | | 573,373 | |
|
| South Africa–0.72% | |
Sasol Ltd. | | | 3,949 | | | | 171,930 | |
Standard Bank Group Ltd. | | | 10,783 | | | | 153,008 | |
Steinhoff International Holdings Ltd. | | | 64,080 | | | | 210,024 | |
Tiger Brands Ltd. | | | 3,915 | | | | 151,176 | |
| | | | | | | | 686,138 | |
|
| South Korea–1.52% | |
Dongbu Insurance Co., Ltd. | | | 3,566 | | | | 154,403 | |
Hyundai Department Store Co., Ltd. | | | 444 | | | | 66,541 | |
Hyundai Mipo Dockyard Co., Ltd. | | | 1,135 | | | | 137,064 | |
Hyundai Mobis | | | 914 | | | | 249,339 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
| | | | | | | | |
| | | Shares | | | Value | |
| South Korea-(continued) | |
KT&G Corp. | | | 2,362 | | | $ | 180,166 | |
POSCO | | | 386 | | | | 126,942 | |
Samsung Electronics Co., Ltd. | | | 192 | | | | 276,389 | |
Shinhan Financial Group Co., Ltd. | | | 3,984 | | | | 145,755 | |
SK Telecom Co., Ltd.–ADR(a) | | | 7,021 | | | | 111,142 | |
| | | | | | | | 1,447,741 | |
|
| Spain–1.66% | |
Iberdrola S.A. | | | 145,525 | | | | 811,165 | |
Telefonica S.A. | | | 57,323 | | | | 778,049 | |
| | | | | | | | 1,589,214 | |
|
| Switzerland–3.09% | |
ABB Ltd. | | | 46,561 | | | | 965,891 | |
Swisscom AG | | | 2,317 | | | | 998,376 | |
Zurich Insurance Group AG | | | 3,713 | | | | 991,903 | |
| | | | | | | | 2,956,170 | |
|
| Taiwan–0.49% | |
Hon Hai Precision Industry Co., Ltd. | | | 43,000 | | | | 132,583 | |
Powertech Technology Inc. | | | 48,300 | | | | 79,278 | |
TPK Holding Co. Ltd. | | | 4,000 | | | | 71,459 | |
Unimicron Technology Corp. | | | 97,000 | | | | 103,457 | |
Wistron Corp. | | | 78,750 | | | | 82,068 | |
| | | | | | | | 468,845 | |
|
| Thailand–0.30% | |
Bangkok Bank PCL–NVDR | | | 25,600 | | | | 164,391 | |
PTT PCL | | | 11,500 | | | | 126,193 | |
| | | | | | | | 290,584 | |
|
| Turkey–0.12% | |
Asya Katilim Bankasi AS(c) | | | 93,818 | | | | 116,919 | |
|
| United Arab Emirates–0.17% | |
Dragon Oil PLC | | | 17,455 | | | | 158,229 | |
|
| United Kingdom–10.52% | |
Barclays PLC | | | 416,585 | | | | 1,799,473 | |
BHP Billiton PLC | | | 42,316 | | | | 1,487,375 | |
Eurasian Natural Resources Corp. | | | 17,215 | | | | 82,845 | |
Gazprom OAO–ADR | | | 12,365 | | | | 118,566 | |
GlaxoSmithKline PLC | | | 36,656 | | | | 796,080 | |
Imperial Tobacco Group PLC | | | 45,925 | | | | 1,773,878 | |
National Grid PLC | | | 80,615 | | | | 923,655 | |
Rio Tinto PLC | | | 22,926 | | | | 1,336,324 | |
Royal Dutch Shell PLC–Class A | | | 49,076 | | | | 1,734,558 | |
| | | | | | | | 10,052,754 | |
|
| United States–41.62% | |
3M Co. | | | 11,167 | | | | 1,036,855 | |
ACE Ltd. | | | 28,640 | | | | 2,285,472 | |
Apache Corp. | | | 8,480 | | | | 665,680 | |
Archer-Daniels-Midland Co. | | | 51,112 | | | | 1,399,958 | |
Bank of America Corp. | | | 91,369 | | | | 1,059,880 | |
| | | | | | | | |
| | | Shares | | | Value | |
| United States-(continued) | |
Best Buy Co., Inc. | | | 38,110 | | | $ | 451,604 | |
Chevron Corp. | | | 19,255 | | | | 2,082,236 | |
Cisco Systems, Inc. | | | 86,009 | | | | 1,690,077 | |
Coach, Inc. | | | 21,372 | | | | 1,186,360 | |
ConocoPhillips | | | 21,967 | | | | 1,273,866 | |
Corning Inc. | | | 233,092 | | | | 2,941,621 | |
Energen Corp. | | | 18,535 | | | | 835,743 | |
Energizer Holdings, Inc. | | | 11,235 | | | | 898,575 | |
GameStop Corp.–Class A(a) | | | 60,761 | | | | 1,524,493 | |
General Dynamics Corp. | | | 22,684 | | | | 1,571,321 | |
Gilead Sciences, Inc.(c) | | | 21,463 | | | | 1,576,457 | |
Hewlett-Packard Co. | | | 45,290 | | | | 645,383 | |
Johnson & Johnson | | | 22,856 | | | | 1,602,206 | |
JPMorgan Chase & Co. | | | 39,020 | | | | 1,715,709 | |
Merck & Co., Inc. | | | 39,716 | | | | 1,625,973 | |
Microsoft Corp. | | | 31,566 | | | | 843,759 | |
NASDAQ OMX Group, Inc. (The) | | | 46,557 | | | | 1,164,391 | |
Oracle Corp. | | | 48,753 | | | | 1,624,450 | |
Phillips 66 | | | 12,759 | | | | 677,503 | |
PNC Financial Services Group, Inc. | | | 18,960 | | | | 1,105,558 | |
Stryker Corp. | | | 15,437 | | | | 846,256 | |
Valero Energy Corp. | | | 40,981 | | | | 1,398,272 | |
WellPoint, Inc. | | | 24,611 | | | | 1,499,302 | |
Western Digital Corp. | | | 59,380 | | | | 2,523,056 | |
| | | | | | | | 39,752,016 | |
Total Common Stocks & Other Equity Interests
(Cost $84,626,350) | | | | 93,584,232 | |
| | |
Money Market Funds–1.73% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(d) | | | 828,898 | | | | 828,898 | |
Premier Portfolio–Institutional Class(d) | | | 828,899 | | | | 828,899 | |
Total Money Market Funds
(Cost $1,657,797) | | | | | | | 1,657,797 | |
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.71%
(Cost $86,284,147) | | | | 95,242,029 | |
| |
Investments Purchased with Cash Collateral from Securities on Loan | | | | | |
Money Market Funds–3.44% | |
Liquid Asset Portfollio–Institutional Class
(Cost $3,288,967)(d)(e) | | | 3,288,967 | | | | 3,288,967 | |
TOTAL INVESTMENTS–103.15%
(Cost $89,573,114) | | | | 98,530,996 | |
OTHER ASSETS LESS LIABILITIES–(3.15)% | | | | (3,013,116 | ) |
NET ASSETS–100.00% | | | $ | 95,517,880 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
| ETF | | – Exchange-Traded Fund |
| GDR | | – Global Depositary Receipt |
| NVDR | | – Non-Voting Depositary Receipt |
| REGS | | – Regulation S |
Notes to Schedule of Investments:
| (a) | All or a portion of this security was out on loan at December 31, 2012. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $433,794, which represented less than 1% of the Fund’s Net Assets. |
| (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 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $84,626,350)* | | $ | 93,584,232 | |
Investments in affiliated money market funds, at value and cost | | | 4,946,764 | |
Total investments, at value (Cost $89,573,114) | | | 98,530,996 | |
Foreign currencies, at value (Cost $89,977) | | | 90,475 | |
Receivable for: | | | | |
Investments sold | | | 214,894 | |
Fund shares sold | | | 33,467 | |
Dividends | | | 127,279 | |
Investment for trustee deferred compensation and retirement plans | | | 14,897 | |
Total assets | | | 99,012,008 | |
|
Liabilities: | |
Payable for: | | | | |
Fund shares reacquired | | | 70,071 | |
Collateral upon return of securities loaned | | | 3,288,967 | |
Accrued fees to affiliates | | | 59,976 | |
Accrued foreign taxes | | | 6,204 | |
Accrued other operating expenses | | | 48,269 | |
Trustee deferred compensation and retirement plans | | | 20,641 | |
Total liabilities | | | 3,494,128 | |
Net assets applicable to shares outstanding | | $ | 95,517,880 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 113,624,186 | |
Undistributed net investment income | | | 1,835,915 | |
Undistributed net realized gain (loss) | | | (28,902,526 | ) |
Unrealized appreciation | | | 8,960,305 | |
| | | $ | 95,517,880 | |
|
Net Assets: | |
Series I | | $ | 74,516,707 | |
Series II | | $ | 21,001,173 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 9,884,353 | |
Series II | | | 2,791,333 | |
Series I: | | | | |
Net asset value per share | | $ | 7.54 | |
Series II: | | | | |
Net asset value per share | | $ | 7.52 | |
| * | At December 31, 2012, securities with an aggregate value of $3,167,330 were on loan to brokers. |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $173,154) | | $ | 2,817,394 | |
Dividends from affiliated money market funds (includes securities lending income of $67,619) | | | 70,249 | |
Total investment income | | | 2,887,643 | |
| |
Expenses: | | | | |
Advisory fees | | | 647,124 | |
Administrative services fees | | | 239,657 | |
Custodian fees | | | 50,227 | |
Distribution fees — Series II | | | 52,944 | |
Transfer agent fees | | | 10,391 | |
Trustees’ and officers’ fees and benefits | | | 24,560 | |
Other | | | 74,229 | |
Total expenses | | | 1,099,132 | |
Less: Fees waived | | | (73,605 | ) |
Net expenses | | | 1,025,527 | |
Net investment income | | | 1,862,116 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (net of tax on sale of foreign investments of $4,829) | | | 2,643,428 | |
Foreign currencies | | | (3,297 | ) |
| | | | 2,640,131 | |
Change in net unrealized appreciation of: | | | | |
Investment securities (net of change in estimated tax on foreign investments held of $6,474) | | | 7,887,588 | |
Foreign currencies | | | 2,613 | |
| | | | 7,890,201 | |
Net realized and unrealized gain | | | 10,530,332 | |
Net increase in net assets resulting from operations | | $ | 12,392,448 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 1,862,116 | | | $ | 2,393,049 | |
Net realized gain (loss) | | | 2,640,131 | | | | (355,461 | ) |
Change in net unrealized appreciation (depreciation) | | | 7,890,201 | | | | (21,936,920 | ) |
Net increase (decrease) in net assets resulting from operations | | | 12,392,448 | | | | (19,899,332 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (1,863,526 | ) | | | (1,439,970 | ) |
Series ll | | | (494,180 | ) | | | (353 | ) |
Total distributions from net investment income | | | (2,357,706 | ) | | | (1,440,323 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (11,435,424 | ) | | | 49,857,625 | |
Series ll | | | (2,948,706 | ) | | | 26,620,164 | |
Net increase (decrease) in net assets resulting from share transactions | | | (14,384,130 | ) | | | 76,477,789 | |
Net increase (decrease) in net assets | | | (4,349,388 | ) | | | 55,138,134 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 99,867,268 | | | | 44,729,134 | |
End of year (includes undistributed net investment income of $1,835,915 and $2,339,630, respectively) | | $ | 95,517,880 | | | $ | 99,867,268 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Core Equity Fund, formerly 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-five 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”).
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations),
Invesco V.I. Global Core Equity Fund
individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. Global Core Equity 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 the 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 affiliated money market funds 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 $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. (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. Global Core Equity Fund
Effective July 1, 2012, the Adviser has 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 2.25% and Series II shares to 2.50% of average daily net assets. Prior to July 1, 2012, 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 to 0.94% and Series II to 1.19% 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $73,605.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $189,657 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $15,810,089 due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Australia | | $ | — | | | $ | 3,376,085 | | | $ | — | | | $ | 3,376,085 | |
Brazil | | | 382,032 | | | | 448,825 | | | | — | | | | 830,857 | |
Canada | | | 2,236,473 | | | | — | | | | — | | | | 2,236,473 | |
China | | | — | | | | 1,199,271 | | | | — | | | | 1,199,271 | |
France | | | 1,075,512 | | | | 4,974,020 | | | | — | | | | 6,049,532 | |
Germany | | | 1,269,804 | | | | 2,511,423 | | | | — | | | | 3,781,227 | |
Hong Kong | | | — | | | | 2,346,159 | | | | — | | | | 2,346,159 | |
India | | | 599,437 | | | | — | | | | — | | | | 599,437 | |
Indonesia | | | — | | | | 110,189 | | | | — | | | | 110,189 | |
Invesco V.I. Global Core Equity Fund
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Italy | | $ | — | | | $ | 987,751 | | | $ | — | | | $ | 987,751 | |
Japan | | | 2,669,716 | | | | 8,798,550 | | | | — | | | | 11,468,266 | |
Mexico | | | 167,600 | | | | — | | | | — | | | | 167,600 | |
Norway | | | — | | | | 2,174,052 | | | | — | | | | 2,174,052 | |
Poland | | | — | | | | 165,350 | | | | — | | | | 165,350 | |
Russia | | | — | | | | 573,373 | | | | — | | | | 573,373 | |
South Africa | | | — | | | | 686,138 | | | | — | | | | 686,138 | |
South Korea | | | 111,142 | | | | 1,336,599 | | | | — | | | | 1,447,741 | |
Spain | | | — | | | | 1,589,214 | | | | — | | | | 1,589,214 | |
Switzerland | | | — | | | | 2,956,170 | | | | — | | | | 2,956,170 | |
Taiwan | | | — | | | | 468,845 | | | | — | | | | 468,845 | |
Thailand | | | — | | | | 290,584 | | | | — | | | | 290,584 | |
Turkey | | | — | | | | 116,919 | | | | — | | | | 116,919 | |
United Arab Emirates | | | — | | | | 158,229 | | | | — | | | | 158,229 | |
United Kingdom | | | — | | | | 10,052,754 | | | | — | | | | 10,052,754 | |
United States | | | 44,698,780 | | | | — | | | | — | | | | 44,698,780 | |
| | | $ | 53,210,496 | | | $ | 45,320,500 | | | $ | — | | | $ | 98,530,996 | |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 2,357,706 | | | $ | 1,440,323 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 1,854,781 | |
Net unrealized appreciation — investments | | | 8,783,307 | |
Net unrealized appreciation (depreciation) — other investments | | | 2,423 | |
Temporary book/tax differences | | | (18,866 | ) |
Capital loss carryforward | | | (28,727,951 | ) |
Shares of beneficial interest | | | 113,624,186 | |
Total net assets | | $ | 95,517,880 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
Invesco V.I. Global Core Equity Fund
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $2,743,345 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 10,809,976 | | | $ | — | | | $ | 10,809,976 | |
December 31, 2017 | | | 17,917,975 | | | | — | | | | 17,917,975 | |
| | | $ | 28,727,951 | | | $ | — | | | $ | 28,727,951 | |
| * | 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, are 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 year ended December 31, 2012 was $21,845,472 and $36,805,512, 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 | | $ | 14,061,913 | |
Aggregate unrealized (depreciation) of investment securities | | | (5,278,606 | ) |
Net unrealized appreciation of investment securities | | $ | 8,783,307 | |
Cost of investments for tax purposes is $89,747,689.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2012, undistributed net investment income was decreased by $8,125 and undistributed net realized gain (loss) was increased by $8,125. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Global Core Equity Fund
NOTE 9—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 379,696 | | | $ | 2,734,062 | | | | 882,041 | | | $ | 6,843,913 | |
Series II | | | 17,582 | | | | 121,039 | | | | 282,903 | | | | 1,950,278 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 258,823 | | | | 1,863,526 | | | | 180,447 | | | | 1,439,970 | |
Series II | | | 68,695 | | | | 493,916 | | | | — | | | | — | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 7,111,889 | | | | 58,977,691 | |
Series II | | | — | | | | — | | | | 3,419,989 | | | | 28,363,525 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,247,672 | ) | | | (16,033,012 | ) | | | (2,359,534 | ) | | | (17,403,949 | ) |
Series II | | | (497,808 | ) | | | (3,563,661 | ) | | | (501,562 | ) | | | (3,693,639 | ) |
Net increase (decrease) in share activity | | | (2,020,684 | ) | | $ | (14,384,130 | ) | | | 9,016,173 | | | $ | 76,477,789 | |
| (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 Fund 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 Dividend Growth Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the 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 at the close of business on April 29, 2011. Invesco V.I. Global Dividend Growth Fund’s net assets at that date of $87,341,216, including $17,111,954 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $48,932,340. The net assets immediately after the acquisition were $136,273,556. |
| | The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 2,803,054 | |
Net realized/unrealized gains (losses) | | | (15,663,166 | ) |
Change in net assets resulting from operations | | $ | (12,860,112 | ) |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. Global Core Equity Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 6.80 | | | $ | 0.14 | | | $ | 0.79 | | | $ | 0.93 | | | $ | (0.19 | ) | | $ | — | | | $ | (0.19 | ) | | $ | 7.54 | | | | 13.75 | % | | $ | 74,517 | | | | 1.00 | %(d) | | | 1.08 | %(d) | | | 1.98 | %(d) | | | 23 | % |
Year ended 12/31/11 | | | 7.87 | | | | 0.20 | | | | (1.02 | ) | | | (0.82 | ) | | | (0.25 | ) | | | — | | | | (0.25 | ) | | | 6.80 | | | | (10.89 | ) | | | 78,125 | | | | 0.97 | | | | 1.00 | | | | 2.70 | | | | 62 | |
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 | |
Series II | |
Year ended 12/31/12 | | | 6.79 | | | | 0.12 | | | | 0.78 | | | | 0.90 | | | | (0.17 | ) | | | — | | | | (0.17 | ) | | | 7.52 | | | | 13.41 | | | | 21,001 | | | | 1.25 | (d) | | | 1.33 | (d) | | | 1.73 | (d) | | | 23 | |
Year ended 12/31/11 | | | 7.86 | | | | 0.18 | | | | (1.02 | ) | | | (0.84 | ) | | | (0.23 | ) | | | — | | | | (0.23 | ) | | | 6.79 | | | | (11.12 | ) | | | 21,742 | | | | 1.22 | | | | 1.25 | | | | 2.45 | | | | 62 | |
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 ended December 31, 2011, the portfolio turnover calculation excluded the value of securities purchased of $68,458,544 and sold of $8,561,566 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dividend Growth into the Fund. |
| (d) | Ratios are based on average daily net assets (000’s) of $75,408 and $21,178 for Series I and Series II, 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 rebate on the ratios was less than 0.005% for the years ended December 31, 2009 and 2008, respectively. |
| (f) | Ratio of net investment income to average net assets without fee waivers and/or expense absorbed was 3.28% for the year ended December 31, 2009. |
| (g) | Commencement date of June 1, 2010. |
Invesco V.I. Global Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Global Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Core Equity Fund, (formerly known as Invesco Van Kampen V.I. Global Value Equity Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco V.I. Global Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,124.30 | | | $ | 5.77 | | | $ | 1,019.70 | | | $ | 5.49 | | | | 1.08 | % |
| Series II | | | 1,000.00 | | | | 1,122.50 | | | | 7.10 | | | | 1,018.45 | | | | 6.75 | | | | 1.33 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 27 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Global Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Global Core Equity Fund
Invesco V.I. Global Health Care Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Global Health Care Fund’s returns compared favorably to the broad market as measured by the MSCI World Index, as well as to the Fund’s style-specific benchmark, the MSCI World Health Care Index. The Fund’s relative results were largely attributable to holdings in the pharmaceuticals industry, which outperformed those of the MSCI World Health Care Index. The Fund’s relative overweight position in the health care facilities industry also had a positive impact on relative results. Health care supplies and health care technology stocks detracted from both relative and absolute performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 20.90 | % |
| Series II Shares | | | | 20.60 | |
| MSCI World Index‚ (Broad Market Index) | | | | 15.83 | |
| MSCI World Health Care Index¡ (Style-Specific Index) | | | | 17.54 | |
| Lipper VUF Health/Biotechnology Funds Classification Average¡ (Peer Group) | | | | 23.89 | |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; ¡Lipper Inc.
How we invest
We seek health care stocks of all market capitalizations from around the world that we believe are attractively priced and have the potential to benefit from long-term earnings and cash flow growth.
In selecting securities for the Fund, we first screen the global investment universe. Stocks of at least $200 million in market capitalization are considered for further evaluation if they are identified as having attractive growth prospects relative to their current valuations. We use a research-oriented, bottom-up investment approach, focusing on company fundamentals in an effort to uncover future growth prospects that are not yet appreciated by the market.
In analyzing specific industries for possible investment, we ordinarily look for several of the following characteristics: above-average growth and demand; scientific and medical advances; below-average reimbursement risk; and high barriers to entry.
In analyzing specific companies for possible investment, we ordinarily look for several of the following characteristics: leading companies with defensible franchises; companies in the midst of a new product cycle; value-added and/or niche-oriented products and/or services; companies exhibiting sustainable revenue growth; the potential to expand profit margins and improve profitability; superior earnings-per-share growth; strong balance sheet and moderate financial leverage; and a capable management team.
Stock selection is then further refined by valuation analysis. In general, we target stocks trading at compelling valuations based on one or more of the following parameters: price-to-earnings (P/E); P/E ratio versus expected earnings per share growth rate; enterprise value to earnings-before-interest-depreciation-and-taxes; discounted cash flow analysis; and sum of parts analysis.
The resulting target portfolio consists of 50 to 80 individual securities with exposure across most subsectors of health
care and diversified by region. Additionally, position size is limited in an effort to maximize risk-adjusted returns.
We may consider selling a security when:
| n | | A stock’s price reaches its valuation target. |
| n | | A company’s fundamentals deteriorate. |
| n | | A company no longer meets our investment criteria. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the
| | | | | |
| Portfolio Composition |
| |
| By country | | | | | |
| | | | | |
| |
| United States | | | | 65.2 | % |
| Switzerland | | | | 9.6 | |
| Ireland | | | | 4.2 | |
| Germany | | | | 3.8 | |
| United Kingdom | | | | 3.5 | |
| France | | | | 2.9 | |
| Countries Each Less Than 2% of Portfolio | | | | 5.8 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 5.0 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
1. Pfizer Inc. | | | | 4.6 | % |
2. Roche Holding AG | | | | 4.5 | |
3. Novartis AG-ADR | | | | 4.2 | |
4. Johnson & Johnson | | | | 4.1 | |
5. Abbott Laboratories | | | | 3.7 | |
6. Gilead Sciences, Inc. | | | | 3.2 | |
7. Sanofi-ADR | | | | 2.9 | |
8. Bayer AG | | | | 2.8 | |
9. Shire PLC-ADR | | | | 2.6 | |
10. GlaxoSmithKline PLC-ADR | | | | 2.4 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| | | | | |
1. Pharmaceuticals | | | | 40.3 | % |
2. Biotechnology | | | | 20.6 | |
3. Health Care Equipment | | | | 7.4 | |
4. Managed Health Care | | | | 7.0 | |
5. Health Care Facilities | | | | 6.7 | |
| | | | | |
| Total Net Assets | | | | $161.7 million | |
| |
| Total Number of Holdings* | | | | 63 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Global Health Care Fund
“fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
The top individual contributor to the Fund’s return for the year was Gilead. During the reporting period, the company received favorable news on several of its drug candidates. The company’s shares soared on news that its hepatitis-C drug candidate, in combination with an antiviral drug, effectively suppressed the virus in previously untreated patients with genotype 1 hepatitis C, after 12 weeks of treatment. Additionally, Gilead’s single-tablet HIV combination drug, Stribild, received Food and Drug Administration (FDA) approval. As it is Gilead’s first once-daily HIV regimen, Stribild is expected to generate significant revenue for the company. Shares were up on the news, and we used the opportunity to trim our position in the stock.
Thermo Fisher Scientific was another strong contributor. Thermo Fisher is a laboratory supplier that makes and sells scientific instruments and laboratory equipment, diagnostic products and consumables to clients in the life sciences, health care and environmental industries. The company’s revenues and earnings were strong, as reduced spending by government and academic customers was largely offset by stronger sales among its pharmaceutical and biotechnology clients. We trimmed our position in the stock during the year.
The Fund’s largest detractor was Allscripts, a health care information technology provider that develops clinical software for hospitals and physicians’ offices. In April, the company reported a drop in earnings from the prior quarter and reduced its growth outlook for the remainder of the year. The earnings release coincided with the departure of the company’s chief executive officer (CEO) and a number of other key executives. These combined events sent shares sharply lower. Following the steep price declines, shares were relatively flat for the remainder of the reporting period, and we sold our position.
Another detractor was Dendreon, which develops and markets novel cancer therapeutics. The company currently only has one product on the market, Provenge, for the treatment of prostate cancer. Provenge is essentially a cellular vaccine against cancer, and the first drug of its kind to gain FDA approval. However,
since hitting the market in 2010, sales of the drug have fallen short of expectations due to its high cost and potential reimbursement issues from health care insurers. The company has also faced a number of other issues, including a CEO change and a restructuring of its sales force and manufacturing facilities. We eliminated this position during the year.
The Fund held derivative instruments in the form of currency forward contracts in order to hedge its European currency exposure. The net cumulative effect of these derivative contracts was minimal during the fiscal year.
During the reporting period, we maintained an underweight position in large-cap pharmaceuticals versus the style-specific benchmark; however, over the course of the year we took steps to increase our exposure to the industry. We believe these stocks warrant a higher allocation as they are currently undervalued and we are attracted to their higher yields and improving earnings growth.
We continue to emphasize specialty pharmaceuticals and biotechnology stocks based on their generally robust product portfolios, compelling pipelines and the view that many of these companies could be targets of ongoing consolidation. We are primarily focused on companies with new product cycles, less reimbursement risk and less competition.
At the end of the reporting period, the Fund was primarily invested in US stocks; however, we took steps to increase our non-US exposure during the year. The Fund’s non-US allocation was focused mainly on European large-cap pharmaceuticals, which have fewer patent expiration concerns than their US counterparts.
As always, thank you for your continued investment in Invesco V.I. Global Health Care Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Derek Taner Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Health Care Fund. |
| He joined Invesco in 2005. Mr. Taner earned a BS in business administration with an emphasis in accounting and finance and an MBA from the University of California, Berkeley Haas School of Business. |
Invesco V.I. Global Health Care Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/21/97) | | | | 7.31 | % |
| 10 Years | | | | 7.75 | |
| 5 Years | | | | 3.82 | |
| 1 Year | | | | 20.90 | |
| |
| Series II Shares | | | | | |
| 10 Years | | | | 7.48 | % |
| 5 Years | | | | 3.57 | |
| 1 Year | | | | 20.60 | |
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.
Invesco V.I. Global Health Care Fund
Invesco V.I. Global Health Care Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Debt securities risk. The Fund may invest in debt securities that are affected by changing interest rates and changes in their effective maturities and credit quality.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Health care sector risk. The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small and mid-capitalization risk. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries.
The Lipper VUF Health/Biotechnology Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Health/Biotechnology Funds classification.
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–94.96% | |
| Biotechnology–20.60% | |
Actelion Ltd. (Switzerland)(b) | | | 32,678 | | | $ | 1,568,195 | |
Alexion Pharmaceuticals, Inc.(b) | | | 25,906 | | | | 2,430,242 | |
Algeta ASA (Norway)(b) | | | 35,566 | | | | 998,475 | |
Amarin Corp. PLC–ADR (Ireland)(b) | | | 134,921 | | | | 1,091,511 | |
ARIAD Pharmaceuticals, Inc.(b) | | | 86,031 | | | | 1,650,075 | |
Biogen Idec Inc.(b) | | | 23,529 | | | | 3,450,998 | |
BioMarin Pharmaceutical Inc.(b) | | | 63,249 | | | | 3,115,013 | |
Celgene Corp.(b) | | | 30,582 | | | | 2,407,109 | |
Cepheid, Inc.(b) | | | 42,255 | | | | 1,428,642 | |
Elan Corp. PLC–ADR (Ireland)(b) | | | 149,309 | | | | 1,524,445 | |
Gilead Sciences, Inc.(b) | | | 69,341 | | | | 5,093,096 | |
Incyte Corp.(b) | | | 60,007 | | | | 996,716 | |
Infinity Pharmaceuticals, Inc.(b) | | | 28,549 | | | | 999,215 | |
Medivation Inc.(b) | | | 42,556 | | | | 2,177,165 | |
Onyx Pharmaceuticals, Inc.(b) | | | 36,039 | | | | 2,722,026 | |
Prothena Corp. PLC (Ireland)(b) | | | 3,641 | | | | 26,688 | |
Vertex Pharmaceuticals Inc.(b) | | | 38,878 | | | | 1,630,543 | |
| | | | | | | | 33,310,154 | |
|
| Drug Retail–2.15% | |
CVS Caremark Corp. | | | 37,058 | | | | 1,791,754 | |
Raia Drogasil S.A. (Brazil) | | | 148,860 | | | | 1,679,327 | |
| | | | | | | | 3,471,081 | |
|
| Health Care Distributors–3.38% | |
Cardinal Health, Inc. | | | 39,100 | | | | 1,610,138 | |
McKesson Corp. | | | 39,793 | | | | 3,858,329 | |
| | | | | | | | 5,468,467 | |
|
| Health Care Equipment–7.38% | |
Baxter International Inc. | | | 39,552 | | | | 2,636,536 | |
CareFusion Corp.(b) | | | 56,767 | | | | 1,622,401 | |
Covidien PLC | | | 43,681 | | | | 2,522,141 | |
Hologic, Inc.(b) | | | 80,437 | | | | 1,611,153 | |
Olympus Corp. (Japan)(b) | | | 98,500 | | | | 1,909,271 | |
Wright Medical Group, Inc.(b) | | | 78,064 | | | | 1,638,564 | |
| | | | | | | | 11,940,066 | |
|
| Health Care Facilities–6.70% | |
HCA Holdings, Inc. | | | 104,722 | | | | 3,159,463 | |
Health Management Associates Inc.–Class A(b) | | | 210,513 | | | | 1,961,981 | |
Rhoen-Klinikum AG (Germany) | | | 84,234 | | | | 1,704,293 | |
Tenet Healthcare Corp.(b) | | | 54,261 | | | | 1,761,854 | |
Universal Health Services, Inc.–Class B | | | 46,462 | | | | 2,246,438 | |
| | | | | | | | 10,834,029 | |
|
| Health Care Services–3.45% | |
Express Scripts Holding Co.(b) | | | 40,201 | | | | 2,170,854 | |
HMS Holdings Corp.(b) | | | 50,689 | | | | 1,313,859 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Health Care Services–(continued) | |
Innovacare Inc. (Acquired 12/21/05; Cost $521,344)(b)(c) | | | 122,652 | | | $ | 480,796 | |
Quest Diagnostics Inc. | | | 27,611 | | | | 1,608,893 | |
| | | | | | | | 5,574,402 | |
|
| Health Care Technology–0.94% | |
Cerner Corp.(b) | | | 19,599 | | | | 1,521,666 | |
|
| Life Sciences Tools & Services–3.12% | |
Agilent Technologies, Inc. | | | 5,993 | | | | 245,354 | |
Life Technologies Corp.(b) | | | 48,713 | | | | 2,390,834 | |
Thermo Fisher Scientific, Inc. | | | 37,863 | | | | 2,414,902 | |
| | | | | | | | 5,051,090 | |
|
| Managed Health Care–6.96% | |
Aetna Inc. | | | 49,605 | | | | 2,296,711 | |
Health Net Inc.(b) | | | 97,156 | | | | 2,360,891 | |
Humana Inc. | | | 24,925 | | | | 1,710,603 | |
Qualicorp S.A. (Brazil)(b)(c) | | | 109,000 | | | | 1,132,168 | |
UnitedHealth Group Inc. | | | 69,333 | | | | 3,760,622 | |
| | | | | | | | 11,260,995 | |
|
| Pharmaceuticals–40.28% | |
Abbott Laboratories | | | 90,865 | | | | 5,951,658 | |
Allergan, Inc. | | | 19,621 | | �� | | 1,799,834 | |
Bayer AG (Germany) | | | 47,416 | | | | 4,500,864 | |
Eli Lilly & Co. | | | 51,178 | | | | 2,524,099 | |
Endo Health Solutions Inc.(b) | | | 73,656 | | | | 1,934,943 | |
GlaxoSmithKline PLC–ADR (United Kingdom) | | | 90,730 | | | | 3,944,033 | |
Hikma Pharmaceuticals PLC (United Kingdom) | | | 135,378 | | | | 1,694,745 | |
Jazz Pharmaceuticals PLC(b) | | | 29,797 | | | | 1,585,200 | |
Johnson & Johnson | | | 94,500 | | | | 6,624,450 | |
MAP Pharmaceuticals Inc.(b) | | | 54,176 | | | | 851,105 | |
Nippon Shinyaku Co., Ltd. (Japan) | | | 116,000 | | | | 1,308,059 | |
Novartis AG–ADR (Switzerland) | | | 106,327 | | | | 6,730,499 | |
Pfizer Inc. | | | 293,603 | | | | 7,363,563 | |
Pharmstandard–GDR (Russia)(b)(c) | | | 23,450 | | | | 396,057 | |
Roche Holding AG (Switzerland) | | | 35,416 | | | | 7,208,422 | |
Sanofi–ADR (France) | | | 97,623 | | | | 4,625,378 | |
Shire PLC–ADR (Ireland) | | | 44,793 | | | | 4,129,019 | |
Teva Pharmaceutical Industries
Ltd.–ADR (Israel) | | | 52,460 | | | | 1,958,856 | |
| | | | | | | | 65,130,784 | |
Total Common Stocks & Other Equity Interests
(Cost $129,351,149) | | | | 153,562,734 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
| | | | | | | | |
| | | Shares | | | Value | |
Money Market Funds–5.45% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(d) | | | 4,407,783 | | | $ | 4,407,783 | |
Premier Portfolio–Institutional Class(d) | | | 4,407,784 | | | | 4,407,784 | |
Total Money Market Funds
(Cost $8,815,567) | | | | | | | 8,815,567 | |
TOTAL INVESTMENTS–100.41%
(Cost $138,166,716) | | | | | | | 162,378,301 | |
OTHER ASSETS LESS LIABILITIES–(0.41)% | | | | | | | (657,389 | ) |
NET ASSETS–100.00% | | | | | | $ | 161,720,912 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
| GDR | | – Global Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $2,009,021, which represented 1.24% 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. Global Health Care Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $129,351,149) | | $ | 153,562,734 | |
Investments in affiliated money market funds, at value and cost | | | 8,815,567 | |
Total investments, at value (Cost $138,166,716) | | | 162,378,301 | |
Receivable for: | | | | |
Fund shares sold | | | 125,766 | |
Dividends | | | 196,772 | |
Investment for trustee deferred compensation and retirement plans | | | 27,068 | |
Other assets | | | 180,298 | |
Total assets | | | 162,908,205 | |
|
Liabilities: | |
Payable for: | | | | |
Investments purchased | | | 811,549 | |
Fund shares reacquired | | | 78,036 | |
Foreign currency contracts outstanding | | | 65,583 | |
Accrued fees to affiliates | | | 124,257 | |
Accrued other operating expenses | | | 46,690 | |
Trustee deferred compensation and retirement plans | | | 61,178 | |
Total liabilities | | | 1,187,293 | |
Net assets applicable to shares outstanding | | $ | 161,720,912 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 137,167,667 | |
Undistributed net investment income | | | 828,130 | |
Undistributed net realized gain (loss) | | | (420,671 | ) |
Unrealized appreciation | | | 24,145,786 | |
| | | $ | 161,720,912 | |
|
Net Assets: | |
Series I | | $ | 128,898,360 | |
Series II | | $ | 32,822,552 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 6,136,594 | |
Series II | | | 1,601,962 | |
Series I: | | | | |
Net asset value per share | | $ | 21.00 | |
Series II: | | | | |
Net asset value per share | | $ | 20.49 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $154,786) | | $ | 2,695,996 | |
Dividends from affiliated money market funds | | | 14,412 | |
Total investment income | | | 2,710,408 | |
| |
Expenses: | | | | |
Advisory fees | | | 1,163,410 | |
Administrative services fees | | | 433,602 | |
Custodian fees | | | 24,613 | |
Distribution fees — Series II | | | 77,787 | |
Transfer agent fees | | | 42,830 | |
Trustees’ and officers’ fees and benefits | | | 27,037 | |
Other | | | 64,905 | |
Total expenses | | | 1,834,184 | |
Less: Fees waived | | | (14,713 | ) |
Net expenses | | | 1,819,471 | |
Net investment income | | | 890,937 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $90,157) | | | 14,641,311 | |
Foreign currencies | | | (12,365 | ) |
Foreign currency contracts | | | 248,552 | |
| | | | 14,877,498 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 13,198,082 | |
Foreign currencies | | | (4,887 | ) |
Foreign currency contracts | | | (402,003 | ) |
| | | | 12,791,192 | |
Net realized and unrealized gain | | | 27,668,690 | |
Net increase in net assets resulting from operations | | $ | 28,559,627 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income (loss) | | $ | 890,937 | | | $ | (24,801 | ) |
Net realized gain | | | 14,877,498 | | | | 6,460,361 | |
Change in net unrealized appreciation (depreciation) | | | 12,791,192 | | | | (1,376,719 | ) |
Net increase in net assets resulting from operations | | | 28,559,627 | | | | 5,058,841 | |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (8,466,440 | ) | | | (14,012,631 | ) |
Series ll | | | (296,116 | ) | | | 373,177 | |
Net increase (decrease) in net assets resulting from share transactions | | | (8,762,556 | ) | | | (13,639,454 | ) |
Net increase (decrease) in net assets | | | 19,797,071 | | | | (8,580,613 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 141,923,841 | | | | 150,504,454 | |
End of year (includes undistributed net investment income (loss) of $828,130 and $(50,444), respectively) | | $ | 161,720,912 | | | $ | 141,923,841 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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
Invesco V.I. Global Health Care Fund
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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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 |
Invesco V.I. Global Health Care Fund
| | 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. | Other Risks — The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations. |
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. (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 April 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 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Advisor 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $14,713.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $383,602 for services provided by insurance companies.
Invesco V.I. Global Health Care 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $963 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $12,233,982, due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 137,797,629 | | | $ | 24,099,876 | | | $ | 480,796 | | | $ | 162,378,301 | |
Foreign Currency Contracts* | | | — | | | | (65,583 | ) | | | — | | | | (65,583 | ) |
Total Investments | | $ | 137,797,629 | | | $ | 24,034,293 | | | $ | 480,796 | | | $ | 162,312,718 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign currency contracts(a) | | $ | — | | | $ | (65,583 | ) |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Invesco V.I. Global Health Care Fund
Effect of Derivative Instruments for the year ended December 31, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
| | | | |
| | | Location of Gain (Loss) on
Statement of Operations | |
| | | Foreign Currency
Contracts* | |
Realized Gain | | | | |
Currency risk | | $ | 248,552 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Currency risk | | | (402,003 | ) |
Total | | $ | (153,451 | ) |
| * | The average notional value of foreign currency contracts outstanding during the period was $5,680,621. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement Date | | | | Contract to | | | Notional Value | | | Unrealized Appreciation (Depreciation) | |
| | Counterparty | | Deliver | | | Receive | | | |
| 01/11/2013 | | Citibank Capital | | | CHF | | | | 3,520,000 | | | | USD | | | | 3,800,393 | | | $ | 3,845,656 | | | $ | (45,263 | ) |
| 01/11/2013 | | Citibank Capital | | | EUR | | | | 2,000,000 | | | | USD | | | | 2,618,780 | | | | 2,639,100 | | | | (20,320 | ) |
Total open foreign currency contracts | | | | | | | | | | | | | | | | | | | | | | $ | (65,583 | ) |
Currency Abbreviations:
| | |
| CHF | | – Swiss Franc |
| EUR | | – Euro |
| USD | | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2012, the Fund engaged in securities purchases of $577,504 and securities sales of $458,140, which resulted in net realized gains of $90,157.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Global Health Care Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
There were no ordinary income or long term capital gain distributions paid during the years ended December 31, 2012 and 2011.
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 886,031 | |
Net unrealized appreciation — investments | | | 24,211,585 | |
Net unrealized appreciation (depreciation) — other investments | | | (216 | ) |
Temporary book/tax differences | | | (57,901 | ) |
Capital loss carryforward | | | (486,254 | ) |
Shares of beneficial interest | | | 137,167,667 | |
Total net assets | | $ | 161,720,912 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $14,484,259 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2017 | | $ | 486,254 | | | $ | — | | | $ | 486,254 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $62,117,275 and $71,911,309, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| | | | |
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | |
Aggregate unrealized appreciation of investment securities | | $ | 28,698,879 | |
Aggregate unrealized (depreciation) of investment securities | | | (4,487,294 | ) |
Net unrealized appreciation of investment securities | | $ | 24,211,585 | |
Cost of investments is the same for tax and financial reporting purposes.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, undistributed net investment income was decreased by $12,363 and undistributed net realized gain (loss) was increased by $12,363. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Global Health Care Fund
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,403,027 | | | $ | 27,821,446 | | | | 1,299,440 | | | $ | 23,576,064 | |
Series II | | | 202,373 | | | | 3,873,007 | | | | 275,720 | | | | 4,760,125 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (1,856,473 | ) | | | (36,287,886 | ) | | | (2,157,315 | ) | | | (37,588,695 | ) |
Series II | | | (216,297 | ) | | | (4,169,123 | ) | | | (251,096 | ) | | | (4,386,948 | ) |
Net increase (decrease) in share activity | | | (467,370 | ) | | $ | (8,762,556 | ) | | | (833,251 | ) | | $ | (13,639,454 | ) |
| (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 Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of
period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on
securities
(both
realized
and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net
asset
value,
end
of
period | | | Total
return(b) | | | Net
assets,
end of
period
(000’s
omitted) | | | Ratio of
expenses
to average
net assets
with fee
waivers
and/or
expenses
absorbed | | | Ratio of
expenses
to average
net
assets
without
fee waivers
and/or
expenses
absorbed | | | Ratio of net
investment
income
(loss)
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 17.37 | | | $ | 0.12 | (d) | | $ | 3.51 | | | $ | 3.63 | | | $ | — | | | $ | — | | | $ | — | | | $ | 21.00 | | | | 20.90 | % | | $ | 128,898 | | | | 1.12 | %(e) | | | 1.13 | %(e) | | | 0.63 | %(d)(e) | | | 43 | % |
Year ended 12/31/11 | | | 16.71 | | | | 0.00 | | | | 0.66 | | | | 0.66 | | | | — | | | | — | | | | — | | | | 17.37 | | | | 3.95 | | | | 114,476 | | | | 1.11 | | | | 1.12 | | | | 0.03 | | | | 42 | |
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 | (f) | | | (7.16 | ) | | | (7.09 | ) | | | — | | | | (4.50 | ) | | | (4.50 | ) | | | 12.47 | | | | (28.62 | ) | | | 128,563 | | | | 1.12 | | | | 1.13 | | | | 0.34 | (f) | | | 67 | |
Series II | |
Year ended 12/31/12 | | | 16.99 | | | | 0.07 | (d) | | | 3.43 | | | | 3.50 | | | | — | | | | — | | | | — | | | | 20.49 | | | | 20.60 | | | | 32,823 | | | | 1.37 | (e) | | | 1.38 | (e) | | | 0.38 | (d)(e) | | | 43 | |
Year ended 12/31/11 | | | 16.38 | | | | (0.04 | ) | | | 0.65 | | | | 0.61 | | | | — | | | | — | | | | — | | | | 16.99 | | | | 3.72 | | | | 27,448 | | | | 1.36 | | | | 1.37 | | | | (0.22 | ) | | | 42 | |
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 | (f) | | | (7.08 | ) | | | (7.06 | ) | | | — | | | | (4.50 | ) | | | (4.50 | ) | | | 12.26 | | | | (28.78 | ) | | | 19,886 | | | | 1.37 | | | | 1.38 | | | | 0.09 | (f) | | | 67 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, 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) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include special cash dividends received during the period. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividends are $(0.01) and (0.02)% and $(0.06) and (0.27)% for Series I and Series II shares, respectively. |
| (e) | Ratios are based on average daily net assets (000’s) of $124,006 and $31,115 for Series I and Series II shares, respectively. |
| (f) | 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
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Global Health Care Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Health Care Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value (12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,072.00 | | | $ | 5.82 | | | $ | 1,019.52 | | | $ | 5.67 | | | | 1.12 | % |
| Series II | | | 1,000.00 | | | | 1,071.10 | | | | 7.13 | | | | 1,018.25 | | | | 6.95 | | | | 1.37 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Global Health Care Fund
Invesco V.I. Global Real Estate Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
Global real estate equities benefited from slow economic growth and investors’ search for yield during the year ended December 31, 2012. In most markets across the globe, supply of new real estate remained limited, which has been positive for existing supply. The asset class, represented by the FTSE EPRA/NAREIT Developed Real Estate Index, was among the top performers during 2012, easily surpassing the broad equity market as measured by the MSCI World Index. Similarly, Invesco V.I. Global Real Estate Fund delivered strong double digit returns over the year and performed in line with its style-specific benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 28.12 | % |
| Series II Shares | | | | 27.85 | |
| MSCI World Index‚ (Broad Market Index) | | | | 15.83 | |
| FTSE EPRA/NAREIT Developed Real Estate Indexn (Style-Specific Index) | | | | 28.65 | |
| Lipper VUF Real Estate Funds Classification Average¿ (Peer Group) | | | | 17.15 | |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nInvesco, Bloomberg L.P.; ¿Lipper Inc.
How we invest
Your Fund holds primarily real estate investment trusts (REITs) and other property-related securities from the US and abroad whose value is driven by tangible assets. Our goal is to create a global fund focused on total return that will perform at or above index levels with comparable levels of risk. Our investment strategy focuses on identifying US and non-US property types we believe may benefit from long-term sector trends. We use a fundamentals-driven investment process, including property market cycle analysis, property evaluation and management and structure review to identify securities with:
| n | | Quality underlying properties. |
| n | | Solid management teams and flexible balance sheets. |
| n | | Attractive valuations relative to peer investment alternatives. |
We attempt to manage risk by diversifying property types and geographic locations as well as limiting the size of any one holding when:
| n | | Relative valuation falls below desired levels. |
| n | | Risk/return relationships change significantly. |
| n | | Company fundamentals (property type, geography or management) change. |
| n | | A more attractive investment opportunity is identified. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets. This negative
news from overseas precipitated a slowdown in the US, where economic data began to decelerate over the summer. While corporate earnings remained solid until late in the year, financial markets were negatively influenced by headline economic data. Asian economies, which are mainly export-driven, were similarly affected with sharp corrections mid-year.
Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Asian governments continued to try to balance key aims of supporting growth, while preventing asset bubbles. China announced a surprise interest rate cut in July and the Bank of Japan announced an expansion and extension of its asset purchase plan in September, following the US and European central banks’ monetary easing announcements.
Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the US presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the MSCI World Index had positive returns.1 Given this slow-growth, low-yield environment, global real estate
| | | | | |
| Portfolio Composition | | |
| By country | | | | | |
| | | | | |
| United States | | | | 43.4 | % |
| Hong Kong | | | | 11.6 | |
| Japan | | | | 10.9 | |
| Australia | | | | 8.2 | |
| Singapore | | | | 5.2 | |
| United Kingdom | | | | 5.1 | |
| Canada | | | | 4.2 | |
| France | | | | 4.0 | |
| Countries each less than 2.0% of portfolio | | | | 4.2 | |
Money Market Funds
Plus Other Assets Less Liabilities | | | | 3.2 | |
| | | | | |
| Top 10 Equity Holdings* | | |
| | | | | |
| | | | | |
| 1. Simon Property Group, Inc. | | | | 3.9 | % |
| 2. AvalonBay Communities, Inc. | | | | 3.3 | |
| 3. Mitsui Fudosan Co., Ltd. | | | | 2.9 | |
| 4. Unibail-Rodamco S.E. | | | | 2.5 | |
5. Sumitomo Realty & Development
Co., Ltd. | | | | 2.5 | |
| 6. Sun Hung Kai Properties Ltd. | | | | 2.3 | |
| 7. Prologis, Inc. | | | | 2.3 | |
| 8. Westfield Group | | | | 2.3 | |
| 9. Health Care REIT, Inc. | | | | 2.3 | |
| 10. Macerich Co. (The) | | | | 2.3 | |
| | | | | |
| Total Net Assets | | | | $301.2 million | |
| |
| Total Number of Holdings* | | | | 107 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Global Real Estate Fund
equities rallied for much of the year, delivering double-digit performance that easily outpaced MSCI World Index broad markets.
The Fund performed in line with its style-specific benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index, for the year. Relative to this benchmark, top contributors to Fund performance included security selection in Canada, the UK and Japan. Conversely, security selection in the US detracted from the Fund’s relative performance. Cash, although only a minor portion of Fund assets, also hurt relative performance given the rally in global real estate equities.
Top individual contributors during the year included large-cap Japanese developers Mitsui Fudosan and Sumitomo Realty & Development. Mitsui Fudosan is Japan’s largest real estate developer with projects around the world in virtually all sectors, including residential, retail, industrial, office and lodging. Sumitomo operates in four business segments, including property leasing and management, development and sales, construction and remodeling, and real estate brokerage.
Top individual detractors from the Fund’s performance included US apartment real estate investment trusts (REITs) UDR and BRE Properties. UDR has been repositioning its portfolio toward more supply-constrained coastal markets and BRE Properties is focused on communities on the West Coast. However, we sold the position in BRE Properties as a result of less favorable value and opportunities for growth relative to peers. The apartment REIT sector lagged other sectors as a result of improvement in the single-family housing market. We believed apartment REITs offered favorable forward cash-flow growth and the potential for favorable results from growing development pipelines.
At the end of 2012 and relative to our style-specific benchmark, we were modestly overweight in France, Hong Kong, Norway, Japan and Finland. Conversely, we were underweight in the US, Switzerland, Canada, the Netherlands and Belgium. We generally maintained our bias toward companies with higher quality assets, supply-constrained markets and flexible, generally less leveraged balance sheets with longer-term debt maturities. We continued to maintain a well-diversified portfolio across all property types and global economic regions, based on a combination of relative fundamentals and stock valuations.
We thank you for your continued investment in Invesco V.I. Global Real Estate Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Joe Rodriguez Jr. Portfolio manager and chief investment officer (CIO) of Invesco’s real estate securities investments team, |
| is lead manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 1990. Mr. Rodriguez earned a BBA in economics and finance and an MBA in finance from Baylor University. |
| |
 | | Mark Blackburn Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Real Estate Fund. |
| He joined Invesco in 1998. Mr. Blackburn earned a BS in accounting from Louisiana State University and an MBA from Southern Methodist University. He is also a Certified Public Accountant. |
| |
 | | James Cowen Portfolio manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2000. Mr. |
| Cowen earned a Master of Town and Country Planning degree from the University of Manchester and a Master of Philosophy degree in land economy from Cambridge University. |
| |
 | | Paul Curbo Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Real Estate Fund. |
| He joined Invesco in 1998. Mr. Curbo earned a BBA in finance from The University of Texas at Austin. |
| |
 | | Darin Turner Portfolio manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2005. |
| Mr. Turner earned a BBA in finance from Baylor University, an MS in real estate from The University of Texas at Arlington and an MBA specializing in investments from Southern Methodist University. |
| |
 | | Ping Ying Wang Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Global Real Estate Fund. She |
| joined Invesco in 1998. Ms. Wang earned a BS in international finance from the People’s University of China and a PhD in finance from The University of Texas at Dallas. |
Invesco V.I. Global Real Estate Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (3/31/98) | | | | 8.71 | % |
| 10 Years | | | | 11.57 | |
| 5 Years | | | | 0.49 | |
| 1 Year | | | | 28.12 | |
| |
| Series II Shares | | | | | |
| 10 Years | | | | 11.32 | % |
| 5 Years | | | | 0.26 | |
| 1 Year | | | | 27.85 | |
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. 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
Invesco V.I. Global Real Estate Fund’s investment objective is total return through growth of capital and current income.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Concentration risk. To the extent, the Fund invests a greater amount in any one sector or industry, the Fund’s performance will depend to a greater extent on the overall condition of the sector or industry, and there is increased risk to the Fund if conditions adversely affect that sector or industry.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
REIT risk/real estate risk. Investments in real-estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Short sales risk. Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic Securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
US government obligations risk. The Fund may invest in obligations issued by US Government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
About indexes used in this report
The MSCI World Index® is an unmanaged index considered representative of stocks of developed countries.
The FTSE EPRA/NAREIT Developed Real Estate Index is an unmanaged index considered representative of global real estate companies and REITs.
The Lipper VUF Real Estate Funds Classification Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds classification.
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.
Other information
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–96.76% | |
| Australia–8.17% | | | | | | | | |
Centro Retail Australia | | | 1,299,133 | | | $ | 3,079,233 | |
CFS Retail Property Trust | | | 1,846,450 | | | | 3,703,828 | |
Dexus Property Group | | | 1,327,126 | | | | 1,408,720 | |
Goodman Group | | | 552,607 | | | | 2,516,806 | |
GPT Group | | | 973,273 | | | | 3,765,043 | |
Stockland | | | 860,692 | | | | 3,176,706 | |
Westfield Group | | | 628,861 | | | | 6,946,778 | |
| | | | | | | | 24,597,114 | |
| | |
| Austria–0.31% | | | | | | | | |
Conwert Immobilien Invest S.E. | | | 70,849 | | | | 916,008 | |
| | |
| Canada–4.18% | | | | | | | | |
Allied Properties REIT | | | 60,600 | | | | 2,014,507 | |
Boardwalk REIT | | | 36,692 | | | | 2,385,146 | |
Canadian Apartment Properties REIT | | | 89,400 | | | | 2,242,430 | |
Chartwell Seniors Housing REIT | | | 253,600 | | | | 2,776,903 | |
Primaris Retail REIT | | | 55,600 | | | | 1,506,638 | |
RioCan REIT | | | 59,900 | | | | 1,662,984 | |
| | | | | | | | 12,588,608 | |
| | |
| China–0.56% | | | | | | | | |
China Resources Land Ltd. | | | 212,000 | | | | 582,965 | |
Country Garden Holdings Co.(a) | | | 1,065,288 | | | | 570,123 | |
Sino-Ocean Land Holdings Ltd. | | | 691,500 | | | | 527,919 | |
| | | | | | | | 1,681,007 | |
| | |
| Finland–0.36% | | | | | | | | |
Sponda Oyj | | | 228,533 | | | | 1,089,832 | |
| | |
| France–4.01% | | | | | | | | |
Gecina S.A. | | | 13,108 | | | | 1,462,378 | |
Klepierre | | | 36,283 | | | | 1,461,809 | |
Mercialys S.A. | | | 35,718 | | | | 811,551 | |
Societe Immobiliere de Location pour I’Industrie et le Commerce | | | 6,890 | | | | 756,431 | |
Unibail-Rodamco S.E. | | | 31,009 | | | | 7,588,036 | |
| | | | | | | | 12,080,205 | |
| | |
| Germany–1.23% | | | | | | | | |
Deutsche Wohnen AG | | | 82,562 | | | | 1,524,038 | |
GSW Immobilien AG | | | 51,360 | | | | 2,169,983 | |
| | | | | | | | 3,694,021 | |
| | |
| Hong Kong–11.62% | | | | | | | | |
Hang Lung Properties Ltd. | | | 296,000 | | | | 1,186,898 | |
Henderson Land Development Co. Ltd. | | | 508,000 | | | | 3,618,978 | |
Hongkong Land Holdings Ltd. | | | 513,000 | | | | 3,607,833 | |
Hysan Development Co. Ltd. | | | 369,000 | | | | 1,784,634 | |
Kerry Properties Ltd. | | | 538,400 | | | | 2,812,321 | |
Link REIT (The) | | | 215,000 | | | | 1,075,385 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Hong Kong–(continued) | | | | | | | | |
New World Development Co. Ltd. | | | 720,000 | | | $ | 1,130,043 | |
Shimao Property Holdings Ltd. | | | 1,177,500 | | | | 2,264,358 | |
Sino Land Co. Ltd. | | | 1,591,600 | | | | 2,882,697 | |
Sun Hung Kai Properties Ltd. | | | 465,000 | | | | 7,018,824 | |
Swire Properties Ltd. | | | 523,400 | | | | 1,760,270 | |
Wharf Holdings Ltd. (The) | | | 741,000 | | | | 5,863,462 | |
| | | | | | | | 35,005,703 | |
| | |
| Japan–10.91% | | | | | | | | |
Activia Properties, Inc. | | | 162 | | | | 1,012,150 | |
Frontier Real Estate Investment Corp. | | | 101 | | | | 879,020 | |
GLP J-REIT | | | 977 | | | | 745,561 | |
Industrial & Infrastructure Fund Investment Corp. | | | 64 | | | | 476,588 | |
Japan Real Estate Investment Corp. | | | 280 | | | | 2,743,516 | |
Japan Retail Fund Investment Corp. | | | 499 | | | | 914,092 | |
Kenedix Realty Investment Corp. | | | 268 | | | | 929,890 | |
Mitsubishi Estate Co. Ltd. | | | 202,000 | | | | 4,822,673 | |
Mitsui Fudosan Co., Ltd. | | | 361,000 | | | | 8,807,929 | |
Nippon Building Fund Inc. | | | 209 | | | | 2,151,435 | |
Sumitomo Realty & Development Co., Ltd. | | | 224,000 | | | | 7,433,049 | |
Tokyu Land Corp. | | | 267,000 | | | | 1,949,232 | |
| | | | | | | | 32,865,135 | |
| | |
| Malta–0.00% | | | | | | | | |
BGP Holdings PLC (Acquired 08/06/09; Cost $0)(a)(b) | | | 3,053,090 | | | | 0 | |
| | |
| Netherlands–0.32% | | | | | | | | |
Corio N.V. | | | 20,853 | | | | 948,273 | |
| | |
| Norway–0.25% | | | | | | | | |
Norwegian Property ASA | | | 490,999 | | | | 756,051 | |
| | |
| Singapore–5.21% | | | | | | | | |
CapitaCommercial Trust | | | 1,208,000 | | | | 1,670,064 | |
Capitaland Ltd. | | | 1,237,000 | | | | 3,795,335 | |
CapitaMall Trust | | | 1,068,000 | | | | 1,871,610 | |
CapitaMalls Asia Ltd. | | | 1,531,000 | | | | 2,462,918 | |
City Developments Ltd. | | | 53,000 | | | | 565,392 | |
Global Logistic Properties Ltd. | | | 1,013,000 | | | | 2,329,538 | |
Keppel Land Ltd. | | | 467,000 | | | | 1,561,168 | |
Suntec REIT | | | 1,044,000 | | | | 1,439,078 | |
| | | | | | | | 15,695,103 | |
| | |
| Sweden–1.12% | | | | | | | | |
Castellum AB | | | 136,070 | | | | 1,934,908 | |
Fabege AB | | | 58,207 | | | | 589,289 | |
Wihlborgs Fastigheter AB | | | 54,595 | | | | 857,985 | |
| | | | | | | | 3,382,182 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
| | | | | | | | |
| | | Shares | | | Value | |
| United Kingdom–5.10% | | | | | | | | |
Big Yellow Group PLC | | | 114,779 | | | $ | 659,697 | |
British Land Co. PLC | | | 337,860 | | | | 3,141,880 | |
Derwent London PLC | | | 30,057 | | | | 1,033,675 | |
Great Portland Estates PLC | | | 300,046 | | | | 2,397,811 | |
Hammerson PLC | | | 242,394 | | | | 1,953,543 | |
Land Securities Group PLC | | | 267,692 | | | | 3,620,147 | |
Shaftesbury PLC | | | 169,064 | | | | 1,574,526 | |
Unite Group PLC | | | 219,757 | | | | 986,621 | |
| | | | | 15,367,900 | |
| | |
| United States–43.41% | | | | | | | | |
Acadia Realty Trust | | | 74,856 | | | | 1,877,389 | |
Alexandria Real Estate Equities, Inc. | | | 46,978 | | | | 3,256,516 | |
American Tower Corp. | | | 17,600 | | | | 1,359,953 | |
AvalonBay Communities, Inc. | | | 72,221 | | | | 9,792,445 | |
Boston Properties, Inc. | | | 34,720 | | | | 3,673,723 | |
Brookfield Office Properties, Inc. | | | 100,096 | | | | 1,710,112 | |
CBL & Associates Properties, Inc. | | | 67,000 | | | | 1,421,070 | |
CubeSmart | | | 142,560 | | | | 2,077,099 | |
DCT Industrial Trust Inc. | | | 404,526 | | | | 2,625,374 | |
DDR Corp. | | | 370,499 | | | | 5,802,014 | |
DiamondRock Hospitality Co. | | | 157,746 | | | | 1,419,714 | |
Digital Realty Trust, Inc. | | | 46,320 | | | | 3,144,665 | |
Duke Realty Corp. | | | 234,435 | | | | 3,251,613 | |
Equity Residential | | | 81,535 | | | | 4,620,588 | |
Essex Property Trust, Inc. | | | 44,124 | | | | 6,470,785 | |
General Growth Properties, Inc. | | | 174,524 | | | | 3,464,301 | |
HCP, Inc. | | | 14,472 | | | | 653,845 | |
Health Care REIT, Inc. | | | 112,769 | | | | 6,911,612 | |
Healthcare Realty Trust, Inc. | | | 63,835 | | | | 1,532,678 | |
| | | | | | | | |
| | | Shares | | | Value | |
| United States–(continued) | | | | | | | | |
Host Hotels & Resorts Inc. | | | 401,618 | | | $ | 6,293,354 | |
Hudson Pacific Properties Inc. | | | 42,400 | | | | 892,944 | |
Kilroy Realty Corp. | | | 69,617 | | | | 3,297,757 | |
Macerich Co. (The) | | | 116,318 | | | | 6,781,339 | |
Pebblebrook Hotel Trust | | | 61,270 | | | | 1,415,337 | |
Piedmont Office Realty Trust Inc.-Class A | | | 71,600 | | | | 1,292,380 | |
Post Properties, Inc. | | | 39,600 | | | | 1,978,020 | |
Prologis, Inc. | | | 192,320 | | | | 7,017,757 | |
Public Storage | | | 12,100 | | | | 1,754,016 | |
Retail Opportunity Investments Corp. | | | 111,927 | | | | 1,439,381 | |
Senior Housing Properties Trust | | | 64,299 | | | | 1,520,028 | |
Simon Property Group, Inc. | | | 75,006 | | | | 11,857,699 | |
SL Green Realty Corp. | | | 38,088 | | | | 2,919,445 | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 13,364 | | | | 766,559 | |
UDR, Inc. | | | 228,155 | | | | 5,425,526 | |
Ventas, Inc. | | | 104,358 | | | | 6,754,050 | |
Vornado Realty Trust | | | 53,200 | | | | 4,260,256 | |
| | | | | 130,731,344 | |
Total Common Stocks & Other Equity Interests
(Cost $232,768,378) | | | | 291,398,486 | |
| | |
Money Market Funds–2.65% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(c) | | | 3,989,140 | | | | 3,989,140 | |
Premier Portfolio–Institutional Class(c) | | | 3,989,141 | | | | 3,989,141 | |
Total Money Market Funds
(Cost $7,978,281) | | | | | | | 7,978,281 | |
TOTAL INVESTMENTS–99.41%
(Cost $240,746,659) | | | | 299,376,767 | |
OTHER ASSETS LESS LIABILITIES–0.59% | | | | | | | 1,775,772 | |
NET ASSETS–100.00% | | | | | | $ | 301,152,539 | |
Investment Abbreviations:
| | |
| REIT | | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Non-income producing security. |
| (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 December 31, 2012 represented less than 1% of the Fund’s Net Assets. |
| (c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the Year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $232,768,378) | | $ | 291,398,486 | |
Investments in affiliated money market funds, at value and cost | | | 7,978,281 | |
Total investments, at value (Cost $240,746,659) | | | 299,376,767 | |
Foreign currencies, at value (Cost $62,080) | | | 63,764 | |
Receivable for: | | | | |
Investments sold | | | 228,894 | |
Fund shares sold | | | 947,969 | |
Dividends | | | 1,133,587 | |
Investment for trustee deferred compensation and retirement plans | | | 25,201 | |
Total assets | | | 301,776,182 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 278,242 | |
Accrued fees to affiliates | | | 245,373 | |
Accrued other operating expenses | | | 53,597 | |
Trustee deferred compensation and retirement plans | | | 46,431 | |
Total liabilities | | | 623,643 | |
Net assets applicable to shares outstanding | | | 301,152,539 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 274,875,259 | |
Undistributed net investment income | | | 4,703,048 | |
Undistributed net realized gain (loss) | | | (37,049,186 | ) |
Unrealized appreciation | | | 58,623,418 | |
| | | $ | 301,152,539 | |
| |
Net Assets: | | | | |
Series I | | $ | 176,933,271 | |
Series II | | $ | 124,219,268 | |
| |
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | | | | |
Series I | | | 11,434,154 | |
Series II | | | 8,220,382 | |
Series I: | | | | |
Net asset value per share | | $ | 15.47 | |
Series II: | | | | |
Net asset value per share | | $ | 15.11 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $418,923) | | $ | 7,628,949 | |
Dividends from affiliated money market funds | | | 8,172 | |
Total investment income | | | 7,637,121 | |
| |
Expenses: | | | | |
Advisory fees | | | 1,858,213 | |
Administrative services fees | | | 667,621 | |
Custodian fees | | | 137,869 | |
Distribution fees — Series II | | | 228,382 | |
Transfer agent fees | | | 35,883 | |
Trustees’ and officers’ fees and benefits | | | 29,965 | |
Other | | | 85,423 | |
Total expenses | | | 3,043,356 | |
Less: Fees waived | | | (7,785 | ) |
Net expenses | | | 3,035,571 | |
Net investment income | | | 4,601,550 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 10,778,978 | |
Foreign currencies | | | 1,504 | |
| | | | 10,780,482 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 44,292,477 | |
Foreign currencies | | | (6,213 | ) |
| | | | 44,286,264 | |
Net realized and unrealized gain | | | 55,066,746 | |
Net increase in net assets resulting from operations | | $ | 59,668,296 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income | | $ | 4,601,550 | | | $ | 3,235,829 | |
Net realized gain | | | 10,780,482 | | | | 969,937 | |
Change in net unrealized appreciation (depreciation) | | | 44,286,264 | | | | (19,892,528 | ) |
Net increase (decrease) in net assets resulting from operations | | | 59,668,296 | | | | (15,686,762 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (897,653 | ) | | | (5,627,461 | ) |
Series ll | | | (457,553 | ) | | | (2,275,433 | ) |
Total distributions from net investment income | | | (1,355,206 | ) | | | (7,902,894 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | 5,417,318 | | | | 19,582,854 | |
Series ll | | | 40,819,507 | | | | 35,133,330 | |
Net increase in net assets resulting from share transactions | | | 46,236,825 | | | | 54,716,184 | |
Net increase in net assets | | | 104,549,915 | | | | 31,126,528 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 196,602,624 | | | | 165,476,096 | |
End of year (includes undistributed net investment income of $4,703,048 and $(1,251,973), respectively) | | $ | 301,152,539 | | | $ | 196,602,624 | |
Notes to Financial Statements
December 31, 2012
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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return through growth of capital and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Global Real Estate Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
| E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Global Real Estate 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 the 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. | 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. |
Because, the Fund concentrates its assets in the real estate industry, an investment in the Fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments.
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. (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 April 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 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
Invesco V.I. Global Real Estate Fund
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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The Advisor 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $7,785.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $64,471 for accounting and fund administrative services and reimbursed $603,150 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $45,993,906 and from Level 2 to Level 1 of $986,621, due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Australia | | $ | — | | | $ | 24,597,114 | | | $ | — | | | $ | 24,597,114 | |
Austria | | | — | | | | 916,008 | | | | — | | | | 916,008 | |
Canada | | | 12,588,608 | | | | — | | | | — | | | | 12,588,608 | |
China | | | — | | | | 1,681,007 | | | | — | | | | 1,681,007 | |
Finland | | | — | | | | 1,089,832 | | | | — | | | | 1,089,832 | |
France | | | — | | | | 12,080,205 | | | | — | | | | 12,080,205 | |
Germany | | | — | | | | 3,694,021 | | | | — | | | | 3,694,021 | |
Hong Kong | | | — | | | | 35,005,703 | | | | — | | | | 35,005,703 | |
Japan | | | 8,938,160 | | | | 23,926,975 | | | | — | | | | 32,865,135 | |
Malta | | | — | | | | — | | | | 0 | | | | 0 | |
Netherlands | | | — | | | | 948,273 | | | | — | | | | 948,273 | |
Norway | | | — | | | | 756,051 | | | | — | | | | 756,051 | |
Singapore | | | — | | | | 15,695,103 | | | | — | | | | 15,695,103 | |
Sweden | | | — | | | | 3,382,182 | | | | — | | | | 3,382,182 | |
United Kingdom | | | 986,621 | | | | 14,381,279 | | | | — | | | | 15,367,900 | |
United States | | | 138,709,625 | | | | — | | | | — | | | | 138,709,625 | |
Total Investments | | $ | 161,223,014 | | | $ | 138,153,753 | | | $ | 0 | | | $ | 299,376,767 | |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 1,355,206 | | | $ | 7,902,894 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 13,476,328 | |
Net unrealized appreciation — investments | | | 43,623,272 | |
Net unrealized appreciation (depreciation) — other investments | | | (6,690 | ) |
Temporary book/tax differences | | | (43,424 | ) |
Capital loss carryforward | | | (30,772,206 | ) |
Shares of beneficial interest | | | 274,875,259 | |
Total net assets | | $ | 301,152,539 | |
Invesco V.I. Global Real Estate Fund
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and passive foreign investment companies.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law.
The Fund utilized $7,235,515 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 8,150,861 | | | $ | — | | | $ | 8,150,861 | |
December 31, 2017 | | | 22,621,345 | | | | — | | | | 22,621,345 | |
| | | $ | 30,772,206 | | | $ | — | | | $ | 30,772,206 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $167,399,476 and $122,614,925, 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 | | $ | 44,557,545 | |
Aggregate unrealized (depreciation) of investment securities | | | (934,273 | ) |
Net unrealized appreciation of investment securities | | $ | 43,623,272 | |
Cost of investments for tax purposes is $ 255,753,495.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of passive foreign investment companies, on December 31, 2012, undistributed net investment income was increased by $2,708,677 and undistributed net realized gain (loss) was decreased by $2,708,677. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 2,803,154 | | | $ | 39,088,897 | | | | 4,052,616 | | | $ | 55,794,931 | |
Series II | | | 3,738,406 | | | | 51,495,783 | | | | 3,043,981 | | | | 39,999,065 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 61,273 | | | | 897,653 | | | | 496,249 | | | | 5,627,461 | |
Series II | | | 31,952 | | | | 457,553 | | | | 204,994 | | | | 2,275,433 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,489,915 | ) | | | (34,569,232 | ) | | | (3,169,118 | ) | | | (41,839,538 | ) |
Series II | | | (802,159 | ) | | | (11,133,829 | ) | | | (551,566 | ) | | | (7,141,168 | ) |
Net increase in share activity | | | 3,342,711 | | | $ | 46,236,825 | | | | 4,077,156 | | | $ | 54,716,184 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses) on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 12.14 | | | $ | 0.27 | | | $ | 3.14 | | | $ | 3.41 | | | $ | (0.08 | ) | | $ | — | | | $ | (0.08 | ) | | $ | 15.47 | | | | 28.12 | % | | $ | 176,933 | | | | 1.14 | %(d) | | | 1.14 | %(d) | | | 1.94 | %(d) | | | 51 | % |
Year ended 12/31/11 | | | 13.58 | | | | 0.24 | | | | (1.16 | ) | | | (0.92 | ) | | | (0.52 | ) | | | — | | | | (0.52 | ) | | | 12.14 | | | | (6.51 | ) | | | 134,254 | | | | 1.14 | | | | 1.14 | | | | 1.77 | | | | 47 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 11.87 | | | | 0.23 | | | | 3.07 | | | | 3.30 | | | | (0.06 | ) | | | — | | | | (0.06 | ) | | | 15.11 | | | | 27.85 | | | | 124,219 | | | | 1.39 | (d) | | | 1.39 | (d) | | | 1.69 | d) | | | 51 | |
Year ended 12/31/11 | | | 13.31 | | | | 0.20 | | | | (1.13 | ) | | | (0.93 | ) | | | (0.51 | ) | | | — | | | | (0.51 | ) | | | 11.87 | | | | (6.73 | ) | | | 62,349 | | | | 1.39 | | | | 1.39 | | | | 1.52 | | | | 47 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $156,409 and $91,353 for Series I and Series II shares, respectively. |
Invesco V.I. Global Real Estate Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Global Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Real Estate Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,116.60 | | | $ | 6.01 | | | $ | 1,019.46 | | | $ | 5.74 | | | | 1.13 | % |
Series II | | | 1,000.00 | | | | 1,115.80 | | | | 7.34 | | | | 1,018.20 | | | | 7.00 | | | | 1.38 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 0.00 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Global Real Estate Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Global Real Estate Fund
Invesco V.I. Government Securities Fund
Annual Report to Shareholders n December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Government Securities Fund outperformed the Fund’s style-specific index, the Barclays U.S. Government Bond Index. Sector allocation decisions were the main contributor to outperformance versus the style-specific benchmark for the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 2.47 | % |
| Series II Shares | | | | 2.22 | |
| Barclays U.S. Aggregate Index‚ (Broad Market Index) | | | | 4.21 | |
| Barclays U.S. Government Bond Indexn (Style-Specific Index) | | | | 2.02 | |
| Lipper VUF General U.S. Government Funds Indexn (Peer Group Index) | | | | 3.42 | |
Source(s): ‚Invesco, Barclays via FactSet Research Systems Inc.; nLipper Inc.
How we invest
We invest primarily in corporate bonds, US government securities, including US government agency mortgage-backed securities, and securities issued by foreign governments, their agencies or instrumentalities. Up to 50% of the Fund’s total assets may be invested in foreign securities, including up to 15% in securities of issuers located in developing markets, and up to 35% in lower quality, high yield debt securities. The Fund can also invest in derivative instruments, specifically credit default swaps, credit default swap indices, interest rate futures and forward foreign currency contracts.
Our security selection is supported by a team of independent specialists. Team members conduct top-down macroeconomic as well as bottom-up analysis on individual securities. Recommendations are communicated to portfolio managers through proprietary technology that allows all investment professionals to communicate in a timely manner.
Portfolio construction begins with a well-defined Fund design that establishes the target investment vehicles for generating the desired “alpha” (the extra
return above a specific benchmark) as well as the risk parameters for the Fund. Investment vehicles are evaluated for liquidity and relative value.
Sell decisions are based on:
| n | | A conscious decision to alter the Fund’s macro risk exposure (such as duration, yield curve positioning, sector exposure). |
| n | | The need to limit or reduce exposure to a particular sector or issuer. |
| n | | Degradation of an issuer’s credit quality. |
| n | | Realignment of a valuation target. |
| n | | Presentation of a better relative value opportunity. |
| n | | The general liquidity needs of the Fund. |
Market conditions and your Fund
During 2012, most major segments of the US bond market produced positive performances, buoyed by generally slow economic growth, sustained low interest rates and investor demand for yield. The US showed positive, if lethargic, economic and employment progress while signs of recession across Europe and Japan, and slowing growth in China, weighed on global demand for US goods and services. With inflation expectations
held in check by modest economic and employment growth prospects, the US Federal Reserve (the Fed), along with other major central banks around the world, continued their accommodative monetary policies and bond buying programs aimed at spurring economic activity by keeping interest rates low.
Throughout the year, US Treasuries experienced mild rallies and sell-offs as uncertainties with the slowing global economies, the US Presidential election, the pending “fiscal cliff” and geopolitical risks were reflected in market prices. Treasury yields ultimately remained very low and little changed across the maturity spectrum from start to finish.
The low yields provided by Treasuries, and increased investor confidence that rates would remain low for an extended period, increased demand for the segments of the bond market that provided relative value and higher yields than comparable-maturity Treasuries in return for the additional risks they carry. In lieu of significant rate declines, US bond market returns for 2012 were supported by demand for riskier assets such as corporate bonds and mortgage-backed securities (MBS).
Sector allocation decisions that incorporated a significant underweight position to US Treasuries and overweight exposure to higher-coupon agency debentures were advantageous for the Fund as non-Treasury sectors of the government bond market outperformed other bond sectors during the year. Likewise, allocations to off-benchmark Treasury Inflation-Protected Securities as well as short-average-life agency collateralized mortgage obligations and agency MBS benefited total return versus the style-specific index and contributed to a higher-than-index average portfolio yield-to-maturity for the reporting period. Our security selection decisions across the
| | | | | |
| Portfolio Composition | | |
| By security type | | | | | |
| | | | | |
| US Government Sponsored Mortgage-Backed Securities | | | | 72.1 | % |
| US Government Sponsored Agency Securities | | | | 19.8 | |
| US Treasury Securities | | | | 12.3 | |
| Foreign Bonds | | | | 2.7 | |
| Corporate Bonds and Notes | | | | 1.1 | |
Money Market Funds
Plus Other Assets Less Liabilities | | | | -8.0 | |
| | | | | |
| Top 10 Fixed Income Issuers* |
| | | | | |
| |
1. Federal National Mortgage Association | | | | 22.2 | % |
2. Federal Home Loan Mortgage Corp. | | | | 16.6 | |
3. Fannie Mae REMICs | | | | 13.1 | |
4. Freddie Mac REMICs | | | | 11.4 | |
5. Federal Home Loan Bank | | | | 8.9 | |
6. US Treasury Notes | | | | 8.2 | |
7. Ginnie Mae REMICs | | | | 7.1 | |
8. Government National Mortgage Association | | | | 4.0 | |
9. Federal Agricultural Mortgage Corp. | | | | 3.2 | |
10. Federal Farm Credit Bank | | | | 2.8 | |
| | | | | |
| Total Net Assets | | | | $1.1 billion | |
| |
| Total Number of Holdings* | | | | 892 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Government Securities Fund
maturity, coupon, vintage and issuer strata of the residential MBS market were also helpful for the Fund’s relative returns. Among agency MBS, an emphasis on 30-year, fixed-rate lower-coupon securities contributed to Fund returns as these securities benefited from favorable prepayment trends as well as a very positive market environment where demand exceeded available supply, especially following the Fed’s September announcement of “QE3”, an open-ended, bond purchasing program for lower coupon agency MBS.
The Fund also benefited from incremental income earned by engaging in mortgage dollar roll activity in the to-be-announced market, which involves the selling of an MBS to a financial institution with an agreement to repurchase a substantially similar security at an agreed upon price and date. Excess portfolio cash resulting from the use of this strategy was subsequently invested in short-term instruments to generate additional return for the Fund.
The Fund uses active duration and yield curve positioning for risk management and for generating alpha versus its style-specific benchmark. Duration measures a portfolio’s price sensitivity to interest rate changes, with a shorter duration portfolio tending to be less sensitive to these changes. The Fund’s duration and yield curve positioning were maintained close to the style-specific benchmark on average, but the timing of changes and degree of variance from the benchmark were negligible detractors to relative returns as rates fluctuated throughout the reporting period. Buying and selling US Treasury futures contracts were important tools we used for the management of interest rate risk and to maintain our targeted portfolio duration.
We thank you for your investment in Invesco V.I. Government Securities Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Clint Dudley Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Government Securities |
| Fund. He joined Invesco in 1998. Mr. Dudley earned a BBA and an MBA from Baylor University. |
| | |
 | | Brian Schneider Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Government Securities |
| Fund. He joined Invesco in 1987. Mr. Schneider earned a BA in economics and an MBA from Bellarmine University. |
Invesco V.I. Government Securities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | | | | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/5/93) | | | | 5.07 | % |
| 10 Years | | | | 4.27 | |
| 5 Years | | | | 5.53 | |
| 1 Year | | | | 2.47 | |
| |
| Series II Shares | | | | | |
| Inception (9/19/01) | | | | 4.38 | % |
| 10 Years | | | | 4.01 | |
| 5 Years | | | | 5.25 | |
| 1 Year | | | | 2.22 | |
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 0.70% and 0.95%,
respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.75% and 1.00%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available 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, 2013. See current prospectus for more information. |
Invesco V.I. Government Securities Fund
Invesco V.I. Government Securities Fund’s investment objective is total return, comprised of current income and capital appreciation.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. The Fund engages in frequent trading of portfolio securities. Active trading results in added expenses and may result in a lower return and increased tax liability.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Dollar roll transactions risk. Dollar roll transactions involve the risk that the market value and yield of the securities retained by the Fund may decline below the price of the mortgage-related securities sold by the Fund that it is obligated to repurchase.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions,
regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
Reinvestment risk. Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.
Reverse purchase agreement risk. Reverse repurchase agreements involve the risk that the market value of securities to be repurchased may decline below the repurchase price or that the other party may default on its obligation, resulting in delays, additional costs or the restriction of proceeds from the sale.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
About indexes used in this report
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Government Bond Index is an unmanaged index considered representative of fixed income obligations issued by the US Treasury, government agencies and quasi-federal corporations.
The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Government Securities Fund
Schedule of Investments
December 31, 2012
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Government Sponsored Mortgage-Backed Securities–72.05% | |
| Collateralized Mortgage Obligations–33.90% | |
Fannie Mae REMICs, | | | | | | | | |
4.00%, 07/25/18 to 07/25/40 | | $ | 13,996,515 | | | $ | 14,907,158 | |
4.50%, 07/25/19 to 07/25/27 | | | 6,043,126 | | | | 6,206,751 | |
5.00%, 08/25/19 to 09/25/37 | | | 17,488,644 | | | | 18,229,038 | |
4.25%, 12/25/19 to 02/25/37 | | | 10,366,605 | | | | 11,018,739 | |
3.00%, 07/25/22 to 09/25/36 | | | 14,724,706 | | | | 15,171,041 | |
2.50%, 03/25/26 | | | 4,320,481 | | | | 4,503,399 | |
7.00%, 09/18/27 | | | 812,867 | | | | 954,033 | |
6.50%, 01/25/30 to 03/25/32 | | | 2,557,579 | | | | 2,938,915 | |
3.50%, 12/25/31 | | | 1,400,778 | | | | 1,422,853 | |
4.75%, 07/25/33 | | | 2,741,026 | | | | 2,788,279 | |
5.75%, 10/25/35 | | | 943,882 | | | | 1,065,260 | |
0.51%, 05/25/36(a) | | | 10,619,707 | | | | 10,667,941 | |
0.71%, 03/25/37 to 05/25/41(a) | | | 15,448,849 | | | | 15,543,510 | |
0.98%, 06/25/37(a) | | | 8,148,163 | | | | 8,257,943 | |
0.61%, 06/25/38(a) | | | 11,680,536 | | | | 11,737,157 | |
6.58%, 06/25/39(a) | | | 8,725,488 | | | | 10,421,744 | |
0.76%, 02/25/41(a) | | | 9,153,596 | | | | 9,222,710 | |
0.73%, 11/25/41(a) | | | 3,365,246 | | | | 3,396,745 | |
Fannie Mae Whole Loan,
5.50%, 07/25/34 | | | 203,195 | | | | 203,529 | |
Federal Home Loan Bank, | | | | | | | | |
5.07%, 10/20/15 | | | 1,410,849 | | | | 1,514,075 | |
5.46%, 11/27/15 | | | 19,793,148 | | | | 21,355,758 | |
5.77%, 03/23/18 | | | 3,206,715 | | | | 3,535,185 | |
Freddie Mac REMICs, | | | | | | | | |
0.85%, 03/15/13 | | | 945,664 | | | | 945,854 | |
4.16%, 07/15/17 | | | 2,053 | | | | 2,053 | |
3.77%, 09/15/17 | | | 151,079 | | | | 151,732 | |
3.84%, 09/15/17 | | | 325,120 | | | | 327,414 | |
4.00%, 12/15/17 to 03/15/38 | | | 11,688,118 | | | | 12,052,292 | |
5.00%, 02/15/18 to 09/15/32 | | | 8,710,893 | | | | 9,169,305 | |
4.50%, 07/15/18 to 10/15/36 | | | 5,730,409 | | | | 5,848,519 | |
3.00%, 10/15/18 to 04/15/26 | | | 11,563,947 | | | | 12,031,865 | |
3.75%, 10/15/18 | | | 3,816,317 | | | | 3,930,519 | |
4.25%, 01/15/19 | | | 768,320 | | | | 785,668 | |
3.50%, 05/15/22 to 12/15/27 | | | 1,279,722 | | | | 1,308,143 | |
0.61%, 04/15/28 to 06/15/37(a) | | | 15,565,867 | | | | 15,669,037 | |
5.25%, 08/15/32 | | | 3,049,220 | | | | 3,084,364 | |
5.50%, 02/15/33 | | | 2,787 | | | | 2,786 | |
0.71%, 12/15/35 to 03/15/40(a) | | | 11,452,209 | | | | 11,580,162 | |
0.51%, 03/15/36(a) | | | 9,885,883 | | | | 9,946,043 | |
5.75%, 05/15/36 | | | 606,242 | | | | 627,331 | |
0.56%, 11/15/36(a) | | | 11,177,050 | | | | 11,222,216 | |
1.07%, 11/15/39(a) | | | 3,879,424 | | | | 3,923,685 | |
0.66%, 03/15/40to 02/15/42(a) | | | 26,374,950 | | | | 26,628,052 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Collateralized Mortgage Obligations–(continued) | |
Ginnie Mae REMICs, | | | | | | | | |
6.00%, 01/16/25 | | $ | 2,144,133 | | | $ | 2,417,530 | |
4.50%, 01/16/31 to 11/20/34 | | | 35,981,520 | | | | 37,078,506 | |
4.75%, 09/20/32 | | | 1,294,247 | | | | 1,342,743 | |
4.00%, 04/16/33 to 02/20/38 | | | 15,753,440 | | | | 16,419,401 | |
5.76%, 08/20/34(a) | | | 3,117,880 | | | | 3,562,663 | |
5.00%, 08/16/35 | | | 573,960 | | | | 593,212 | |
5.85%, 01/20/39(a) | | | 9,550,035 | | | | 11,117,334 | |
1.01%, 09/16/39(a) | | | 4,378,779 | | | | 4,482,853 | |
4.51%, 07/20/41(a) | | | 2,807,255 | | | | 3,185,732 | |
| | | | | | | | 384,498,777 | |
|
| Federal Home Loan Mortgage Corp. (FHLMC)–14.20% | |
Pass Through Ctfs., | | | | | | | | |
6.00%, 09/01/13 to 07/01/38 | | | 4,374,009 | | | | 4,796,481 | |
7.00%, 07/01/14 to 12/01/37 | | | 9,844,254 | | | | 11,565,589 | |
6.50%, 04/01/15 to 12/01/35 | | | 9,339,299 | | | | 10,650,403 | |
8.00%, 07/01/15 to 09/01/36 | | | 9,919,104 | | | | 12,217,941 | |
5.00%, 07/01/18 to 01/01/40 | | | 5,191,520 | | | | 5,674,059 | |
10.50%, 08/01/19 | | | 2,148 | | | | 2,372 | |
4.50%, 09/01/20 to 08/01/41 | | | 23,840,208 | | | | 26,234,012 | |
8.50%, 09/01/20 to 08/01/31 | | | 831,427 | | | | 994,947 | |
10.00%, 03/01/21 | | | 46,145 | | | | 54,271 | |
9.00%, 06/01/21 to 06/01/22 | | | 319,721 | | | | 366,304 | |
7.50%, 09/01/22 to 08/01/36 | | | 3,515,230 | | | | 4,216,086 | |
5.50%, 12/01/22 to 11/01/39 | | | 2,700,731 | | | | 2,944,295 | |
3.50%, 08/01/26 | | | 2,437,515 | | | | 2,612,001 | |
3.00%, 05/01/27 | | | 3,046,868 | | | | 3,268,845 | |
7.05%, 05/20/27 | | | 238,485 | | | | 274,243 | |
6.03%, 10/20/30 | | | 1,705,511 | | | | 1,949,155 | |
Pass Through Ctfs., ARM | | | | | | | | |
2.93%, 09/01/35 to 07/01/36(a) | | | 23,966,406 | | | | 25,505,655 | |
2.66%, 10/01/36(a) | | | 5,443,583 | | | | 5,815,097 | |
2.94%, 10/01/36(a) | | | 478,526 | | | | 513,793 | |
3.01%, 11/01/37(a) | | | 3,656,852 | | | | 3,945,865 | |
5.32%, 01/01/38(a) | | | 207,203 | | | | 219,258 | |
Pass Through Ctfs., TBA | | | | | | | | |
3.00%, 01/01/43(b) | | | 12,200,000 | | | | 12,758,532 | |
3.50%, 01/01/43(b)(c) | | | 23,000,000 | | | | 24,464,454 | |
| | | | | | | | 161,043,658 | |
|
| Federal National Mortgage Association (FNMA)–19.95% | |
Pass Through Ctfs., | | | | | | | | |
6.50%, 05/01/13 to 11/01/37 | | | 11,142,169 | | | | 12,408,986 | |
10.00%, 09/01/13 | | | 1,966 | | | | 1,977 | |
7.50%, 12/01/13 to 08/01/37 | | | 12,179,065 | | | | 14,723,717 | |
6.00%, 01/01/14 to 10/01/38 | | | 9,526,057 | | | | 10,519,150 | |
7.00%, 01/15/14 to 06/01/36 | | | 13,811,261 | | | | 15,635,470 | |
8.00%, 02/01/14 to 11/01/37 | | | 9,306,643 | | | | 11,202,844 | |
8.50%, 09/01/15 to 08/01/37 | | | 3,980,964 | | | | 4,808,141 | |
5.00%, 11/01/17 to 03/01/40 | | | 3,300,051 | | | | 3,652,849 | |
4.50%, 04/01/19 to 08/01/41 | | | 21,865,840 | | | | 24,186,316 | |
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)–(continued) | |
Pass Through Ctfs., (continued) | | | | | | | | |
5.50%, 03/01/21 to 05/01/35 | | $ | 5,512,158 | | | $ | 6,053,773 | |
6.75%, 07/01/24 | | | 887,260 | | | | 1,026,508 | |
6.95%, 10/01/25 | | | 26,095 | | | | 29,711 | |
3.50%, 03/01/27 to 08/01/27 | | | 20,530,211 | | | | 22,080,015 | |
3.00%, 05/01/27 to 08/01/27 | | | 10,030,393 | | | | 10,701,489 | |
Pass Through Ctfs., ARM | | | | | | | | |
2.50%, 10/01/34(a) | | | 4,905,592 | | | | 5,273,185 | |
2.33%, 05/01/35(a) | | | 982,859 | | | | 1,046,232 | |
2.82%, 03/01/38(a) | | | 195,750 | | | | 207,912 | |
Pass Through Ctfs., Balloon | | | | | | | | |
3.84%, 04/01/18 | | | 6,543,592 | | | | 7,337,981 | |
Pass Through Ctfs., TBA | | | | | | | | |
3.00%, 01/01/43(b)(c) | | | 45,000,000 | | | | 47,165,625 | |
3.50%, 01/01/43(b) | | | 24,000,000 | | | | 25,594,687 | |
4.00%, 01/01/43(b)(c) | | | 2,500,000 | | | | 2,680,469 | |
| | | | | | | | 226,337,037 | |
|
| Government National Mortgage Association (GNMA)–4.00% | |
Pass Through Ctfs., | | | | | | | | |
6.50%, 02/20/13 to 01/15/37 | | | 9,322,038 | | | | 10,727,608 | |
6.75%, 08/15/13 | | | 1,042 | | | | 1,059 | |
7.50%, 10/15/14 to 10/15/35 | | | 5,184,260 | | | | 6,058,104 | |
11.00%, 10/15/15 | | | 1,211 | | | | 1,220 | |
9.00%, 10/20/16 to 12/20/16 | | | 65,435 | | | | 66,208 | |
7.00%, 04/15/17 to 01/15/37 | | | 3,319,147 | | | | 3,887,326 | |
8.00%, 05/15/17 to 01/15/37 | | | 2,957,130 | | | | 3,618,751 | |
10.50%, 09/15/17 to 11/15/19 | | | 2,764 | | | | 2,783 | |
8.50%, 12/15/17 to 01/15/37 | | | 534,313 | | | | 593,322 | |
10.00%, 06/15/19 | | | 21,862 | | | | 23,914 | |
6.00%, 09/15/20 to 08/15/33 | | | 1,403,252 | | | | 1,573,742 | |
5.00%, 02/15/25 | | | 565,621 | | | | 630,161 | |
6.95%, 08/20/25 to 08/20/27 | | | 569,030 | | | | 672,268 | |
6.38%, 10/20/27 to 04/20/28 | | | 584,499 | | | | 655,956 | |
6.10%, 12/20/33 | | | 7,120,912 | | | | 8,297,411 | |
3.50%, 10/20/42 | | | 8,155,205 | | | | 8,591,173 | |
| | | | | | | | 45,401,006 | |
Total U.S. Government Sponsored Mortgage-
Backed Securities (Cost $796,821,755) | | | | 817,280,478 | |
|
U.S. Government Sponsored Agency Securities–19.85% | |
| Federal Agricultural Mortgage Corp.–3.16% | |
Sec. Gtd. Notes,
5.13%, 04/19/17(d) | | | 14,000,000 | | | | 16,531,971 | |
Sr. Unsec. Notes, 2.00%, 07/27/16 | | | 4,000,000 | | | | 4,200,534 | |
Unsec. Medium-Term Notes, | | | | | | | | |
1.25%, 12/06/13 | | | 8,000,000 | | | | 8,079,318 | |
0.85%, 08/11/14 | | | 7,000,000 | | | | 7,059,001 | |
| | | | | | | | 35,870,824 | |
|
| Federal Deposit Insurance Co. (FDIC)–0.07% | |
Series 2010-S1, Class 1A, Gtd. Notes, 0.76%, 02/25/48 (Acquired 03/05/10; Cost $800,747)(a)(d) | | | 800,747 | | | | 802,820 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Federal Farm Credit Bank (FFCB)–2.77% | |
Bonds, | | | | | | | | |
1.63%, 11/19/14 | | $ | 4,800,000 | | | $ | 4,921,161 | |
1.50%, 11/16/15 | | | 11,000,000 | | | | 11,342,404 | |
1.05%, 03/28/16 | | | 7,000,000 | | | | 7,121,549 | |
5.43%, 06/07/24 | | | 2,885,000 | | | | 3,813,792 | |
Medium-Term Notes, | | | | | | | | |
5.75%, 12/07/28 | | | 3,100,000 | | | | 4,255,397 | |
| | | | | | | | 31,454,303 | |
|
| Federal Home Loan Bank (FHLB)–6.54% | |
Global Bonds,
0.50%, 11/20/15 | | | 5,800,000 | | | | 5,820,150 | |
Unsec. Bonds, | | | | | | | | |
2.50%, 06/13/14 | | | 13,000,000 | | | | 13,414,943 | |
3.13%, 03/11/16 | | | 20,000,000 | | | | 21,661,023 | |
1.50%, 10/12/17 | | | 4,800,000 | | | | 4,953,771 | |
4.50%, 09/13/19 | | | 5,000,000 | | | | 6,033,004 | |
3.38%, 06/12/20 | | | 6,220,000 | | | | 7,065,858 | |
Unsec. Global Bonds, 0.25%, 01/16/15 | | | 7,630,000 | | | | 7,624,074 | |
Series 1, Unsec. Global Bonds, 1.00%, 06/21/17 | | | 7,500,000 | | | | 7,605,506 | |
| | | | | | | | 74,178,329 | |
|
| Federal Home Loan Mortgage Corp. (FHLMC)–2.41% | |
Unsec. Global Notes, | | | | | | | | |
1.00%, 03/08/17 | | | 6,500,000 | | | | 6,599,192 | |
1.25%, 08/01/19 | | | 4,800,000 | | | | 4,803,217 | |
1.25%, 10/02/19 | | | 10,000,000 | | | | 9,974,608 | |
Series 1, Unsec. Global Notes, 0.75%, 01/12/18 | | | 6,000,000 | | | | 5,973,501 | |
| | | | | | | | 27,350,518 | |
|
| Federal National Mortgage Association (FNMA)–2.23% | |
Unsec. Global Notes, | | | | | | | | |
0.38%, 12/21/15 | | | 5,300,000 | | | | 5,295,958 | |
2.25%, 03/15/16 | | | 5,000,000 | | | | 5,291,897 | |
2.38%, 04/11/16 | | | 1,100,000 | | | | 1,168,224 | |
0.88%, 08/28/17 | | | 7,250,000 | | | | 7,287,040 | |
0.88%, 10/26/17 | | | 6,200,000 | | | | 6,226,679 | |
| | | | | | | | 25,269,798 | |
|
| Financing Corp. (FICO)–0.35% | |
Sec. Bonds, 9.80%, 04/06/18 | | | 700,000 | | | | 1,004,470 | |
Series E, Sec. Bonds, 9.65%, 11/02/18 | | | 1,985,000 | | | | 2,922,276 | |
| | | | | | | | 3,926,746 | |
|
| Tennessee Valley Authority (TVA)–2.32% | |
Global Bonds, 4.88%, 12/15/16 | | | 13,553,000 | | | | 15,778,930 | |
Sr. Unsec. Global Notes, 5.50%, 07/18/17 | | | 7,042,000 | | | | 8,535,494 | |
Unsec. Global Notes, 1.88%, 08/15/22 | | | 2,000,000 | | | | 1,988,267 | |
| | | | | | | | 26,302,691 | |
Total U.S. Government Sponsored Agency Securities (Cost $220,049,397) | | | | 225,156,029 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Treasury Securities–12.33% | |
| U.S. Treasury Bonds–2.26% | |
8.75%, 05/15/20 | | $ | 3,500,000 | | | $ | 5,374,938 | |
7.88%, 02/15/21 | | | 1,100,000 | | | | 1,655,598 | |
7.50%, 11/15/24 | | | 4,370,000 | | | | 6,958,032 | |
7.63%, 02/15/25 | | | 550,000 | | | | 886,730 | |
5.38%, 02/15/31 | | | 3,800,000 | | | | 5,420,021 | |
4.25%, 05/15/39(e) | | | 3,685,000 | | | | 4,695,349 | |
4.38%, 11/15/39 | | | 500,000 | | | | 649,593 | |
| | | | | | | | 25,640,261 | |
|
| U.S. Treasury Notes–8.20% | |
2.00%, 01/31/16 | | | 1,200,000 | | | | 1,259,392 | |
1.00%, 03/31/17 | | | 7,000,000 | | | | 7,126,521 | |
0.63%, 05/31/17 | | | 8,000,000 | | | | 8,013,370 | |
2.75%, 05/31/17(e) | | | 10,000,000 | | | | 10,935,519 | |
2.38%, 07/31/17(e) | | | 10,000,000 | | | | 10,783,989 | |
0.75%, 12/31/17 | | | 7,000,000 | | | | 7,012,889 | |
1.38%, 12/31/18 | | | 3,000,000 | | | | 3,078,255 | |
1.00%, 11/30/19 | | | 10,000,000 | | | | 9,901,647 | |
3.63%, 02/15/20 | | | 2,000,000 | | | | 2,336,310 | |
2.13%, 08/15/21 | | | 2,700,000 | | | | 2,838,935 | |
2.00%, 11/15/21 | | | 8,300,000 | | | | 8,614,296 | |
2.00%, 02/15/22 | | | 7,000,000 | | | | 7,238,851 | |
1.75%, 05/15/22 | | | 13,750,000 | | | | 13,869,002 | |
| | | | | | | | 93,008,976 | |
|
| U.S. Treasury Inflation-Indexed Notes and Bonds–1.87% | |
Bonds, 0.75%, 02/15/42 | | | 7,370,784 | (f) | | | 8,069,057 | |
Notes, | | | | | | | | |
0.13%, 04/15/17 | | | 5,092,200 | (f) | | | 5,452,423 | |
0.13%, 07/15/22 | | | 7,041,300 | (f) | | | 7,640,529 | |
| | | | | | | | 21,162,009 | |
Total U.S. Treasury Securities
(Cost $132,897,931) | | | | 139,811,246 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Foreign Bonds–2.72% | |
| Collateralized Mortgage Obligations–2.30% | |
La Hipotecaria S.A. de C.V. (Panama), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 3.00%, 09/08/39 (Acquired 11/05/10;
Cost $25,818,450)(a)(d) | | $ | 24,990,636 | | | $ | 26,052,738 | |
|
| Sovereign Debt–0.42% | |
Israel Government Agency for International Development (AID) Bond, Gtd. Bonds, 5.13%, 11/01/24 | | | 3,800,000 | | | | 4,834,219 | |
Total Foreign Bonds
(Cost $29,606,100) | | | | 30,886,957 | |
|
Corporate Bonds and Notes–1.08% | |
Private Export Funding Corp., Sec. Gtd. Notes, | | | | | | | | |
1.38%, 02/15/17 | | | 5,000,000 | | | | 5,132,874 | |
2.13%, 07/15/16 | | | 5,000,000 | | | | 5,272,824 | |
4.30%, 12/15/21 | | | 1,540,000 | | | | 1,846,128 | |
Total Corporate Bonds and Notes
(Cost $11,525,474) | | | | 12,251,826 | |
| | |
| | | Shares | | | | |
Money Market Funds–2.30% | |
Government & Agency Portfolio–Institutional Class (Cost $26,041,432)(g) | | | 26,041,432 | | | | 26,041,432 | |
TOTAL INVESTMENTS–110.33% (Cost $1,216,942,089) | | | | 1,251,427,968 | |
OTHER ASSETS LESS LIABILITIES–(10.33)% | | | | (117,133,519 | ) |
NET ASSETS–100.00% | | | | | | $ | 1,134,294,449 | |
Investment Abbreviations:
| | |
| ARM | | – Adjustable Rate Mortgage |
| Ctfs. | | – Certificates |
| Gtd. | | – Guaranteed |
| REMIC | | – Real Estate Mortgage Investment Conduit |
| 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 December 31, 2012. |
| (b) | Security purchased on a forward commitment basis. |
| (c) | Security is subject to dollar roll transactions. See Note 1I. |
| (d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $43,387,529, which represented 3.83% of the Fund’s Net Assets. |
| (e) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. |
| (f) | Principal amount of security and interest payments are adjusted for inflation. |
| (g) | 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. Government Securities Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $1,190,900,657) | | $ | 1,225,386,536 | |
Investments in affiliated money market funds, at value and cost | | | 26,041,432 | |
Total investments, at value (Cost $1,216,942,089) | | | 1,251,427,968 | |
Receivable for: | | | | |
Investments sold | | | 1,246 | |
Fund shares sold | | | 295,679 | |
Dividends and interest | | | 4,032,894 | |
Principal paydowns | | | 446,200 | |
Investment for trustee deferred compensation and retirement plans | | | 77,866 | |
Other assets | | | 17,189 | |
Total assets | | | 1,256,299,042 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 119,605,206 | |
Fund shares reacquired | | | 716,173 | |
Variation margin | | | 440,761 | |
Accrued fees to affiliates | | | 879,661 | |
Accrued other operating expenses | | | 133,382 | |
Trustee deferred compensation and retirement plans | | | 229,410 | |
Total liabilities | | | 122,004,593 | |
Net assets applicable to shares outstanding | | $ | 1,134,294,449 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 1,074,437,523 | |
Undistributed net investment income | | | 29,658,894 | |
Undistributed net realized gain (loss) | | | (3,221,060 | ) |
Unrealized appreciation | | | 33,419,092 | |
| | | $ | 1,134,294,449 | |
|
Net Assets: | |
Series I | | $ | 873,211,611 | |
Series II | | $ | 261,082,838 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 70,427,420 | |
Series II | | | 21,247,460 | |
Series I: | | | | |
Net asset value per share | | $ | 12.40 | |
Series II: | | | | |
Net asset value per share | | $ | 12.29 | |
| | | | |
Investment income: | |
Interest | | $ | 25,745,884 | |
Dividends from affiliated money market funds | | | 4,459 | |
Total investment income | | | 25,750,343 | |
| |
Expenses: | | | | |
Advisory fees | | | 5,544,463 | |
Administrative services fees | | | 3,203,848 | |
Custodian fees | | | 58,852 | |
Distribution fees — Series II | | | 687,286 | |
Transfer agent fees | | | 36,921 | |
Trustees’ and officers’ fees and benefits | | | 67,964 | |
Other | | | 215,915 | |
Total expenses | | | 9,815,249 | |
Less: Fees waived | | | (1,316,203 | ) |
Net expenses | | | 8,499,046 | |
Net investment income | | | 17,251,297 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 13,436,023 | |
Futures contracts | | | 6,125,828 | |
| | | | 19,561,851 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | (5,848,654 | ) |
Futures contracts | | | (2,407,945 | ) |
| | | | (8,256,599 | ) |
Net realized and unrealized gain | | | 11,305,252 | |
Net increase in net assets resulting from operations | | $ | 28,556,549 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 17,251,297 | | | $ | 24,664,503 | |
Net realized gain | | | 19,561,851 | | | | 50,868,064 | |
Change in net unrealized appreciation (depreciation) | | | (8,256,599 | ) | | | 23,149,702 | |
Net increase in net assets resulting from operations | | | 28,556,549 | | | | 98,682,269 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (27,559,188 | ) | | | (36,635,024 | ) |
Series ll | | | (7,996,672 | ) | | | (1,001,427 | ) |
Total distributions from net investment income | | | (35,555,860 | ) | | | (37,636,451 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (91,925,900 | ) | | | (145,217,239 | ) |
Series ll | | | (32,126,913 | ) | | | 253,038,769 | |
Net increase (decrease) in net assets resulting from share transactions | | | (124,052,813 | ) | | | 107,821,530 | |
Net increase (decrease) in net assets | | | (131,052,124 | ) | | | 168,867,348 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,265,346,573 | | | | 1,096,479,225 | |
End of year (includes undistributed net investment income of $29,658,894 and $35,365,149, respectively) | | $ | 1,134,294,449 | | | $ | 1,265,346,573 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations 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.
Invesco V.I. Government Securities Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. Government Securities 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 the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Dollar Rolls and Forward Commitment Transactions — The Fund may enter into dollar roll transactions to enhance the Fund’s performance. The Fund executes its dollar roll transactions in the to be announced (“TBA”) market whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by the sale of the security with a simultaneous agreement to repurchase at a future date. |
The Fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions increase the Fund’s portfolio turnover rate. The Fund will segregate liquid assets in an amount equal to its dollar roll commitments. Dollar roll transactions are considered borrowings under the 1940 Act.
Dollar roll 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. Dollar rolls transactions also involve the risk that the 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.
| J. | Futures Contracts – The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
| K. | 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. |
| L. | Collateral – To the extent the Fund has designated 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. (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 July 1, 2012, the Adviser has contractually agreed, through April 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 waivers and/or expense reimbursements (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 July 1, 2012, 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 waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 0.60% and Series II shares to 0.85% 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 waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.
Invesco V.I. Government Securities Fund
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $1,316,203.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $284,481 for accounting and fund administrative services and reimbursed $2,919,367 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 26,041,432 | | | $ | — | | | $ | — | | | $ | 26,041,432 | |
U.S. Treasury Securities | | | — | | | | 139,811,246 | | | | — | | | | 139,811,246 | |
U.S. Government Sponsored Securities | | | — | | | | 1,042,436,507 | | | | — | | | | 1,042,436,507 | |
Corporate Debt Securities | | | — | | | | 12,251,826 | | | | — | | | | 12,251,826 | |
Foreign Debt Securities | | | — | | | | 26,052,738 | | | | — | | | | 26,052,738 | |
Foreign Sovereign Debt Securities | | | — | | | | 4,834,219 | | | | — | | | | 4,834,219 | |
| | | | 26,041,432 | | | | 1,225,386,536 | | | | — | | | | 1,251,427,968 | |
Futures Contracts* | | | (1,066,787 | ) | | | — | | | | — | | | | (1,066,787 | ) |
Total Investments | | $ | 24,974,645 | | | $ | 1,225,386,536 | | | $ | — | | | $ | 1,250,361,181 | |
| * | Unrealized appreciation (depreciation). |
Invesco V.I. Government Securities Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Interest rate risk | | | | | | | | |
Futures contracts(a) | | $ | 1,445,461 | | | $ | (2,512,248 | ) |
| (a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2012
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 Contracts* | |
Realized Gain | | | | |
Interest rate risk | | $ | 6,125,828 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Interest rate risk | | $ | (2,407,945 | ) |
Total | | $ | 3,717,883 | |
| * | The average notional value of futures contracts outstanding during the period was $554,413,699. |
| | | | | | | | | | | | | | | | |
| Open Futures Contracts | |
| Long Contracts | | Number of
Contracts | | | Expiration
Month | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
U.S. Treasury 2 Year Notes | | | 539 | | | | March–2013 | | | $ | 118,832,656 | | | $ | 36,290 | |
U.S. Treasury 10 Year Notes | | | 660 | | | | March–2013 | | | | 87,635,625 | | | | (202,480 | ) |
U.S. Ultra Bonds | | | 667 | | | | March–2013 | | | | 108,450,031 | | | | (2,309,768 | ) |
Subtotal | | | | | | | | | | | | | | $ | (2,475,958 | ) |
| | | | |
| | | | | | | | | | | | | | | | |
| Short Contracts | | | | | | | | | | | | |
U.S. Treasury 5 Year Notes | | | 256 | | | | March–2013 | | | $ | 31,850,000 | | | $ | 44,109 | |
U.S. Treasury 30 Year Bonds | | | 618 | | | | March–2013 | | | | 91,155,000 | | | | 1,365,062 | |
Subtotal | | | | | | | | | | | | | | $ | 1,409,171 | |
Total | | | | | | | | | | | | | | $ | (1,066,787 | ) |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund 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 State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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 exceed 5% of the Fund’s total assets.
Invesco V.I. Government Securities Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 35,555,860 | | | $ | 37,636,451 | |
Tax Components of Net Assets at Period-End:
| | | | | | |
| | | 2012 | | | |
Undistributed ordinary income | | $ | 29,879,025 | | | |
Net unrealized appreciation – investments | | | 34,043,871 | | | |
Temporary book/tax differences | | | (220,131 | ) | | |
Capital loss carryforward | | | (3,845,839 | ) | | |
Shares of beneficial interest | | | 1,074,437,523 | | | |
Total net assets | | $ | 1,134,294,449 | | | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to straddles and wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $4,339,076 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2017 | | $ | 3,845,839 | | | $ | — | | | $ | 3,845,839 | |
| * | 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. Government Fund into the Fund, are 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 year ended December 31, 2012 was $1,421,434,502 and $1,467,040,674, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $78,999,016 and $109,486,209, 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 | | $ | 36,858,593 | |
Aggregate unrealized (depreciation) of investment securities | | | (2,814,722 | ) |
Net unrealized appreciation of investment securities | | $ | 34,043,871 | |
Cost of investments for tax purposes is $1,217,384,097.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of paydown gains (losses) and dollar rolls, on December 31, 2012, undistributed net investment income was increased by $12,598,308 and undistributed net realized gain (loss) was decreased by $12,598,308. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Government Securities Fund
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 9,955,734 | | | $ | 124,521,467 | | | | 10,663,153 | | | $ | 128,843,040 | |
Series II | | | 4,230,588 | | | | 52,978,846 | | | | 5,300,488 | | | | 64,070,452 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 2,220,724 | | | | 27,559,188 | | | | 3,158,192 | | | | 36,635,024 | |
Series II | | | 649,608 | | | | 7,996,671 | | | | 86,854 | | | | 1,001,427 | |
| | | | |
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 | | | (19,390,637 | ) | | | (244,006,555 | ) | | | (28,160,963 | ) | | | (340,945,513 | ) |
Series II | | | (7,462,478 | ) | | | (93,102,430 | ) | | | (5,875,436 | ) | | | (71,038,561 | ) |
Net increase (decrease) in share activity | | | (9,796,461 | ) | | $ | (124,052,813 | ) | | | 10,058,640 | | | $ | 107,821,530 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 81% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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 (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund as of the close of business on April 29, 2011. The Target Fund’s net assets at that date of $289,255,661, including $4,992,514 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $1,059,348,706. The net assets of the Fund subsequent to the acquisition were $1,348,604,367. The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
| | | | |
Net investment income | | $ | 28,166,317 | |
Net realized/unrealized gains | | | 72,785,041 | |
Change in net assets resulting from operations | | $ | 100,951,358 | |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, and it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses) on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
Return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 12.49 | | | $ | 0.19 | | | $ | 0.12 | | | $ | 0.31 | | | $ | (0.40 | ) | | $ | — | | | $ | (0.40 | ) | | $ | 12.40 | | | | 2.47 | % | | $ | 873,212 | | | | 0.65 | %(d) | | | 0.76 | %(d) | | | 1.49 | %(d) | | | 118 | % |
Year ended 12/31/11 | | | 12.00 | | | | 0.25 | | | | 0.67 | | | | 0.92 | | | | (0.43 | ) | | | — | | | | (0.43 | ) | | | 12.49 | | | | 7.91 | | | | 970,029 | | | | 0.63 | | | | 0.75 | | | | 2.03 | | | | 85 | |
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 | |
Series II | |
Year ended 12/31/12 | | | 12.39 | | | | 0.16 | | | | 0.12 | | | | 0.28 | | | | (0.38 | ) | | | — | | | | (0.38 | ) | | | 12.29 | | | | 2.22 | | | | 261,083 | | | | 0.90 | (d) | | | 1.01 | (d) | | | 1.24 | (d) | | | 118 | |
Year ended 12/31/11 | | | 11.92 | | | | 0.21 | | | | 0.67 | | | | 0.88 | | | | (0.41 | ) | | | — | | | | (0.41 | ) | | | 12.39 | | | | 7.63 | | | | 295,318 | | | | 0.88 | | | | 1.00 | | | | 1.78 | | | | 85 | |
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 | |
| (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 December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $309,171,077 and sold of $25,033,352 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 based on average daily net assets (000’s) of $929,411 and $274,915 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Government Securities Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | ACTUAL | | | HYPOTHETICAL (5% annual return before expenses) | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | | Annualized
Expense
Ratio | |
Series I | | $ | 1,000.00 | | | $ | 1,006.20 | | | $ | 3.53 | | | $ | 1,021.62 | | | $ | 3.56 | | | | 0.70 | % |
Series II | | | 1,000.00 | | | | 1,005.10 | | | | 4.79 | | | | 1,020.36 | | | | 4.82 | | | | 0.95 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Government Securities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 0.00 | % |
U.S. Treasury Obligations* | | | 8.09 | % |
| | * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Government Securities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Government Securities Fund
Invesco V.I. High Yield Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. High Yield Fund outperformed its style-specific index, the Barclays U.S. Corporate High Yield 2% Issuer Cap Index, due mainly to the Fund’s issuer selection.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 17.17 | % |
| Series II Shares | | | | 16.96 | |
| Barclays U.S. Aggregate Index‚ (Broad Market Index) | | | | 4.21 | |
| Barclays U.S. Corporate High Yield 2% Issuer Cap Indexn (Style-Specific Index) | | | | 15.78 | |
Lipper VUF High Current Yield Bond Funds Classification Averagen (Peer Group) | | | | 14.09 | |
Source(s): ‚Invesco, Barclays via FactSet Research Systems Inc.; nLipper Inc.
How we invest
We invest primarily in debt securities that are determined to be below investment grade quality. These bonds, commonly known as “junk bonds,” are typically corporate bonds of US-based companies, many of which are moderately sized firms. Although we principally invest in junk bonds, we tend to underweight the lowest quality bonds in the asset class. We may invest in convertible bonds, preferred stock, derivatives and bank loans, but we do not expect these instruments to be a substantial part of our portfolio. We may invest up to 25% of total assets in foreign securities. We may also invest up to 15% of the Fund’s total assets in securities of issuers located in developing markets.
The primary driver of our security selection is fundamental, bottom-up
credit analysis conducted by a team of analysts who specialize by industry. This approach is augmented with an ongoing review of the relative value of securities and a top-down process that includes sector, economic and quantitative analysis. Changes in a security’s risk/return profile or relative value and top-down factors generally determine buy and sell decisions.
Portfolio construction begins with a well-defined Fund design that emphasizes diversification and establishes the target investment vehicles for generating the desired “alpha” (the return expected from an investment) as well as the risk parameters appropriate for the current positioning in the credit cycle. Investments are evaluated for liquidity and risk versus relative value. Working closely with other investment specialists and
traders, we determine the timing and amount of each alpha decision to use in the portfolio at any time, taking into account market opportunities.
Sell decisions are based on:
| n | | Low equity value to debt, high subordination and negative free cash flow coupled with negative news, declining expectations or an increasing risk profile. |
| n | | Availability of a better relative value opportunity. |
Market conditions and your Fund
The high yield market depends heavily on the underlying health of the economy, principally in the US and, secondarily, in Europe. During the reporting period, growth remained slow as deleveraging and caution constrained economic activity and job creation. The situation in Europe stabilized as the European Central Bank (ECB) announced new measures to support eurozone economies.
After the ECB announced its long-term refinancing operations in late 2011, European-driven volatility subsided until May, when it spiked again, resulting in further action from the ECB in the form of an unlimited commitment to sovereign debt through the outright monetary transactions program. The US Federal Reserve (the Fed) enacted its own monetary easing policy through a third round of quantitative easing, under which the Fed committed to purchase mortgage-backed securities.
| | | | | |
| Portfolio Composition | | |
| By credit quality | | | | | |
| | | | | |
| A | | | | 0.7 | % |
| BBB | | | | 4.0 | |
| BB | | | | 31.1 | |
| B | | | | 45.6 | |
| CCC | | | | 9.8 | |
| CC | | | | 0.0 | |
| Non-Rated | | | | 6.3 | |
| Cash | | | | 2.5 | |
Source: Standard & Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the credit-worthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard & Poor’s rating methodology, please visit standardandpoors.com and select “Understanding Ratings” under “Rating Resources” on the homepage.
| | | | | | | |
| Top 10 Fixed Income Issuers* |
| | | | | | | |
| | | | | | | |
| 1. International Lease Finance Corp. | | | | 1.8 | % |
| 2. Intelsat Jackson Holdings S.A. | | | | 1.4 | |
| 3. MGM Resorts International** | | | | 1.4 | |
| 4. Sprint Nextel Corp. | | | | 1.3 | |
| 5. HCA, Inc. | | | | 1.2 | |
| 6. CIT Group Inc. | | | | 1.2 | |
| 7. First Data Corp. | | | | 1.1 | |
| 8. Ally Financial Inc. | | | | 1.1 | |
| 9. FMG Resources Pty. Ltd. | | | | 1.0 | |
| 10. USG Corp. | | | | 0.9 | |
| | | | | | | |
| Top Five Industries* |
| | | | | | | |
| | | | | | | |
| 1. Oil & Gas Exploration & Production | | | | 7.2 | % |
| 2. Casinos & Gaming | | | | 6.5 | |
| 3. Wireless Telecommunication Services | | | | 5.1 | |
| 4. Specialized Finance | | | | 4.2 | |
| 5. Cable & Satellite | | | | 3.8 | |
| | | | | | | |
| Total Net Assets | | | | $114.5 million | |
| |
| Total Number of Holdings* | | | | 439 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
| * | Excluding money market fund holdings. |
| ** | Excludes the impact of credit default swap contracts. |
Invesco V.I. High Yield Fund
The high yield market began the year with solid monthly returns until May, when there was a short-lived sell-off triggered by US economic data, the potential for a “hard landing” in China and heightened European concerns. The market picked up in June and rallied through the end of the year as sovereign risks and fears of weaker economic data subsided. Technicals were good as there was strong investor demand driven by a search for yield. This was met by a record amount of new issuance1, particularly in the second half of the year. Much of the new issuance was refinancing, due to reduced volatility and low yields, as well as dividend deals heading into the new year. Investor concerns picked up again toward the end of the year with the US election and looming “fiscal cliff” that threatened the economy unless a deal was reached between the White House and Congress. Spreads tightened early in the year and widened by 90 basis points (bps) amid the May sell-off.1 Spreads gradually tightened throughout the rest of 2012 and ended the year 190 bps tighter than when the year began.1 (A basis point is one one-hundredth of a percentage point.)
Defaults in the high yield bond market remained muted during 2012. The par-weighted high yield default rate for the year was 1.14%, well below the long-term average of 4.2%.2 Very low defaults are to be expected after periods of high defaults and recession.
The broad US high yield bond market, as measured by the Barclays U.S. Corporate High Yield 2% Issuer Cap Index (the Fund’s style-specific index), generated a positive total return for the year ended December 31, 2012. Likewise, the Fund generated positive returns for the year and outperformed its style-specific index. At the close of the year, and within the high yield market, we continued to be underweight lower rated securities as the risk/return profile was not favorable. We also were underweight higher rated securities because we saw investment grade managers dip into the highest rated portion of the high yield market in order to pick up some yield, resulting in unfavorable relative valuations.
The main contributor to the Fund’s outperformance was our security selection, particularly in the building materials, non-captive diversified and food and beverage sectors. Further amplifying our relative returns was our overweight exposure to the building materials and property and casualty sectors, which were strong index performers. Moreover, we underweighted the electric and media
non-cable sectors, which were relative underperformers. Finally, we held some off-index names that performed well for the Fund.
The main detractor from Fund performance was our cash position. Since the Fund’s style-specific index does not hold cash, any cash held during a period of market appreciation will result in negative relative performance. Our overall sector allocations detracted slightly from our performance during the year as well. While most of our issuer selection helped performance, we did have some sectors in which our selection underperformed that of the style-specific benchmark – specifically, technology and banking. Finally, our underweight exposure to home construction and our avoidance of the non-captive consumer sector hurt our relative performance as these sectors outperformed the broader market.
At the close of the reporting period, we remained generally positive in our assessment of high yield securities. High yield bonds have historically performed well in low-growth environments, like the one in which we find ourselves today. If and when growth picks up, and rates start to rise, the economy will likely be stronger, resulting in high yield issuers being better positioned to service their debt.
Thank you for investing in Invesco V.I. High Yield Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opin- ions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Darren Hughes Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. High Yield Fund. He joined |
| Invesco in 1992. Mr. Hughes earned a BBA in finance and economics from Baylor University. |
| | |
 | | Scott Roberts Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. High Yield Fund. He joined |
| Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston. |
Invesco V.I. High Yield Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/1/98) | | | | 4.29 | % |
| 10 Years | | | | 9.60 | |
| 5 Years | | | | 8.81 | |
| 1 Year | | | | 17.17 | |
| |
| Series II Shares | | | | | |
| Inception (3/26/02) | | | | 8.11 | % |
| 10 Years | | | | 9.36 | |
| 5 Years | | | | 8.54 | |
| 1 Year | | | | 16.96 | |
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 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable
products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
| 1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2014. See current prospectus for more information. |
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Fund’s investment objective is total return, comprised of current income and capital appreciation.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
�� Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased
liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Reinvestment risk. Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index comprising US corporate, fixed-rate, noninvestment-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 Classification Average represents an average of all variable insurance underlying funds in the Lipper High Current Yield Bond Funds classification.
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. High Yield Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Principal Amount | | | Value | |
U.S. Dollar Denominated Bonds and Notes–87.11% | |
| Advertising–0.11% | |
Lamar Media Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 05/01/23(b) | | $ | 75,000 | | | $ | 77,625 | |
National CineMedia LLC, Sr. Sec. Global Notes, 6.00%, 04/15/22 | | | 45,000 | | | | 47,925 | |
| | | | | | | | 125,550 | |
|
| Aerospace & Defense–0.97% | |
B/E Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | | | 100,000 | | | | 106,500 | |
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | | | 345,000 | | | | 393,300 | |
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 03/15/18 | | | 165,000 | | | | 180,262 | |
7.13%, 03/15/21 | | | 95,000 | | | | 103,788 | |
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | | | 240,000 | | | | 258,000 | |
TransDigm Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 10/15/20(b) | | | 65,000 | | | | 67,925 | |
| | | | | | | | 1,109,775 | |
|
| Airlines–2.50% | |
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16 (Acquired 10/13/11-11/29/11;
Cost $489,200)(b)(c) | | | 600,000 | | | | 648,000 | |
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass
Through Ctfs., 7.00%, 01/31/18(b) | | | 237,108 | | | | 247,185 | |
Continental Airlines Pass Through Trust, | | | | | | | | |
Series 2000-2, Class B, Sec. Pass Through Ctfs., 8.31%, 04/02/18 | | | 43,436 | | | | 46,259 | |
Series 2007-1, Class C, Sec. Global Pass Through Ctfs.,
7.34%, 04/19/14 | | | 179,400 | | | | 185,342 | |
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | | | 51,446 | | | | 59,742 | |
Series 2009-2, Class B, Sec. Global Pass Through Ctfs.,
9.25%, 05/10/17 | | | 126,893 | | | | 140,614 | |
Series 2012-3, Class C, Sr. Sec. Pass Through Ctfs., 6.13%, 04/29/18 | | | 120,000 | | | | 121,200 | |
Delta Air Lines Pass Through Trust, | | | | | | | | |
Series 2007-1, Class C, Sec. Global Pass Through Ctfs.,
8.95%, 08/10/14 | | | 338,762 | | | | 351,890 | |
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | | | 85,000 | | | | 89,144 | |
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | | | 125,000 | | | | 130,625 | |
| UAL Pass Through Trust, | | | | | | | | |
Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs.,
7.34%, 07/02/19 | | | 111,331 | | | | 113,001 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Airlines–(continued) | |
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs.,
10.40%, 11/01/16 | | $ | 117,616 | | | $ | 136,141 | |
Series 2009-2, Class B, Sr. Sec. Gtd. Pass Through Ctfs.,
12.00%, 01/15/16(b) | | | 175,340 | | | | 192,983 | |
| US Airways Pass Through Trust, | | | | | | | | |
Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | | | 204,459 | | | | 195,259 | |
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | | | 60,000 | | | | 65,512 | |
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | | | 60,000 | | | | 64,275 | |
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | | | 75,000 | | | | 78,000 | |
| | | | | | | | 2,865,172 | |
|
| Alternative Carriers–1.46% | |
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes,
8.38%, 02/15/18(b) | | | 395,000 | | | | 435,487 | |
Level 3 Communications Inc., | | | | | | | | |
Sr. Unsec. Global Notes,
11.88%, 02/01/19 | | | 285,000 | | | | 329,175 | |
Sr. Unsec. Notes,
8.88%, 06/01/19(b) | | | 170,000 | | | | 181,900 | |
Level 3 Financing Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes,
8.13%, 07/01/19 | | | 230,000 | | | | 251,275 | |
8.63%, 07/15/20 | | | 105,000 | | | | 117,338 | |
9.38%, 04/01/19 | | | 85,000 | | | | 95,625 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.00%, 06/01/20(b) | | | 250,000 | | | | 263,125 | |
| | | | | | | | 1,673,925 | |
|
| Aluminum–0.84% | |
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | | | 950,630 | | | | 958,354 | |
|
| Apparel Retail–1.55% | |
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 | | | 365,000 | | | | 418,153 | |
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | | | 535,000 | | | | 569,775 | |
Limited Brands Inc.,
Sr. Unsec. Gtd. Global Notes, 5.63%, 02/15/22 | | | 145,000 | | | | 158,594 | |
8.50%, 06/15/19 | | | 100,000 | | | | 123,500 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.63%, 04/01/21 | | | 40,000 | | | | 46,200 | |
7.00%, 05/01/20 | | | 25,000 | | | | 28,937 | |
| | | | | | | | 1,769,284 | |
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–2.40% | |
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | | $ | 475,000 | | | $ | 524,875 | |
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | | | 780,000 | | | | 811,200 | |
Levi Strauss & Co., Sr. Unsec. Global Notes, | | | | | | | | |
6.88%, 05/01/22 | | | 310,000 | | | | 334,025 | |
7.63%, 05/15/20 | | | 525,000 | | | | 578,813 | |
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | | | 505,000 | | | | 499,003 | |
| | | | | | | | 2,747,916 | |
|
| Application Software–0.07% | |
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | | | 80,000 | | | | 84,000 | |
|
| Auto Parts & Equipment–0.63% | |
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | | | 415,000 | | | | 448,200 | |
American Axle & Manufacturing Inc., Sr. Unsec. Gtd. Notes, 6.63%, 10/15/22 | | | 155,000 | | | | 158,875 | |
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 08/15/18 | | | 110,000 | | | | 119,625 | |
| | | | | | | | 726,700 | |
|
| Automobile Manufacturers–0.88% | |
Chrysler Group LLC/CG Co-Issuer Inc., Sec. Gtd. Global Notes,
8.00%, 06/15/19 | | | 450,000 | | | | 493,875 | |
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | | | 405,000 | | | | 516,375 | |
| | | | | | | | 1,010,250 | |
|
| Automotive Retail–0.05% | |
Penske Automotive Group Inc., Sr. Unsec. Gtd. Sub. Notes,
5.75%, 10/01/22(b) | | | 50,000 | | | | 51,875 | |
|
| Biotechnology–0.20% | |
Grifols Inc. (Spain), Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/18 | | | 70,000 | | | | 77,700 | |
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | | | 90,000 | | | | 17,269 | |
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | | | 125,000 | | | | 135,937 | |
| | | | | | | | 230,906 | |
|
| Broadcasting–0.98% | |
Allbritton Communications Co., Sr. Unsec. Global Notes,
8.00%, 05/15/18 | | | 170,000 | | | | 185,300 | |
Clear Channel Worldwide Holdings Inc., Series A, Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.50%, 11/15/22(b) | | | 90,000 | | | | 94,050 | |
Series B, Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.50%, 11/15/22(b) | | | 240,000 | | | | 251,400 | |
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | | | 360,000 | | | | 364,500 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Broadcasting–(continued) | |
LIN Television Corp., Sr. Unsec. Gtd. Notes, 6.38%, 01/15/21(b) | | $ | 50,000 | | | $ | 52,750 | |
Nielsen Finance LLC/Co. (Netherlands), Sr. Unsec. Gtd. Notes,
4.50%, 10/01/20(b) | | | 135,000 | | | | 135,000 | |
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Notes, 5.00%, 09/15/19(b) | | | 40,000 | | | | 41,300 | |
| | | | | | | | 1,124,300 | |
|
| Building Products–3.21% | |
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | | | 310,000 | | | | 306,900 | |
Building Materials Corp. of America, | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.50%, 03/15/20(b) | | | 105,000 | | | | 116,419 | |
Sr. Unsec. Notes, | | | | | | | | |
6.88%, 08/15/18(b) | | | 305,000 | | | | 332,831 | |
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes,
8.00%, 12/01/15 | | | 535,000 | | | | 542,022 | |
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | | | 120,000 | | | | 133,650 | |
Nortek Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.50%, 04/15/21 | | | 770,000 | | | | 866,250 | |
10.00%, 12/01/18 | | | 90,000 | | | | 102,150 | |
Ply Gem Industries Inc.,
Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | | | 70,000 | | | | 77,000 | |
Sr. Unsec. Gtd. Notes, 9.38%, 04/15/17(b) | | | 130,000 | | | | 141,700 | |
USG Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 7.88%, 03/30/20(b) | | | 365,000 | | | | 409,256 | |
8.38%, 10/15/18(b) | | | 25,000 | | | | 27,937 | |
Sr. Unsec. Notes, 9.75%, 01/15/18 | | | 545,000 | | | | 617,894 | |
| | | | | | | | 3,674,009 | |
|
| Cable & Satellite–3.47% | |
Cablevision Systems Corp., Sr. Unsec. Global Notes, 5.88%, 09/15/22 | | | 60,000 | | | | 60,600 | |
DISH DBS Corp.,
Sr. Unsec. Gtd. Global Notes, 4.63%, 07/15/17 | | | 460,000 | | | | 481,850 | |
5.88%, 07/15/22 | | | 110,000 | | | | 118,800 | |
Sr. Unsec. Notes, 5.00%, 03/15/23(b) | | | 70,000 | | | | 70,700 | |
Hughes Satellite Systems Corp.,
Sr. Sec. Gtd. Global Notes,
6.50%, 06/15/19 | | | 270,000 | | | | 299,025 | |
Sr. Unsec. Gtd. Global Notes,
7.63%, 06/15/21 | | | 80,000 | | | | 91,600 | |
Intelsat Jackson Holdings S.A. (Luxembourg),
Sr. Unsec. Gtd. Global Notes,
7.25%, 10/15/20 | | | 655,000 | | | | 712,313 | |
7.50%, 04/01/21 | | | 390,000 | | | | 428,025 | |
Sr. Unsec. Gtd. Notes,
6.63%, 12/15/22(b) | | | 270,000 | | | | 280,125 | |
7.25%, 10/15/20(b) | | | 190,000 | | | | 206,150 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Cable & Satellite–(continued) | |
Nara Cable Funding Ltd. (Spain), Sr. Sec. Gtd. Notes, 8.88%, 12/01/18(b) | | $ | 400,000 | | | $ | 405,000 | |
Unitymedia Hessen GmbH & Co KG/Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. Notes, 7.50%, 03/15/19(b) | | | 410,000 | | | | 453,667 | |
ViaSat Inc.,
Sr. Unsec. Gtd. Global Notes,
6.88%, 06/15/20 | | | 230,000 | | | | 241,500 | |
Sr. Unsec. Gtd. Notes,
6.88%, 06/15/20(b) | | | 120,000 | | | | 126,000 | |
| | | | | | | | 3,975,355 | |
|
| Casinos & Gaming–5.39% | |
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | | | 345,000 | | | | 376,050 | |
Caesars Entertainment Operating Co. Inc.,
Sec. Gtd. Global Notes, 12.75%, 04/15/18 | | | 265,000 | | | | 197,425 | |
Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | | | 215,000 | | | | 216,613 | |
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | | | 274,000 | | | | 241,120 | |
Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/13 | | | 125,000 | | | | 122,344 | |
Caesars Operating Escrow LLC/Caesars Escrow Corp., Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | | | 155,000 | | | | 156,550 | |
Chester Downs & Marina LLC, Sr. Sec. Gtd. Notes, 9.25%, 02/01/20(b) | | | 45,000 | | | | 44,438 | |
CityCenter Holdings LLC/CityCenter Finance Corp., Sr. Sec. Gtd. Global Notes,
7.63%, 01/15/16 | | | 335,000 | | | | 358,450 | |
10.75%, 01/15/17 | | | 393,335 | | | | 428,735 | |
Codere Finance Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 9.25%, 02/15/19(b) | | | 95,000 | | | | 73,625 | |
MGM Resorts International,
Sr. Unsec. Gtd. Conv. Notes,
4.25%, 04/15/15 | | | 95,000 | | | | 100,759 | |
Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | | | 393,000 | | | | 421,492 | |
6.63%, 12/15/21 | | | 75,000 | | | | 75,188 | |
Sr. Unsec. Gtd. Notes, 6.75%, 10/01/20(b) | | | 45,000 | | | | 46,013 | |
7.75%, 03/15/22 | | | 855,000 | | | | 914,850 | |
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes,
9.25%, 06/15/19 | | | 195,000 | | | | 217,913 | |
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | | | 340,000 | | | | 360,400 | |
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.48%, 02/01/14(b)(d) | | | 630,000 | | | | 622,912 | |
Sr. Sec. Notes, 9.13%, 02/01/15(b) | | | 374,000 | | | | 377,272 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Casinos & Gaming–(continued) | |
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. First Mortgage Global Notes,
5.38%, 03/15/22 | | $ | 260,000 | | | $ | 276,575 | |
7.75%, 08/15/20 | | | 475,000 | | | | 542,687 | |
| | | | | | | | 6,171,411 | |
|
| Coal & Consumable Fuels–1.09% | |
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 9.75%, 04/15/18 | | | 75,000 | | | | 81,375 | |
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes,
8.00%, 04/01/17 | | | 35,000 | | | | 38,063 | |
8.25%, 04/01/20 | | | 385,000 | | | | 418,687 | |
Peabody Energy Corp.,
Sr. Unsec. Gtd. Global Notes, 6.00%, 11/15/18 | | | 570,000 | | | | 607,050 | |
Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | | | 95,000 | | | | 102,837 | |
| | | | | | | | 1,248,012 | |
|
| Communications Equipment–0.64% | |
Avaya Inc.,
Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | | | 505,000 | | | | 474,700 | |
9.00%, 04/01/19(b) | | | 110,000 | | | | 111,650 | |
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | | | 170,000 | | | | 152,150 | |
| | | | | | | | 738,500 | |
|
| Computer & Electronics Retail–0.53% | |
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | | | 550,000 | | | | 605,000 | |
|
| Computer Storage & Peripherals–0.55% | |
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Notes, 7.00%, 11/01/21 | | | 585,000 | | | | 630,337 | |
|
| Construction & Engineering–1.14% | |
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes,
7.13%, 01/15/21 | | | 585,000 | | | | 620,100 | |
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | | | 660,000 | | | | 686,400 | |
| | | | | | | | 1,306,500 | |
|
| Construction & Farm Machinery & Heavy Trucks–1.29% | |
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/17 | | | 215,000 | | | | 254,506 | |
CNH Capital LLC, Sr. Unsec. Gtd. Notes, 3.88%, 11/01/15(b) | | | 70,000 | | | | 72,450 | |
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes,
7.88%, 04/15/19 | | | 235,000 | | | | 233,825 | |
Manitowoc Co. Inc. (The),
Sr. Unsec. Gtd. Global Notes,
5.88%, 10/15/22 | | | 95,000 | | | | 96,069 | |
Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | | | 180,000 | | | | 202,950 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Construction & Farm Machinery & Heavy Trucks–(continued) | |
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | | $ | 225,000 | | | $ | 218,250 | |
Terex Corp.,
Sr. Unsec. Gtd. Notes,
6.50%, 04/01/20 | | | 30,000 | | | | 31,950 | |
Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | | | 60,000 | | | | 63,300 | |
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | | | 290,000 | | | | 309,212 | |
| | | | | | | | 1,482,512 | |
|
| Construction Materials–1.17% | |
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Notes, 9.50%, 12/14/16(b) | | | 495,000 | | | | 538,958 | |
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | | | 695,000 | | | | 750,600 | |
U.S. Concrete Inc., Sr. Sec. Gtd. Conv. Notes, 9.50%, 08/31/15(b) | | | 40,000 | | | | 50,200 | |
| | | | | | | | 1,339,758 | |
|
| Consumer Finance–1.39% | |
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes,
8.00%, 03/15/20 | | | 970,000 | | | | 1,193,100 | |
8.00%, 11/01/31 | | | 76,000 | | | | 96,520 | |
General Motors Financial Co. Inc., Sr. Unsec. Gtd. Notes,
4.75%, 08/15/17(b) | | | 85,000 | | | | 89,675 | |
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | | | 195,000 | | | | 215,962 | |
| | | | | | | | 1,595,257 | |
|
| Data Processing & Outsourced Services–2.05% | |
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | | | 770,000 | | | | 842,187 | |
First Data Corp.,
Sec. Gtd. Notes, 8.25%, 01/15/21(b) | | | 330,000 | | | | 331,650 | |
Sr. Sec. Gtd. Notes, 6.75%, 11/01/20(b) | | | 810,000 | | | | 824,175 | |
7.38%, 06/15/19(b) | | | 135,000 | | | | 140,738 | |
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes,
7.38%, 11/15/18 | | | 65,000 | | | | 69,956 | |
7.63%, 11/15/20 | | | 123,000 | | | | 135,300 | |
| | | | | | | | 2,344,006 | |
|
| Department Stores–0.28% | |
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | | | 350,000 | | | | 323,313 | |
|
| Distillers & Vintners–0.32% | |
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 9.13%, 12/01/16(b) | | | 305,000 | | �� | | 198,250 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Distillers & Vintners–(continued) | |
Constellation Brands Inc.,
Sr. Unsec. Gtd. Global Notes,
4.63%, 03/01/23 | | $ | 50,000 | | | $ | 52,500 | |
7.25%, 05/15/17 | | | 61,000 | | | | 71,675 | |
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | | | 40,000 | | | | 46,050 | |
| | | | | | | | 368,475 | |
|
| Diversified Banks–0.22% | |
RBS Capital Trust II (United Kingdom), Jr. Unsec. Gtd. Sub. Global Bonds,
6.43%(e) | | | 150,000 | | | | 130,125 | |
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | | | 120,000 | | | | 126,083 | |
| | | | | | | | 256,208 | |
|
| Diversified Chemicals–0.03% | |
Olin Corp., Sr. Unsec. Notes, 5.50%, 08/15/22 | | | 30,000 | | | | 31,200 | |
|
| Diversified Metals & Mining–1.35% | |
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes,
6.38%, 02/01/16(b) | | | 250,000 | | | | 260,000 | |
6.88%, 04/01/22(b) | | | 280,000 | | | | 288,400 | |
7.00%, 11/01/15(b) | | | 235,000 | | | | 249,100 | |
8.25%, 11/01/19(b) | | | 300,000 | | | | 321,750 | |
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | | | 145,000 | | | | 88,450 | |
Vedanta Resources PLC (India), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | | | 295,000 | | | | 342,122 | |
| | | | | | | | 1,549,822 | |
|
| Electric Utilities–0.00% | |
LSP Energy L.P./LSP Batesville Funding Corp.,
Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14(c) | | | 262,000 | | | | 0 | |
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(c) | | | 275,000 | | | | 0 | |
| | | | | | | | 0 | |
|
| Electrical Components & Equipment–0.39% | |
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | | | 215,000 | | | | 222,525 | |
General Cable Corp., Sr. Unsec. Gtd. Notes, 5.75%, 10/01/22(b) | | | 150,000 | | | | 155,625 | |
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | | | 65,000 | | | | 71,012 | |
| | | | | | | | 449,162 | |
|
| Electronic Manufacturing Services–0.47% | |
Sanmina Corp., Sr. Unsec. Gtd. Notes,
7.00%, 05/15/19(b) | | | 530,000 | | | | 543,250 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Environmental & Facilities Services–0.19% | |
Clean Harbors Inc., Sr. Unsec. Gtd. Notes, 5.13%, 06/01/21(b) | | $ | 100,000 | | | $ | 104,250 | |
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes,
10.75%, 08/15/18 | | | 125,000 | | | | 118,750 | |
| | | | | | | | 223,000 | |
|
| Food Retail–0.10% | |
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | | | 205,000 | | | | 116,850 | |
|
| Forest Products–0.21% | |
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | | | 260,000 | | | | 236,600 | |
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17 (Acquired 10/14/10;
Cost $30,000)(b)(c) | | | 30,000 | | | | 4,650 | |
| | | | | | | | 241,250 | |
|
| Gas Utilities–1.41% | |
AmeriGas Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 05/20/22 | | | 350,000 | | | | 391,563 | |
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | | | 523,000 | | | | 519,731 | |
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.38%, 08/01/21 | | | 154,000 | | | | 168,245 | |
Sr. Unsec. Notes, 7.38%, 03/15/20 | | | 490,000 | | | | 532,875 | |
| | | | | | | | 1,612,414 | |
|
| Gold–0.15% | |
Eldorado Gold Corp. (Canada), Sr. Unsec. Notes, 6.13%, 12/15/20(b) | | | 170,000 | | | | 174,250 | |
|
| Health Care Equipment–0.37% | |
Biomet Inc.,
Sr. Unsec. Gtd. Notes, 6.50%, 08/01/20(b) | | | 130,000 | | | | 138,450 | |
Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/20(b) | | | 135,000 | | | | 135,000 | |
DJO Finance LLC/Corp.,
Sr. Unsec. Gtd. Global Notes,
7.75%, 04/15/18 | | | 35,000 | | | | 33,863 | |
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | | | 130,000 | | | | 116,025 | |
| | | | | | | | 423,338 | |
|
| Health Care Facilities–2.43% | |
HCA, Inc.,
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | | | 210,000 | | | | 229,950 | |
Sr. Unsec. Gtd. Global Notes, 5.88%, 05/01/23 | | | 935,000 | | | | 970,062 | |
Sr. Unsec. Notes,
7.19%, 11/15/15 | | | 155,000 | | | | 172,050 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Health Care Facilities–(continued) | |
HealthSouth Corp., Sr. Unsec. Gtd. Notes,
5.75%, 11/01/24 | | $ | 130,000 | | | $ | 133,250 | |
7.25%, 10/01/18 | | | 171,000 | | | | 187,245 | |
7.75%, 09/15/22 | | | 76,000 | | | | 83,790 | |
8.13%, 02/15/20 | | | 90,000 | | | | 99,675 | |
Radiation Therapy Services Inc., Sr. Sec. Gtd. Global Notes, 8.88%, 01/15/17 | | | 325,000 | | | | 320,125 | |
Tenet Healthcare Corp.,
Sr. Sec. Gtd. Notes, 4.75%, 06/01/20(b) | | | 25,000 | | | | 25,438 | |
Sr. Unsec. Global Notes, 8.00%, 08/01/20 | | | 310,000 | | | | 335,575 | |
Sr. Unsec. Notes,6.75%, 02/01/20(b) | | | 215,000 | | | | 222,525 | |
| | | | | | | | 2,779,685 | |
|
| Health Care Services–0.34% | |
DaVita HealthCare Partners Inc., Sr. Unsec. Gtd. Global Notes,
5.75%, 08/15/22 | | | 140,000 | | | | 148,050 | |
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | | | 230,000 | | | | 243,800 | |
| | | | | | | | 391,850 | |
|
| Health Care Technology–0.36% | |
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | | | 380,000 | | | | 415,150 | |
|
| Homebuilding–2.89% | |
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/15/15 | | | 260,000 | | | | 262,925 | |
8.13%, 06/15/16 | | | 300,000 | | | | 322,500 | |
K. Hovnanian Enterprises Inc.,
Sr. Sec. Gtd. Notes,
7.25%, 10/15/20(b) | | | 325,000 | | | | 353,844 | |
Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/16 | | | 465,000 | | | | 458,606 | |
Sr. Unsec. Gtd. Notes, 11.88%, 10/15/15 | | | 70,000 | | | | 76,475 | |
KB Home, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/22 | | | 105,000 | | | | 115,369 | |
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | | | 435,000 | | | | 490,462 | |
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | | | 360,000 | | | | 393,750 | |
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/22 | | | 140,000 | | | | 153,650 | |
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | | 145,000 | | | | 149,712 | |
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes,
7.75%, 04/15/20(b) | | | 365,000 | | | | 390,094 | |
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | | | 120,000 | | | | 136,950 | |
| | | | | | | | 3,304,337 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Hotels, Resorts & Cruise Lines–0.40% | |
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes,
5.25%, 11/15/22 | | $ | 90,000 | | | $ | 95,400 | |
7.25%, 03/15/18 | | | 115,000 | | | | 130,813 | |
7.50%, 10/15/27 | | | 205,000 | | | | 233,187 | |
| | | | | | | | 459,400 | |
|
| Household Products–0.67% | |
Central Garden & Pet Co.,
Sr. Unsec. Gtd. Sub. Notes, 8.25%, 03/01/18 | | | 350,000 | | | | 371,875 | |
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC,
Sr. Sec. Gtd. Global Notes, 7.13%, 04/15/19 | | | 335,000 | | | | 362,637 | |
Sr. Sec. Gtd. Notes,
5.75%, 10/15/20(b) | | | 30,000 | | | | 31,088 | |
| | | | | | | | 765,600 | |
|
| Housewares & Specialties–0.20% | |
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | | | 180,000 | | | | 187,650 | |
Spectrum Brands Escrow Corp., Sr. Unsec. Notes, 6.38%, 11/15/20(b) | | | 35,000 | | | | 37,363 | |
| | | | | | | | 225,013 | |
|
| Independent Power Producers & Energy Traders–1.47% | |
AES Corp. (The), Sr. Unsec. Global Notes,
7.75%, 10/15/15 | | | 340,000 | | | | 383,350 | |
8.00%, 10/15/17 | | | 190,000 | | | | 220,400 | |
Calpine Corp., Sr. Sec. Gtd. Notes,
7.50%, 02/15/21(b) | | | 346,000 | | | | 384,060 | |
NRG Energy Inc.,
Sr. Unsec. Gtd. Global Notes,
7.63%, 01/15/18 | | | 370,000 | | | | 410,700 | |
Sr. Unsec. Gtd. Notes,
6.63%, 03/15/23(b) | | | 80,000 | | | | 86,000 | |
Red Oak Power LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | | | 185,105 | | | | 202,228 | |
| | | | | | | | 1,686,738 | |
|
| Industrial Conglomerates–0.00% | |
Indalex Holding Corp., Series B, Sec. Gtd. Global Notes, 11.50%, 02/01/14(c) | | | 230,000 | | | | 0 | |
|
| Industrial Machinery–0.33% | |
Actuant Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/15/22 | | | 135,000 | | | | 140,231 | |
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | | | 25,000 | | | | 26,938 | |
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | | | 45,000 | | | | 46,463 | |
SPX Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 09/01/17 | | | 145,000 | | | | 162,581 | |
| | | | | | | | 376,213 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Insurance Brokers–0.28% | |
Hub International Ltd., Sr. Unsec. Gtd. Notes, 8.13%, 10/15/18(b) | | $ | 130,000 | | | $ | 134,225 | |
Onex USI Acquisition Corp., Sr. Unsec. Notes, 7.75%, 01/15/21(b) | | | 185,000 | | | | 185,694 | |
| | | | | | | | 319,919 | |
|
| Integrated Oil & Gas–0.06% | |
Northern Tier Energy LLC/ Northern Tier Finance Corp., Sr. Sec. Gtd. Notes, 7.13%, 11/15/20(b) | | | 65,000 | | | | 67,275 | |
|
| Internet Software & Services–0.05% | |
Equinix Inc., Sr. Unsec. Notes, 7.00%, 07/15/21 | | | 50,000 | | | | 55,750 | |
|
| Leisure Facilities–0.10% | |
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | | | 110,000 | | | | 117,150 | |
|
| Leisure Products–0.49% | |
Toys R Us-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | | | 550,000 | | | | 563,062 | |
|
| Marine–0.19% | |
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Global Notes, 8.63%, 11/01/17 | | | 115,000 | | | | 108,100 | |
Stena AB (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | | | 105,000 | | | | 104,606 | |
| | | | | | | | 212,706 | |
|
| Movies & Entertainment–1.19% | |
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | | | 364,000 | | | | 404,040 | |
Cinemark USA Inc., Sr. Unsec. Gtd. Notes, 5.13%, 12/15/22(b) | | | 60,000 | | | | 61,050 | |
Live Nation Entertainment Inc., Sr. Unsec. Gtd. Notes,
7.00%, 09/01/20(b) | | | 445,000 | | | | 466,137 | |
NAI Entertainment Holdings LLC, Sr. Sec. Gtd. Notes,
8.25%, 12/15/17(b) | | | 387,000 | | | | 427,635 | |
| | | | | | | | 1,358,862 | |
|
| Multi-Line Insurance–2.13% | |
American International Group Inc., Jr. Unsec. Sub. Global Deb.,
8.18%, 05/15/58 | | | 380,000 | | | | 495,900 | |
Fairfax Financial Holdings Ltd. (Canada), Sr. Unsec. Notes,
5.80%, 05/15/21(b) | | | 255,000 | | | | 262,172 | |
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | | | 190,000 | | | | 219,688 | |
Sr. Unsec. Global Notes, 5.95%, 10/15/36 | | | 90,000 | | | | 103,056 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Multi-Line Insurance–(continued) | |
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | | $ | 495,000 | | | $ | 561,825 | |
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | | | 545,000 | | | | 795,957 | |
| | | | | | | | 2,438,598 | |
|
| Office Services & Supplies–0.26% | |
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | | | 35,000 | | | | 37,888 | |
Ricoh USA Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | | | 265,000 | | | | 255,725 | |
| | | | | | | | 293,613 | |
|
| Oil & Gas Drilling–0.31% | |
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | | | 40,000 | | | | 43,200 | |
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | | | 290,000 | | | | 310,300 | |
| | | | | | | | 353,500 | |
|
| Oil & Gas Equipment & Services–0.81% | |
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | | | 195,000 | | | | 208,894 | |
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | | | 560,000 | | | | 562,800 | |
SESI, LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 05/01/19 | | | 145,000 | | | | 155,104 | |
| | | | | | | | 926,798 | |
|
| Oil & Gas Exploration & Production–7.19% | |
Berry Petroleum Co., Sr. Unsec. Notes, 6.38%, 09/15/22 | | | 375,000 | | | | 392,812 | |
6.75%, 11/01/20 | | | 95,000 | | | | 102,600 | |
Chaparral Energy Inc.,
Sr. Unsec. Gtd. Global Notes, 7.63%, 11/15/22 | | | 95,000 | | | | 100,463 | |
8.25%, 09/01/21 | | | 305,000 | | | | 333,212 | |
Sr. Unsec. Gtd. Notes, 7.63%, 11/15/22(b) | | | 225,000 | | | | 237,938 | |
Chesapeake Energy Corp.,
Sr. Unsec. Gtd. Global Notes,
6.88%, 11/15/20 | | | 100,000 | | | | 109,250 | |
Sr. Unsec. Gtd. Notes, 6.13%, 02/15/21 | | | 185,000 | | | | 193,556 | |
6.63%, 08/15/20 | | | 365,000 | | | | 394,200 | |
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | | | 370,000 | | | | 407,000 | |
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes,
5.00%, 09/15/22 | | | 265,000 | | | | 286,200 | |
7.13%, 04/01/21 | | | 85,000 | | | | 96,156 | |
7.38%, 10/01/20 | | | 95,000 | | | | 107,706 | |
8.25%, 10/01/19 | | | 130,000 | | | | 146,088 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Oil & Gas Exploration & Production–(continued) | |
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | | $ | 340,000 | | | $ | 360,400 | |
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | | | 615,000 | | | | 598,087 | |
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | | | 195,000 | | | | 196,219 | |
Halcon Resources Corp., Sr. Unsec. Gtd. Notes, 8.88%, 05/15/21(b) | | | 390,000 | | | | 414,375 | |
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | | | 45,000 | | | | 49,163 | |
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | | | 470,000 | | | | 501,431 | |
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | | | 94,000 | | | | 99,640 | |
OGX Austria GmbH (Brazil), Sr. Unsec. Gtd. Notes,
8.38%, 04/01/22(b) | | | 200,000 | | | | 167,162 | |
8.50%, 06/01/18(b) | | | 260,000 | | | | 236,589 | |
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes,
6.13%, 06/15/19 | | | 200,000 | | | | 219,000 | |
6.50%, 11/15/20 | | | 505,000 | | | | 559,287 | |
8.63%, 10/15/19 | | | 100,000 | | | | 114,000 | |
QEP Resources Inc.,
Sr. Unsec. Global Notes, 5.25%, 05/01/23 | | | 185,000 | | | | 197,488 | |
Sr. Unsec. Notes,
5.38%, 10/01/22 | | | 285,000 | | | | 307,800 | |
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes,
5.00%, 08/15/22 | | | 65,000 | | | | 68,413 | |
5.75%, 06/01/21 | | | 340,000 | | | | 365,500 | |
SM Energy Co., Sr. Unsec. Global Notes,
6.50%, 11/15/21 | | | 240,000 | | | | 258,000 | |
6.50%, 01/01/23 | | | 85,000 | | | | 91,375 | |
6.63%, 02/15/19 | | | 140,000 | | | | 150,150 | |
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes,
6.50%, 10/01/18 | | | 160,000 | | | | 172,600 | |
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | | | 190,000 | | | | 206,150 | |
| | | | | | | | 8,240,010 | |
|
| Oil & Gas Refining & Marketing–0.75% | |
Crosstex Energy, L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 06/01/22(b) | | | 150,000 | | | | 157,125 | |
CVR Refining LLC/Coffeyville Finance Inc., Sr. Sec. Gtd. Notes, 6.50%, 11/01/22(b) | | | 295,000 | | | | 295,000 | |
Tesoro Corp., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | | 95,000 | | | | 101,650 | |
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Notes, 5.88%, 10/01/20(b) | | | 120,000 | | | | 125,100 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Oil & Gas Refining & Marketing–(continued) | |
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | | $ | 160,000 | | | $ | 176,400 | |
| | | | | | | | 855,275 | |
|
| Oil & Gas Storage & Transportation–3.22% | |
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes,
4.88%, 05/15/23 | | | 145,000 | | | | 148,263 | |
5.88%, 04/15/21 | | | 235,000 | | | | 250,863 | |
6.13%, 07/15/22 | | | 105,000 | | | | 113,663 | |
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Notes, 6.63%, 10/01/20(b) | | | 200,000 | | | | 210,000 | |
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | | | 575,000 | | | | 619,562 | |
Eagle Rock Energy Partners L.P./Eagle Rock Energy Finance Corp., Sr. Unsec. Gtd. Notes, 8.38%, 06/01/19(b) | | | 120,000 | | | | 123,000 | |
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | | | 385,000 | | | | 445,156 | |
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 5.50%, 02/15/23 | | | 360,000 | | | | 391,950 | |
6.25%, 06/15/22 | | | 410,000 | | | | 452,537 | |
6.50%, 08/15/21 | | | 120,000 | | | | 131,700 | |
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | | | 475,000 | | | | 522,500 | |
Sr. Unsec. Gtd. Notes, 5.25%, 05/01/23(b) | | | 65,000 | | | | 67,275 | |
6.38%, 08/01/22(b) | | | 90,000 | | | | 98,550 | |
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | | | 105,000 | | | | 111,300 | |
| | | | | | | | 3,686,319 | |
|
| Other Diversified Financial Services–0.15% | |
Citigroup, Inc., Series A, Jr. Unsec. Sub. Global Notes, 5.95%(e) | | | 175,000 | | | | 176,838 | |
|
| Packaged Foods & Meats–0.97% | |
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | | | 395,000 | | | | 413,762 | |
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | | | 465,000 | | | | 512,662 | |
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | | | 205,000 | | | | 188,088 | |
| | | | | | | | 1,114,512 | |
|
| Paper Packaging–0.23% | |
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | | | 250,000 | | | | 268,125 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Paper Products–0.49% | |
Boise Cascade LLC/Boise Cascade Finance Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/01/20(b) | | $ | 35,000 | | | $ | 36,225 | |
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | | | 225,000 | | | | 246,938 | |
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | | | 265,000 | | | | 281,562 | |
| | | | | | | | 564,725 | |
|
| Personal Products–0.40% | |
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | | | 400,000 | | | | 456,000 | |
|
| Pharmaceuticals–0.03% | |
Endo Health Solutions Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 12/15/20 | | | 30,000 | | | | 32,250 | |
|
| Publishing–0.03% | |
MediMedia USA Inc., Sr. Unsec. Sub. Notes, 11.38%, 11/15/14(b) | | | 30,000 | | | | 28,800 | |
|
| Real Estate Services–0.21% | |
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | | | 215,000 | | | | 235,963 | |
|
| Regional Banks–1.41% | |
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | | | 75,000 | | | | 77,625 | |
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | | | 700,000 | | | | 763,000 | |
Synovus Financial Corp.,
Sr. Unsec. Global Notes, 7.88%, 02/15/19 | | | 215,000 | | | | 238,650 | |
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | | | 545,000 | | | | 539,550 | |
| | | | | | | | 1,618,825 | |
|
| Research & Consulting Services–0.26% | |
FTI Consulting Inc.,
Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | | | 160,000 | | | | 171,600 | |
Sr. Unsec. Gtd. Notes, 6.00%, 11/15/22(b) | | | 125,000 | | | | 130,625 | |
| | | | | | | | 302,225 | |
|
| Semiconductor Equipment–1.12% | |
Amkor Technology Inc.,
Sr. Unsec. Global Notes, 6.63%, 06/01/21 | | | 415,000 | | | | 417,075 | |
Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/18 | | | 390,000 | | | | 406,575 | |
Sr. Unsec. Notes,
6.38%, 10/01/22(b) | | | 50,000 | | | | 49,625 | |
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | | | 380,000 | | | | 406,600 | |
| | | | | | | | 1,279,875 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Semiconductors–0.78% | |
Freescale Semiconductor Inc.,
Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | | $ | 125,000 | | | $ | 137,188 | |
Sr. Unsec. Gtd. Global Notes, 8.05%, 02/01/20 | | | 565,000 | | | | 563,587 | |
10.75%, 08/01/20 | | | 175,000 | | | | 188,562 | |
| | | | | | | | 889,337 | |
|
| Specialized Finance–4.21% | |
Air Lease Corp., Sr. Unsec. Global Notes, 5.63%, 04/01/17 | | | 425,000 | | | | 452,625 | |
Aircastle Ltd.,
Sr. Unsec. Global Notes, 6.75%, 04/15/17 | | | 640,000 | | | | 691,200 | |
7.63%, 04/15/20 | | | 185,000 | | | | 208,125 | |
Sr. Unsec. Notes,
6.25%, 12/01/19(b) | | | 40,000 | | | | 41,900 | |
CIT Group Inc.,
Sr. Unsec. Global Notes, 4.25%, 08/15/17 | | | 125,000 | | | | 129,688 | |
5.00%, 08/15/22 | | | 280,000 | | | | 301,700 | |
5.25%, 03/15/18 | | | 550,000 | | | | 594,000 | |
Sr. Unsec. Notes,
5.50%, 02/15/19(b) | | | 285,000 | | | | 310,650 | |
International Lease Finance Corp., Sr. Sec. Gtd. Notes,
7.13%, 09/01/18(b) | | | 200,000 | | | | 232,375 | |
Sr. Unsec. Global Notes, 5.75%, 05/15/16 | | | 65,000 | | | | 68,510 | |
5.88%, 04/01/19 | | | 90,000 | | | | 94,922 | |
5.88%, 08/15/22 | | | 555,000 | | | | 590,381 | |
6.25%, 05/15/19 | | | 100,000 | | | | 107,469 | |
8.63%, 09/15/15 | | | 215,000 | | | | 242,144 | |
8.75%, 03/15/17 | | | 285,000 | | | | 329,709 | |
Sr. Unsec. Notes, 8.25%, 12/15/20 | | | 360,000 | | | | 430,200 | |
| | | | | | | | 4,825,598 | |
|
| Specialized REIT’s–0.89% | |
Felcor Lodging L.P., Sr. Sec. Notes, 5.63%, 03/01/23(b) | | | 80,000 | | | | 80,500 | |
Host Hotels & Resorts L.P.,
Sr. Unsec. Global Notes, 5.25%, 03/15/22 | | | 230,000 | | | | 255,012 | |
Sr. Unsec. Gtd. Global Notes, 6.00%, 11/01/20 | | | 205,000 | | | | 226,013 | |
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | | | 260,000 | | | | 283,400 | |
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | | | 155,000 | | | | 169,144 | |
| | | | | | | | 1,014,069 | |
|
| Specialty Chemicals–0.73% | |
Ashland Inc., Sr. Unsec.Gtd. Notes, 4.75%, 08/15/22(b) | | | 85,000 | | | | 88,612 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Specialty Chemicals–(continued) | |
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | | $ | 165,000 | | | $ | 149,325 | |
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | | | 360,000 | | | | 396,900 | |
PQ Corp., Sr. Sec. Notes, 8.75%, 05/01/18(b) | | | 195,000 | | | | 205,725 | |
| | | | | | | | 840,562 | |
|
| Specialty Stores–0.39% | |
Michaels Stores Inc.,
Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | | | 365,000 | | | | 403,325 | |
Sr. Unsec. Gtd. Notes, 7.75%, 11/01/18(b) | | | 40,000 | | | | 44,400 | |
| | | | | | | | 447,725 | |
|
| Steel–0.63% | |
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 6.75%, 02/25/22 | | | 120,000 | | | | 125,975 | |
Steel Dynamics Inc., Sr. Unsec. Gtd. Notes, 6.13%, 08/15/19(b) | | | 320,000 | | | | 340,000 | |
United States Steel Corp.,
Sr. Unsec. Global Notes, 7.50%, 03/15/22 | | | 100,000 | | | | 106,000 | |
Sr. Unsec. Notes, 7.00%, 02/01/18 | | | 140,000 | | | | 148,400 | |
| | | | | | | | 720,375 | |
|
| Systems Software–0.27% | |
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16 (Acquired 11/12/10-12/06/10;
Cost $415,650)(b) | | | 415,000 | | | | 305,025 | |
|
| Technology Distributors–0.28% | |
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | | | 305,000 | | | | 322,538 | |
|
| Tires & Rubber–0.35% | |
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | | | 350,000 | | | | 395,500 | |
|
| Trading Companies & Distributors–0.46% | |
H&E Equipment Services Inc., Sr. Unsec. Gtd. Notes, 7.00%, 09/01/22(b) | | | 55,000 | | | | 58,713 | |
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/18 | | | 195,000 | | | | 210,600 | |
United Rentals North America Inc., Sr. Sec. Gtd. Notes,
5.75%, 07/15/18(b) | | | 30,000 | | | | 32,475 | |
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | | | 195,000 | | | | 220,837 | |
| | | | | | | | 522,625 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Trucking–1.79% | |
Avis Budget Car Rental LLC/Avis Budget Finance Inc.,
Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | | $ | 670,000 | | | $ | 743,700 | |
9.75%, 03/15/20 | | | 70,000 | | | | 81,200 | |
Sr. Unsec. Gtd. Notes, 4.88%, 11/15/17(b) | | | 50,000 | | | | 50,875 | |
HDTFS Inc., Sr. Unsec. Gtd. Notes, 5.88%, 10/15/20(b) | | | 20,000 | | | | 21,000 | |
6.25%, 10/15/22(b) | | | 115,000 | | | | 123,337 | |
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes,
6.75%, 04/15/19 | | | 260,000 | | | | 286,650 | |
7.38%, 01/15/21 | | | 500,000 | | | | 552,500 | |
7.50%, 10/15/18 | | | 170,000 | | | | 188,700 | |
| | | | | | | | 2,047,962 | |
|
| Wireless Telecommunication Services–4.86% | |
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | | | 115,000 | | | | 124,056 | |
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes,
7.75%, 10/15/20 | | | 870,000 | | | | 893,925 | |
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/20(b) | | | 200,000 | | | | 220,500 | |
Digicel Ltd. (Bermuda), Sr. Unsec. Notes, 8.25%, 09/01/17(b) | | | 255,000 | | | | 275,400 | |
MetroPCS Wireless Inc.,
Sr. Unsec. Gtd. Notes, 6.63%, 11/15/20 | | | 350,000 | | | | 375,375 | |
7.88%, 09/01/18 | | | 190,000 | | | | 206,031 | |
SBA Communications Corp., Sr. Unsec. Notes, 5.63%, 10/01/19(b) | | | 190,000 | | | | 199,975 | |
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.88%, 11/15/28 | | | 405,000 | | | | 423,731 | |
6.90%, 05/01/19 | | | 230,000 | | | | 251,275 | |
Sprint Nextel Corp.,
Sr. Unsec. Global Notes,
6.00%, 11/15/22 | | | 250,000 | | | | 257,500 | |
7.00%, 08/15/20 | | | 125,000 | | | | 137,188 | |
11.50%, 11/15/21 | | | 125,000 | | | | 170,625 | |
Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | | | 135,000 | | | | 158,625 | |
9.00%, 11/15/18(b) | | | 285,000 | | | | 353,400 | |
Sr. Unsec. Notes, 8.38%, 08/15/17 | | | 340,000 | | | | 396,100 | |
VimpelCom (Russia), Unsec. Loan Participation Notes, 7.75%, 02/02/21(b) | | | 400,000 | | | | 464,000 | |
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes,
11.75%, 07/15/17(b) | | | 625,000 | | | | 657,812 | |
| | | | | | | | 5,565,518 | |
Total U.S. Dollar Denominated Bonds and Notes (Cost $93,815,301) | | | | 99,768,991 | |
| | | | | | | | |
| | | Principal Amount | | | Value | |
Non-U.S. Dollar Denominated Bonds & Notes–5.30%(f) | |
| Apparel, Accessories & Luxury Goods–0.38% | |
Boardriders S.A., Sr. Unsec. Gtd. Notes, 8.88%, 12/15/17(b) | | EUR | 315,000 | | | $ | 438,470 | |
|
| Broadcasting–0.57% | |
Central European Media Enterprises Ltd. (Czech Republic), REGS, Jr. Sec. Gtd. Euro Notes, 11.63%, 09/15/16(b) | | EUR | 235,000 | | | | 327,887 | |
CET 21 spol sro (Czech Republic), Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | | EUR | 165,000 | | | | 238,927 | |
Polish Television Holding B.V. (Poland), Sr. Sec. Notes, 11.25%, 05/15/17(b)(g) | | EUR | 60,000 | | | | 86,685 | |
| | | | | | | | 653,499 | |
|
| Cable & Satellite–0.28% | |
Nara Cable Funding Ltd. (Spain), Sr. Sec. Gtd. Notes, 8.88%, 12/01/18(b) | | EUR | 140,000 | | | | 188,410 | |
Ono Finance II PLC (Spain), REGS, Sr. Unsec. Gtd. Euro Notes,
11.13%, 07/15/19(b) | | EUR | 100,000 | | | | 128,312 | |
| | | | | | | | 316,722 | |
|
| Casinos & Gaming–1.15% | |
Codere Finance Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | | EUR | 100,000 | | | | 109,510 | |
REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 06/15/15(b) | | EUR | 390,000 | | | | 427,090 | |
Gala Group Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes,
8.88%, 09/01/18(b) | | GBP | 220,000 | | | | 380,714 | |
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22(b) | | CAD | 380,000 | | | | 398,585 | |
| | | | | | | | 1,315,899 | |
|
| Construction Materials–0.32% | |
Obrascon Huarte Lain S.A. (Spain), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.63%, 03/15/20(b) | | EUR | 100,000 | | | $ | 138,372 | |
Spie BondCo 3 SCA, (Luxembourg), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes,
11.00%, 08/15/19(b) | | EUR | 155,000 | | | | 224,447 | |
| | | | | | | | 362,819 | |
|
| Distillers & Vintners–0.08% | |
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 8.88%, 12/01/16(b) | | EUR | 115,000 | | | | 92,556 | |
|
| Diversified Chemicals–0.14% | |
Kerling PLC (United Kingdom), Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | | EUR | 130,000 | | | | 165,090 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | | Principal Amount | | | Value | |
| Food Retail–0.24% | |
R&R Ice Cream PLC (United Kingdom), Sr. Sec. Gtd. Notes,
8.38%, 11/15/17(b) | | EUR | 190,000 | | | $ | 277,321 | |
|
| Health Care Technology–0.24% | |
Cegedim S.A. (France), Sr. Unsec. Euro Bonds, 7.00%, 07/27/15 | | EUR | 200,000 | | | | 270,873 | |
|
| Investment Banking & Brokerage–0.30% | |
Boparan Finance PLC (United Kingdom), REGS, Sr. Unsec. Gtd. Euro Notes, 9.75%, 04/30/18(b) | | EUR | 230,000 | | | | 343,216 | |
|
| Leisure Facilities–0.55% | |
Cirsa Funding Luxembourg S.A. (Spain), Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | | EUR | 180,000 | | | | 238,086 | |
REGS, Sr. Unsec. Gtd. Euro Notes, 8.75%, 05/15/18(b) | | EUR | 300,000 | | | | 396,809 | |
| | | | | | | | 634,895 | |
|
| Metal & Glass Containers–0.14% | |
Greif Luxembourg Finance SCA, REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.38%, 07/15/21(b) | | EUR | 105,000 | | | | 157,239 | |
|
| Multi-Sector Holdings–0.35% | |
KM Germany Holdings GmbH (Germany), Sr. Sec. Notes, 8.75%, 12/15/20(b) | | EUR | 155,000 | | | | 215,243 | |
Odeon & UCI Finco PLC (United Kingdom), Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | | GBP | 110,000 | | | | 188,123 | |
| | | | | | | | 403,366 | |
|
| Other Diversified Financial Services–0.19% | |
Boats Investments B.V. (Netherlands), Sr. Sec. PIK Medium-Term Mortgage Euro Notes, 11.00%, 03/31/17 | | EUR | 90,786 | | | | 66,130 | |
TVN Finance Corp II AB (Poland), Sr. Unsec. Gtd. Notes,
10.75%, 11/15/17(b) | | EUR | 100,000 | | | | 146,453 | |
| | | | | | | | 212,583 | |
|
| Tires & Rubber–0.12% | |
Goodyear Dunlop Tires Europe B.V., Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | | EUR | 100,000 | | | | 142,495 | |
|
| Wireless Telecommunication Services–0.25% | |
Matterhorn Mobile Holdings S.A. (Luxembourg), REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, 8.25%, 02/15/20(b) | | EUR | 100,000 | | | | 144,474 | |
Wind Acquisition Finance S.A. (Italy), Sec. Gtd. Notes,
11.75%, 07/15/17(b) | | EUR | 100,000 | | | | 138,867 | |
| | | | | | | | 283,341 | |
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $5,984,833) | | | | 6,070,384 | |
| | | | | | | | |
| | |
Shares | | | Value | |
Preferred Stocks–1.95% | |
| Automobile Manufacturers–0.14% | |
General Motors Co., Series B, $2.38 Conv. Pfd. | | | 3,580 | | | $ | 157,985 | |
|
| Consumer Finance–0.29% | |
Ally Financial, Inc., Series G, 7.00% Pfd.(b) | | | 336 | | | | 330,026 | |
|
| Diversified Banks–0.29% | |
Royal Bank of Scotland PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | | | 13,950 | | | | 333,545 | |
|
| Industrial REIT’s–0.07% | |
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | | | 3,020 | | | | 80,543 | |
|
| Multi-Line Insurance–0.56% | |
Hartford Financial Services Group Inc. (The), 7.88% Jr. Sub. Pfd. | | | 22,455 | | | | 644,683 | |
|
| Regional Banks–0.50% | |
Zions Bancorp., Series C, 9.50% Pfd. | | | 22,210 | | | | 574,795 | |
|
| Tires & Rubber–0.10% | |
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | | | 2,490 | | | | 117,553 | |
Total Preferred Stocks
(Cost $1,932,812) | | | | 2,239,130 | |
| | |
| | | Principal Amount | | | | |
|
Senior Secured Floating Rate Interest Loans–0.96% | |
| Insurance Brokers–0.43% | |
Onex Corp., 11/29/13(h)(i) | | $ | 490,000 | | | | 489,593 | |
|
| Specialty Chemicals–0.53% | |
PolyOne Corp., 12/10/13(h)(i) | | | 615,000 | | | | 615,000 | |
Total Senior Secured Floating Rate Interest Loans
(Cost $1,105,000) | | | | 1,104,593 | |
| | |
| | | Shares | | | | |
|
Common Stocks & Other Equity Interests–0.68% | |
| Automobile Manufacturers–0.27% | |
General Motors Co.(j)(k) | | | 4,888 | | | | 140,921 | |
General Motors Co.,
Wts. expiring 07/10/16(j)(k) | | | 4,443 | | | | 86,639 | |
General Motors Co.,
Wts. expiring 07/10/19(j)(k) | | | 4,443 | | | | 55,493 | |
Motors Liquidation Co. GUC Trust(k) | | | 1,227 | | | | 25,914 | |
| | | | | | | | 308,967 | |
|
| Broadcasting–0.01% | |
Adelphia Communications Corp.(l) | | | — | | | | 2,558 | |
Adelphia Recovery Trust
Series ACC-1(l) | | | 318,570 | | | | 319 | |
Adelphia Recovery Trust
Series Arahova(l) | | | 109,170 | | | | 3,275 | |
| | | | | | | | 6,152 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
| | | | | | | | |
| | |
Shares | | | Value | |
| Construction Materials–0.16% | |
U.S. Concrete, Inc.(k) | | | 20,786 | | | $ | 188,114 | |
|
| Integrated Telecommunication Services–0.15% | |
Hawaiian Telcom Holdco Inc., Wts. expiring 10/28/15(k) | | | 1,527 | | | | 9,162 | |
Largo Ltd. (Luxembourg), Class A(k) | | | 17,563 | | | | 16,221 | |
Largo Ltd. (Luxembourg), Class B(k) | | | 158,069 | | | | 145,989 | |
| | | | | | | | 171,372 | |
|
| Paper Products–0.07% | |
NewPage Holdings Inc. (Acquired 07/21/11-08/29/11;
Cost $184,908)(b)(m) | | | 860 | | | | 84,570 | |
|
| Publishing–0.00% | |
Reader’s Digest Association Inc. (The) (China), Wts. expiring 02/19/14(k) | | | 669 | | | | 0 | |
|
| Semiconductors–0.02% | |
Magnachip Semiconductor Corp. (South Korea)(k) | | | 1,372 | | | | 21,842 | |
Total Common Stocks & Other Equity Interests (Cost $2,604,842) | | | | 781,017 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Treasury Bills–0.16%(n) | |
0.13%, 05/30/13 (Cost $179,906) | | $ | 180,000 | | | $ | 179,926 | |
| | |
| | | Shares | | | | |
Money Market Funds–3.19% | |
Liquid Assets Portfolio–Institutional Class(o) | | | 1,824,378 | | | | 1,824,378 | |
Premier Portfolio–Institutional Class(o) | | | 1,824,378 | | | | 1,824,378 | |
Total Money Market Funds
(Cost $3,648,756) | | | | 3,648,756 | |
TOTAL INVESTMENTS–99.35%
(Cost $109,271,450) | | | | 113,792,797 | |
OTHER ASSETS LESS LIABILITIES–0.65% | | | | 740,073 | |
NET ASSETS–100.00% | | | $ | 114,532,870 | |
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 |
| Wts. | | – Warrants |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $34,161,554, which represented 29.83% 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 December 31, 2012 was $652,650, which represented less than 1% of the Fund’s Net Assets. |
| (d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2012. |
| (e) | Perpetual bond with no specified maturity date. |
| (f) | Foreign denominated security. Principal amount is denominated in currency indicated. |
| (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) | Senior secured corporate loans and senior secured debt securities are, at present, not readily marketable, not registered under the Securities Act of 1933, as amended and may be subject to contractual and legal restrictions on sale. Senior secured corporate loans and senior secured debt securities in the Fund’s portfolio generally have variable rates which adjust to a base, such as the London Inter-Bank Offered Rate (“LIBOR”), on set dates, typically every 30 days but not greater than one year; and/or have interest rates that float at a margin above a widely recognized base lending rate such as the Prime Rate of a designated U.S. bank. |
| (i) | All or a portion of this holding is subject to unfunded loan commitments. See Note 7. |
| (j) | Acquired as part of the General Motors reorganization. |
| (k) | Non-income producing security. |
| (l) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
| (m) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
| (n) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (o) | 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. High Yield Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $105,622,694) | | $ | 110,144,041 | |
Investments in affiliated money market funds, at value and cost | | | 3,648,756 | |
Total investments, at value (Cost $109,271,450) | | | 113,792,797 | |
Cash | | | 6,657 | |
Foreign currencies, at value (Cost $164,064) | | | 164,223 | |
Receivable for: | | | | |
Fund shares sold | | | 222,806 | |
Dividends and interest | | | 1,851,537 | |
Unrealized appreciation on swap agreements | | | 22,663 | |
Investment for trustee deferred compensation and retirement plans | | | 46,499 | |
Total assets | | | 116,107,182 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 1,105,000 | |
Fund shares reacquired | | | 98,630 | |
Foreign currency contracts | | | 151,756 | |
Accrued fees to affiliates | | | 91,025 | |
Accrued other operating expenses | | | 48,234 | |
Trustee deferred compensation and retirement plans | | | 57,299 | |
Premiums received on swap agreements | | | 22,368 | |
Total liabilities | | | 1,574,312 | |
Net assets applicable to shares outstanding | | $ | 114,532,870 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 112,867,863 | |
Undistributed net investment income | | | 6,700,457 | |
Undistributed net realized gain (loss) | | | (9,430,736 | ) |
Unrealized appreciation | | | 4,395,286 | |
| | | $ | 114,532,870 | |
| |
Net Assets: | | | | |
Series I | | $ | 93,528,951 | |
Series II | | $ | 21,003,919 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 16,673,172 | |
Series II | | | 3,756,149 | |
Series I: | | | | |
Net asset value per share | | $ | 5.61 | |
Series II: | | | | |
Net asset value per share | | $ | 5.59 | |
| | | | |
Investment income: | |
Interest (net of foreign withholding taxes of $300) | | $ | 7,492,878 | |
Dividends | | | 222,294 | |
Dividends from affiliated money market funds | | | 12,710 | |
Total investment income | | | 7,727,882 | |
| |
Expenses: | | | | |
Advisory fees | | | 700,730 | |
Administrative services fees | | | 314,860 | |
Custodian fees | | | 17,787 | |
Distribution fees — Series II | | | 31,930 | |
Transfer agent fees | | | 26,282 | |
Trustees’ and officers’ fees and benefits | | | 25,426 | |
Other | | | 82,866 | |
Total expenses | | | 1,199,881 | |
Less: Fees waived | | | (285,628 | ) |
Net expenses | | | 914,253 | |
Net investment income | | | 6,813,629 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities | | | 1,513,518 | |
Foreign currencies | | | (20,922 | ) |
Foreign currency contracts | | | 614,620 | |
Swap agreements | | | 116,498 | |
| | | | 2,223,714 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 8,800,473 | |
Foreign currencies | | | 12,069 | |
Foreign currency contracts | | | (627,418 | ) |
Swap agreements | | | 5,224 | |
| | | | 8,190,348 | |
Net realized and unrealized gain | | | 10,414,062 | |
Net increase in net assets resulting from operations | | $ | 17,227,691 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 6,813,629 | | | $ | 5,596,509 | |
Net realized gain | | | 2,223,714 | | | | 1,988,968 | |
Change in net unrealized appreciation (depreciation) | | | 8,190,348 | | | | (7,882,234 | ) |
Net increase (decrease) in net assets resulting from operations | | | 17,227,691 | | | | (296,757 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (4,674,624 | ) | | | (4,229,022 | ) |
Series ll | | | (868,824 | ) | | | (46,712 | ) |
Total distributions from net investment income | | | (5,543,448 | ) | | | (4,275,734 | ) |
| | |
Share transactions–net: | | | | | | | | |
Series l | | | (23,701,208 | ) | | | 55,281,125 | |
Series ll | | | 14,630,099 | | | | 4,911,560 | |
Net increase (decrease) in net assets resulting from share transactions | | | (9,071,109 | ) | | | 60,192,685 | |
Net increase in net assets | | | 2,613,134 | | | | 55,620,194 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 111,919,736 | | | | 56,299,542 | |
End of year (includes undistributed net investment income of $6,700,457 and $5,493,549, respectively) | | $ | 114,532,870 | | | $ | 111,919,736 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Senior secured floating rate loans and senior secured floating rate debt securities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data.
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. High Yield 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.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 |
Invesco V.I. High Yield Fund
| | 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 the 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. |
| L. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in Corporate Loans and Corporate Debt Securities and other portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. |
| M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
A CDS is an agreement between 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
Invesco V.I. High Yield Fund
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. 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 designation of collateral by the counterparty to cover the Fund’s exposure to the counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
| N. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
| O. | Bank Loan Risk Disclosures — Although the resale, or secondary market for floating rate loans has grown substantially over the past decade, both in overall size and number of market participants, there is no organized exchange or board of trade on which floating rate loans are traded. Instead, the secondary market for floating rate loans is a private, unregulated interdealer or interbank resale market. Such a market may therefore be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods. Similar to other asset classes, bank loan funds may be exposed to counterparty credit risk, or the risk than an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. |
| P. | Other Risks — The Fund invests in Corporate Loans from U.S. or non-U.S. companies (the “Borrowers”). The investment of the Fund in a Corporate Loan may take the form of participation interests or assignments. If the Fund purchases a participation interest from a syndicate of lenders (“Lenders”) or one of the participants in the syndicate (“Participant”), one or more of which administers the loan on behalf of all the Lenders (the “Agent Bank”), the Fund would be required to rely on the Lender that sold the participation interest not only for the enforcement of the Fund’s rights against the Borrower but also for the receipt and processing of payments due to the Fund under the Corporate Loans. As such, the Fund is subject to the credit risk of the Borrower and the Participant. Lenders and Participants interposed between the Fund and a Borrower, together with Agent Banks, are referred to as “Intermediate Participants”. |
| Q. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | | | |
| Average Net Assets | | Rate |
First $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. (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, 2014, 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. 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
Invesco V.I. High Yield Fund
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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2014.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $285,628.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $264,860 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 6,063,625 | | | $ | 520,708 | | | $ | 84,570 | | | $ | 6,668,903 | |
U.S. Treasury Securities | | | — | | | | 179,926 | | | | — | | | | 179,926 | |
Corporate Debt Securities | | | — | | | | 100,873,584 | | | | 0 | | | | 100,873,584 | |
Foreign Debt Securities | | | — | | | | 6,070,384 | | | | — | | | | 6,070,384 | |
| | | $ | 6,063,625 | | | $ | 107,644,602 | | | $ | 84,570 | | | $ | 113,792,797 | |
Foreign Currency Contracts* | | | — | | | | (150,498 | ) | | | — | | | | (150,498 | ) |
Swap Agreements* | | | — | | | | 22,663 | | | | — | | | | 22,663 | |
Total Investments | | $ | 6,063,625 | | | $ | 107,516,767 | | | $ | 84,570 | | | $ | 113,664,962 | |
| * | Unrealized appreciation (depreciation). |
Invesco V.I. High Yield Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Credit risk | | | | | | | | |
Swap agreements(a) | | $ | 22,663 | | | $ | — | |
Currency risk | | | | | | | | |
Foreign currency contracts(b) | | | — | | | | (151,756 | ) |
| | | $ | 22,663 | | | $ | (151,756 | ) |
| (a) | Value is disclosed on the Statement of Assets and Liabilities as Unrealized appreciation on swap agreements. |
| (b) | Value is disclosed on the Statement of Assets and Liabilities as Foreign currency contracts. |
Effect of Derivative Instruments for the year ended December 31, 2012
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* | | | Swap
Agreements* | |
Realized Gain (Loss) | | | | | | | | |
Credit risk | | $ | — | | | $ | 116,498 | |
Currency risk | | | 614,620 | | | | — | |
Change in Unrealized Appreciation (Depreciation) | | | | | | | | |
Credit risk | | $ | — | | | $ | 5,224 | |
Currency risk | | | (627,418 | ) | | | — | |
Total | | $ | (12,798 | ) | | $ | 121,722 | |
| * | The average notional value of foreign currency contracts and swap agreements during the period was $6,384,064 and $2,713,750, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | Counterparty | | Deliver | | | Receive | | | |
02/08/13 | | RBC Capital Markets Corp. | | | EUR | | | | 3,817,000 | | | | USD | | | | 4,887,590 | | | $ | 5,038,088 | | | $ | (150,498 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Closed Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Realized Gain
(Loss) | |
| | Counterparty | | Deliver | | | Receive | | | |
02/08/13 | | RBC Capital Markets Corp. | | | EUR | | | | 368,000 | | | | USD | | | | 470,032 | | | $ | 471,290 | | | $ | (1,258 | ) |
Total foreign currency contracts | | | | | | | | | | | | | | | | | | | | | | $ | (151,756 | ) |
Currency Abbreviations:
| | |
| EUR | | – Euro |
| USD | | – U.S. Dollar |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Credit Default Swap Agreements | |
| Counterparty | | Reference Entity | | | Buy/Sell
Protection | | | (Pay)/Receive
Fixed Rate | | | Expiration
Date | | | Implied Credit
Spread(a) | | | Notional Value | | | Upfront
Payments | | | Unrealized Appreciation | |
JPMorgan Chase Bank, N.A. | | | MGM Resorts International | | | | Sell | | | | 5.00 | % | | | 06/20/17 | | | | 4.98 | % | | $ | 365,000 | | | $ | (22,368 | ) | | $ | 22,663 | |
| (a) | Implied credit spreads represent the current level as of December 31, 2012 at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit 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 generally. |
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
Invesco V.I. High Yield Fund
provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund 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 State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Unfunded Loan Commitments
As of December 31, 2012, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:
| | | | | | | | | | |
| Borrower | | Type | | Principal
Amount | | | Value | |
Onex Corp. | | Bridge Loan | | $ | 490,000 | | | $ | 489,593 | |
PolyOne Corp. | | Bridge Loan | | | 615,000 | | �� | | 615,000 | |
| | | | | $ | 1,105,000 | | | $ | 1,104,593 | |
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 5,543,448 | | | $ | 4,275,734 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 6,752,095 | |
Net unrealized appreciation — investments | | | 4,480,313 | |
Net unrealized appreciation — other investments | | | 24,437 | |
Temporary book/tax differences | | | (51,639 | ) |
Capital loss carryforward | | | (9,540,199 | ) |
Shares of beneficial interest | | | 112,867,863 | |
Total net assets | | $ | 114,532,870 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and foreign currency transactions.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $1,644,627 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 7,705,781 | | | $ | — | | | $ | 7,705,781 | |
December 31, 2017 | | | 1,834,418 | | | | — | | | | 1,834,418 | |
Total capital loss carryforward | | $ | 9,540,199 | | | $ | — | | | $ | 9,540,199 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitation, if any, to the extent required by the Internal Revenue Service. |
Invesco V.I. High Yield Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $63,744,978 and $59,038,553, 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 | | $ | 7,416,831 | |
Aggregate unrealized (depreciation) of investment securities | | | (2,936,518 | ) |
Net unrealized appreciation of investment securities | | $ | 4,480,313 | |
Cost of investments for tax purposes is $109,312,484.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and swap income, on December 31, 2012, undistributed net investment income was decreased by $63,273 and undistributed net realized gain (loss) was increased by $63,273. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 5,101,039 | | | $ | 27,750,130 | | | | 11,649,443 | | | $ | 59,272,659 | |
Series II | | | 3,502,236 | | | | 19,021,718 | | | | 1,343,316 | | | | 6,766,855 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 864,071 | | | | 4,674,624 | | | | 814,841 | | | | 4,229,022 | |
Series II | | | 160,789 | | | | 868,262 | | | | 9,000 | | | | 46,711 | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 6,239,174 | | | | 32,616,526 | |
Series II | | | — | | | | — | | | | 1,983 | | | | 10,369 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (10,440,518 | ) | | | (56,125,962 | ) | | | (7,984,170 | ) | | | (40,837,082 | ) |
Series II | | | (972,464 | ) | | | (5,259,881 | ) | | | (381,629 | ) | | | (1,912,375 | ) |
Net increase (decrease) in share activity | | | (1,784,847 | ) | | $ | (9,071,109 | ) | | | 11,691,958 | | | $ | 60,192,685 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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 (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund, based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target 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. The net assets immediately after the acquisition were $96,599,454. |
| | The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
| | | | |
Net investment income | | $ | 6,329,832 | |
Net realized/unrealized gains (losses) | | | (4,990,283 | ) |
Change in net assets resulting from operations | | $ | 1,339,549 | |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that has been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. High Yield Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or
expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 5.04 | | | $ | 0.33 | | | $ | 0.53 | | | $ | 0.86 | | | $ | (0.29 | ) | | $ | 5.61 | | | | 17.17 | % | | $ | 93,529 | | | | 0.79 | %(d) | | | 1.04 | %(d) | | | 6.10 | %(d) | | | 58 | % |
Year ended 12/31/11 | | | 5.35 | | | | 0.35 | | | | (0.29 | ) | | | 0.06 | | | | (0.37 | ) | | | 5.04 | | | | 0.96 | | | | 106,557 | | | | 0.83 | | | | 1.06 | | | | 6.84 | | | | 71 | |
Year ended 12/31/10 | | | 5.22 | | | | 0.43 | | | | 0.26 | | | | 0.69 | | | | (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 | ) | | | 5.22 | | | | 52.79 | | | | 60,649 | | | | 0.95 | | | | 1.22 | | | | 10.29 | | | | 125 | |
Year ended 12/31/08 | | | 5.74 | | | | 0.49 | | | | (2.00 | ) | | | (1.51 | ) | | | (0.54 | ) | | | 3.69 | | | | (25.69 | ) | | | 39,918 | | | | 0.95 | | | | 1.22 | | | | 9.19 | | | | 85 | |
Series II | |
Year ended 12/31/12 | | | 5.03 | | | | 0.32 | | | | 0.52 | | | | 0.84 | | | | (0.28 | ) | | | 5.59 | | | | 16.96 | | | | 21,004 | | | | 1.04 | (d) | | | 1.29 | (d) | | | 5.85 | (d) | | | 58 | |
Year ended 12/31/11 | | | 5.35 | | | | 0.33 | | | | (0.29 | ) | | | 0.04 | | | | (0.36 | ) | | | 5.03 | | | | 0.61 | | | | 5,363 | | | | 1.08 | | | | 1.31 | | | | 6.59 | | | | 71 | |
Year ended 12/31/10 | | | 5.22 | | | | 0.42 | | | | 0.26 | | | | 0.68 | | | | (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 | ) | | | 5.22 | | | | 52.77 | | | | 464 | | | | 1.20 | | | | 1.47 | | | | 10.04 | | | | 125 | |
Year ended 12/31/08 | | | 5.72 | | | | 0.47 | | | | (1.99 | ) | | | (1.52 | ) | | | (0.52 | ) | | | 3.68 | | | | (26.00 | ) | | | 374 | | | | 1.20 | | | | 1.47 | | | | 8.94 | | | | 85 | |
| (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 December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $30,901,742 and sold of $8,109,618 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 $99,345 and $12,772 for Series I and Series II, respectively. |
NOTE 13—Significant Event
The Board of Trustees unanimously approved an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which the Fund would acquire all of the assets and liabilities of Invesco V.I. High Yield Securities Fund (the “Target Fund”) in exchange for shares of the Fund.
The Agreement requires approval of the Target Fund’s shareholders and will be submitted to the shareholders for their consideration at a meeting to be held in or around March 2013. Upon closing of the reorganization, shareholders of the Target Fund will receive a corresponding class of shares of the Fund in exchange for their shares of the Target Fund and the Target Fund will liquidate and cease operations.
Invesco V.I. High Yield Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. High Yield Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,087.60 | | | $ | 4.15 | | | $ | 1,021.17 | | | $ | 4.01 | | | | 0.79 | % |
| Series II | | | 1,000.00 | | | | 1,085.50 | | | | 5.45 | | | | 1,019.91 | | | | 5.28 | | | | 1.04 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year—end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 2.51 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. High Yield Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Securities Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. High Yield Securities Fund out-performed its style-specific index, the Barclays U.S. Corporate High Yield 2% Issuer Cap Index, due mainly to the Fund’s issuer selection.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 18.86 | % |
| Series II Shares | | | | 18.50 | |
| Barclays U.S. Corporate High Yield 2% Issuer Cap Index‚ (Broad Market/Style-Specific Index) | | | | 15.78 | |
Source: ‚Lipper Inc.
How we invest
We invest primarily in debt securities that are determined to be below investment grade quality. These bonds, commonly known as “junk bonds,” are typically corporate bonds of US-based companies, many of which are moderately sized firms. Although we principally invest in junk bonds, we tend to underweight the lowest quality bonds in the asset class. We may invest in convertible bonds, preferred stock, derivatives and bank loans, but we do not expect these instruments to be a substantial part of our portfolio. We may invest up to 30% of total assets in foreign securities. We also may invest up to 15% of the Fund’s total assets in securities of issuers located in developing markets.
The primary driver of our security selection is fundamental, bottom-up credit analysis conducted by a team of analysts who specialize by industry. This approach is augmented with an ongoing
review of the relative value of securities and a top-down process that includes sector, economic and quantitative analysis. Changes in a security’s risk/return profile or relative value and top-down factors generally determine buy and sell decisions.
Portfolio construction begins with a well-defined Fund design that emphasizes diversification and establishes the target investment vehicles for generating the desired “alpha” (the return expected from an investment) as well as the risk parameters appropriate for the current positioning in the credit cycle. Investments are evaluated for liquidity and risk versus relative value. Working closely with other investment specialists and traders, we determine the timing and amount of each alpha decision to use in the portfolio at any time, taking into account market opportunities.
| | Sell decisions are based on: |
| n | | Low equity value to debt, high subordination and negative free cash flow coupled with negative news, declining expectations or an increasing risk profile. |
| n | | Availability of a better relative value opportunity. |
Market conditions and your Fund
The high yield market depends heavily on the underlying health of the economy, principally in the US and, secondarily, in Europe. During the reporting period, growth remained slow as deleveraging and caution constrained economic activity and job creation. The situation in Europe stabilized as the European Central Bank (ECB) announced new measures to support eurozone economies.
After the ECB announced its long-term refinancing operations in late 2011, European-driven volatility subsided until May, when it spiked again, resulting in further action from the ECB in the form of an unlimited commitment to sovereign debt through the outright monetary transactions program. The US Federal Reserve (the Fed) enacted its own monetary easing policy through a third round of quantitative easing, under which the Fed committed to purchase mortgage-backed securities.
The high yield market began the year with solid monthly returns until May, when there was a short-lived sell-off triggered by US economic data, the potential for a “hard landing” in China and heightened European concerns. The market
| | | | | |
| Portfolio Composition | | | | | |
By credit quality | |
| A | | | | 0.9 | % |
| BBB | | | | 4.2 | |
| BB | | | | 34.3 | |
| B | | | | 43.7 | |
| CCC | | | | 10.9 | |
| Non-Rated | | | | 5.1 | |
Cash | | | | 0.9 | |
Source: Standard & Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard & Poor’s rating methodology, please visit standardandpoors.com and select “Understanding Ratings” under “Rating Resources” on the homepage.
| | | | | |
Top 10 Fixed Income Issuers* | | | | | |
| | | | | |
1. MGM Resorts International | | | | 1.6 | % |
2. Intelsat Jackson Holdings S.A. | | | | 1.5 | |
3. International Lease Finance Corp. | | | | 1.5 | |
4. HCA, Inc. | | | | 1.2 | |
5. First Data Corp. | | | | 1.1 | |
6. CIT Group Inc. | | | | 1.1 | |
7. American International Group Inc. | | | | 1.1 | |
8. Amkor Technology Inc. | | | | 1.1 | |
9. Sprint Nextel Corp. | | | | 1.0 | |
10. Hertz Corp. (The) | | | | 1.0 | |
| | | | | |
Top Five Industries* | | | | | |
| | | | | |
1. Casinos & Gaming | | | | 6.9 | % |
2. Oil & Gas Exploration & Production | | | | 6.3 | |
3. Wireless Telecommunication Services | | | | 6.1 | |
4. Multi-Line Insurance | | | | 4.0 | |
5. Specialized Finance | | | | 3.8 | |
| | | | | |
| Total Net Assets | | | | $26.3 million | |
| |
| Total Number of Holdings* | | | | 367 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. High Yield Securities Fund
picked up in June and rallied through the end of the year as sovereign risks and fears of weaker economic data subsided. Technicals were good as there was strong investor demand driven by a search for yield. This was met by a record amount of new issuance1, particularly in the second half of the year. Much of the new issuance was refinancing, due to reduced volatility and low yields, as well as dividend deals heading into the new year. Investor concerns picked up again toward the end of the year with the US election and looming fiscal cliff” that threatened the economy unless a deal was reached between the White House and Congress. Spreads tightened early in the year and widened by 90 basis points (bps) amid the May sell-off.1 Spreads gradually tightened throughout the rest of 2012 and ended the year 190 bps tighter than when the year began.1 (A basis point is one one-hundredth of a percentage point.)
Defaults in the high yield bond market remained muted during 2012. The par-weighted high yield default rate for the year was 1.14%, well below the long-term average of 4.2%.2 Very low defaults are to be expected after periods of high defaults and recession.
The broad US high yield bond market, as measured by the Barclays U.S. Corporate High Yield 2% Issuer Cap Index (the Fund’s style-specific index), generated a positive total return for the year ended December 31, 2012. Likewise, the Fund generated positive returns for the year and outperformed its style-specific index. At the close of the year, and within the high yield market, we continued to be underweight lower rated securities as the risk/return profile was not favorable. We also were underweight higher rated securities because we saw managers of investment grade bond funds dip into the highest rated portion of the high yield market in order to pick up some yield, resulting in unfavorable relative valuations.
The main contributor to the Fund’s outperformance was our security selection, particularly in the building materials, non-captive diversified, and food and beverage sectors. We also benefited from sector selection, particularly our overweight exposure to the building materials, property and casualty, and wireless sectors which were strong performers. Moreover, we underweighted the electric and media non-cable sectors, which were relative underperformers. Finally, we held some off-index names that performed well for the Fund.
The main detractor from Fund performance was our cash position. Since the index does not hold cash, any cash held during a period of market appreciation will result in negative relative performance for the Fund. While most of our issuer selection helped performance, we did have some sectors in which our selection underperformed that of our style-specific benchmark – specifically, technology and paper. Similarly, some of our sector allocations detracted, namely our underweight exposure to home construction and our avoidance of the non-captive consumer sector, both of which outperformed the broader market.
At the close of the reporting period, we remained generally positive in our assessment of high yield securities. High yield bonds have historically performed well in low-growth environments, like the one in which we find ourselves today. If and when growth picks up, and rates start to rise, the economy will likely be stronger, resulting in high yield issuers being better positioned to service their debt.
Thank you for investing in Invesco V.I. High Yield Securities Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Darren Hughes Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. High Yield Securities Fund. He |
| joined Invesco in 1992. Mr. Hughes earned a BBA in finance and economics from Baylor University. |
| | |
 | | Scott Roberts Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. High Yield Securities Fund. He |
| joined Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston. |
Invesco V.I. High Yield Securities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (3/9/84) | | | | 4.55 | % |
| 10 Years | | | | 9.25 | |
| 5 Years | | | | 8.23 | |
| 1 Year | | | | 18.86 | |
| |
| Series II Shares | | | | | |
| Inception (6/5/00) | | | | 0.11 | % |
| 10 Years | | | | 8.99 | |
| 5 Years | | | | 7.98 | |
| 1 Year | | | | 18.50 | |
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 1.67% and 1.92%, 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.
continued from next page
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net
asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer
charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. High Yield Securities Fund
Invesco V.I. High Yield Securities 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.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Defaulted securities risk. Defaulted securities involve the substantial risk that principal will not be repaid. Defaulted securities and any securities received in an exchange for such securities may be subject to restrictions on resale.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Fixed-income securities risk. Principal risks of investing in the Fund are associated with its fixed-income securities
investments that are rated below investment grade. All fixed-income securities, such as junk bonds, are subject to two types of risk: credit risk and interest rate risk. Credit risk refers to the possibility that the issuer of a security will be unable to make interest payments and/or repay the principal on its debt. Interest rate risk refers to fluctuations in the value of a fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of most fixed-income securities go down. When the general level of interest rates goes down, the prices of most fixed-income securities go up. (Zero coupon securities are typically subject to greater price fluctuations than comparable securities that pay interest.)
Lower rated securities (junk bonds) risk. Junk bonds are subject to greater risk of loss of income and principal than higher rated securities and may have a higher incidence of default than higher rated securities. The prices of junk bonds are likely to be more sensitive to adverse economic changes or individual corporate developments than higher rated securities. Rule 144A securities could have the effect of increasing the level of Fund illiquidity to the extent the Fund may be unable to find qualified institutional buyers interested in purchasing the securities.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Public bank loans risk. Certain public bank loans are illiquid, meaning the Fund may not be able to sell them quickly at a fair price. Illiquid securities are also difficult to value. Bank loans are subject to the risk of default in the payment of interest or principal on a loan, which will result in a reduction of income to the Fund, and a potential decrease in the Fund’s net asset value. Public bank loans present a greater degree of investment risk due to the fact that the cash flow or other property of the borrower securing the bank
loan may be insufficient to meet scheduled payments.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment; general economic and market conditions; regional or global instability; and currency and interest rate fluctuations.
Preferred securities risk. There are special risks associated with investing in preferred securities. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index comprising US corporate, fixed-rate, noninvestment-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.
continued on previous page
Invesco V.I. High Yield Securities Fund
Schedule of Investments
December 31, 2012
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Dollar Denominated Bonds and Notes–90.22% | |
| Advertising–0.12% | |
Lamar Media Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 05/01/23(b) | | $ | 20,000 | | | $ | 20,700 | |
National CineMedia LLC, Sr. Sec. Global Notes, 6.00%, 04/15/22 | | | 10,000 | | | | 10,650 | |
| | | | | | | | 31,350 | |
|
| Aerospace & Defense–1.26% | |
B/E Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | | | 25,000 | | | | 26,625 | |
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | | | 90,000 | | | | 102,600 | |
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 03/15/18 | | | 35,000 | | | | 38,237 | |
7.13%, 03/15/21 | | | 80,000 | | | | 87,400 | |
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | | | 55,000 | | | | 59,125 | |
TransDigm Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 10/15/20(b) | | | 15,000 | | | | 15,675 | |
| | | | | | | | 329,662 | |
|
| Airlines–2.73% | |
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16 (Acquired 03/15/11-10/18/11; Cost $115,450)(b)(c) | | | 130,000 | | | | 140,400 | |
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | | | 85,001 | | | | 88,613 | |
Continental Airlines Pass Through Trust, | |
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | | | 102,747 | | | | 106,151 | |
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | | | 97,889 | | | | 108,474 | |
Series 2012-3, Class C, Sr. Sec. Pass Through Ctfs., 6.13%, 04/29/18 | | | 25,000 | | | | 25,250 | |
Delta Air Lines Pass Through Trust, | | | | | | | | |
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | | | 30,000 | | | | 31,462 | |
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | | | 40,000 | | | | 41,800 | |
UAL Pass Through Trust, Series 2009-2, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | | | 66,629 | | | | 73,334 | |
US Airways Pass Through Trust, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | | | 72,413 | | | | 69,154 | |
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | | | 10,000 | | | | 10,919 | |
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | | | 10,000 | | | | 10,712 | |
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | | | 10,000 | | | | 10,400 | |
| | | | | | | | 716,669 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Alternative Carriers–1.50% | |
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | | $ | 85,000 | | | $ | 93,712 | |
Level 3 Communications Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 11.88%, 02/01/19 | | | 90,000 | | | | 103,950 | |
Sr. Unsec. Notes, 8.88%, 06/01/19(b) | | | 40,000 | | | | 42,800 | |
Level 3 Financing Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.13%, 07/01/19 | | | 35,000 | | | | 38,237 | |
8.63%, 07/15/20 | | | 25,000 | | | | 27,938 | |
9.38%, 04/01/19 | | | 45,000 | | | | 50,625 | |
Sr. Unsec. Gtd. Notes, 7.00%, 06/01/20(b) | | | 35,000 | | | | 36,838 | |
| | | | | | | | 394,100 | |
|
| Aluminum–0.50% | |
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | | | 130,000 | | | | 131,056 | |
|
| Apparel Retail–1.49% | |
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 | | | 95,000 | | | | 108,835 | |
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | | | 115,000 | | | | 122,475 | |
Limited Brands Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 5.63%, 02/15/22 | | | 15,000 | | | | 16,406 | |
Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | | | 40,000 | | | | 46,200 | |
| | | | | | | | 391,791 | |
|
| Apparel, Accessories & Luxury Goods–2.78% | |
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | | | 110,000 | | | | 121,550 | |
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | | | 190,000 | | | | 197,600 | |
Levi Strauss & Co., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
6.88%, 05/01/22 | | | 30,000 | | | | 32,325 | |
7.63%, 05/15/20 | | | 165,000 | | | | 181,912 | |
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | | | 200,000 | | | | 197,625 | |
| | | | | | | | 731,012 | |
|
| Application Software–0.08% | |
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | | | 20,000 | | | | 21,000 | |
| | |
| Auto Parts & Equipment–0.73% | | | | | | | | |
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | | | 100,000 | | | | 108,000 | |
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 | |
| Auto Parts & Equipment–(continued) | |
American Axle & Manufacturing Inc., Sr. Unsec. Gtd. Notes, 6.63%, 10/15/22 | | $ | 40,000 | | | $ | 41,000 | |
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 08/15/18 | | | 40,000 | | | | 43,500 | |
| | | | | | | | 192,500 | |
|
| Automobile Manufacturers–0.47% | |
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | | | 97,000 | | | | 123,675 | |
|
| Biotechnology–0.31% | |
Grifols Inc. (Spain), Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/18 | | | 30,000 | | | | 33,300 | |
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | | | 30,000 | | | | 5,756 | |
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | | | 40,000 | | | | 43,500 | |
| | | | | | | | 82,556 | |
|
| Broadcasting–1.01% | |
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | | | 45,000 | | | | 49,050 | |
Clear Channel Worldwide Holdings Inc., | | | | | | | | |
Series A, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | | | 20,000 | | | | 20,900 | |
Series B, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | | | 50,000 | | | | 52,375 | |
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | | | 90,000 | | | | 91,125 | |
LIN Television Corp., Sr. Unsec. Gtd. Notes, 6.38%, 01/15/21(b) | | | 10,000 | | | | 10,550 | |
Nielsen Finance LLC/Co. (Netherlands), Sr. Unsec. Gtd. Notes, 4.50%, 10/01/20(b) | | | 30,000 | | | | 30,000 | |
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Notes, 5.00%, 09/15/19(b) | | | 10,000 | | | | 10,325 | |
| | | | | | | | 264,325 | |
|
| Building Products–3.24% | |
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | | | 80,000 | | | | 79,200 | |
Building Materials Corp. of America, Sr. Unsec. Gtd. Notes, 7.50%, 03/15/20(b) | | | 95,000 | | | | 105,331 | |
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | | | 105,000 | | | | 106,378 | |
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | | | 30,000 | | | | 33,413 | |
Nortek Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.50%, 04/15/21 | | | 140,000 | | | | 157,500 | |
10.00%, 12/01/18 | | | 65,000 | | | | 73,775 | |
Ply Gem Industries Inc., | | | | | | | | |
Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | | | 70,000 | | | | 77,000 | |
Sr. Unsec. Gtd. Notes, 9.38%, 04/15/17(b) | | | 30,000 | | | | 32,700 | |
USG Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.88%, 03/30/20(b) | | | 80,000 | | | | 89,700 | |
8.38%, 10/15/18(b) | | | 10,000 | | | | 11,175 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Building Products–(continued) | |
Sr. Unsec. Notes, 9.75%, 01/15/18 | | $ | 75,000 | | | $ | 85,031 | |
| | | | | | | | 851,203 | |
|
| Cable & Satellite–2.89% | |
Cablevision Systems Corp., Sr. Unsec. Global Notes, 5.88%, 09/15/22 | | | 15,000 | | | | 15,150 | |
DISH DBS Corp.,
Sr. Unsec. Gtd. Global Notes,
4.63%, 07/15/17 | | | 115,000 | | | | 120,462 | |
5.88%, 07/15/22 | | | 20,000 | | | | 21,600 | |
Sr. Unsec. Notes, 5.00%, 03/15/23(b) | | | 15,000 | | | | 15,150 | |
Hughes Satellite Systems Corp., Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | | | 75,000 | | | | 83,063 | |
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | | | 25,000 | | | | 28,625 | |
Intelsat Jackson Holdings S.A. (Luxembourg), | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.25%, 10/15/20 | | | 240,000 | | | | 261,000 | |
7.50%, 04/01/21 | | | 10,000 | | | | 10,975 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.63%, 12/15/22(b) | | | 105,000 | | | | 108,937 | |
7.25%, 10/15/20(b) | | | 10,000 | | | | 10,850 | |
ViaSat Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.88%, 06/15/20 | | | 50,000 | | | | 52,500 | |
Sr. Unsec. Gtd. Notes, 6.88%, 06/15/20(b) | | | 30,000 | | | | 31,500 | |
| | | | | | | | 759,812 | |
| | |
| Casinos & Gaming–5.74% | | | | | | | | |
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | | | 90,000 | | | | 98,100 | |
Caesars Entertainment Operating Co. Inc., | | | | | | | | |
Sec. Gtd. Global Notes, 12.75%, 04/15/18 | | | 85,000 | | | | 63,325 | |
Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | | | 55,000 | | | | 55,413 | |
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | | | 65,000 | | | | 57,200 | |
Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/13 | | | 20,000 | | | | 19,575 | |
Chester Downs & Marina LLC, Sr. Sec. Gtd. Notes, 9.25%, 02/01/20(b) | | | 10,000 | | | | 9,875 | |
CityCenter Holdings LLC/CityCenter Finance
Corp., Sr. Sec. Gtd. Global Notes,
7.63%, 01/15/16 | | | 60,000 | | | | 64,200 | |
10.75%, 01/15/17 | | | 101,016 | | | | 110,107 | |
Sr. Sec. Gtd. Notes, | | | | | | | | |
7.63%, 01/15/16(b) | | | 10,000 | | | | 10,700 | |
MGM Resorts International, | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.63%, 07/15/15 | | | 65,000 | | | | 69,713 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.75%, 10/01/20(b) | | | 105,000 | | | | 107,362 | |
7.75%, 03/15/22 | | | 240,000 | | | | 256,800 | |
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | | | 80,000 | | | | 89,400 | |
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 | |
Casinos & Gaming–(continued) | | | | | | | | |
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | | $ | 75,000 | | | $ | 79,500 | |
Snoqualmie Entertainment Authority, | | | | | | | | |
Sr. Sec. Floating Rate Notes, 4.48%, 02/01/14(b)(d) | | | 75,000 | | | | 74,156 | |
Sr. Sec. Notes, 9.13%, 02/01/15(b) | | | 128,000 | | | | 129,120 | |
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. First Mortgage Global Notes, | | | | | | | | |
5.38%, 03/15/22 | | | 60,000 | | | | 63,825 | |
7.75%, 08/15/20 | | | 130,000 | | | | 148,525 | |
| | | | | | | | 1,506,896 | |
|
Coal & Consumable Fuels–0.94% | |
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 9.75%, 04/15/18 | | | 20,000 | | | | 21,700 | |
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | | | 95,000 | | | | 103,313 | |
Peabody Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 11/15/18 | | | 115,000 | | | | 122,475 | |
| | | | | | | | 247,488 | |
|
Communications Equipment–0.57% | |
Avaya Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, | | | | | | | | |
7.00%, 04/01/19(b) | | | 100,000 | | | | 94,000 | |
9.00%, 04/01/19(b) | | | 25,000 | | | | 25,375 | |
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | | | 35,000 | | | | 31,325 | |
| | | | | | | | 150,700 | |
|
Computer & Electronics Retail–0.54% | |
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | | | 130,000 | | | | 143,000 | |
|
Computer Storage & Peripherals–0.54% | |
Seagate HDD Cayman, | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.00%, 11/01/21 | | | 105,000 | | | | 113,137 | |
7.75%, 12/15/18 | | | 25,000 | | | | 27,563 | |
| | | | | | | | 140,700 | |
|
Construction & Engineering–1.58% | |
Dycom Investments Inc., | | | | | | | | |
Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | | | 115,000 | | | | 121,900 | |
Sr. Unsec. Gtd. Sub. Notes, 7.13%, 01/15/21(b) | | | 30,000 | | | | 31,800 | |
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | | | 250,000 | | | | 260,000 | |
| | | | | | | | 413,700 | |
|
Construction & Farm Machinery & Heavy Trucks–1.66% | |
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/17 | | | 75,000 | | | | 88,781 | |
CNH Capital LLC, Sr. Unsec. Gtd. Notes, 3.88%, 11/01/15(b) | | | 15,000 | | | | 15,525 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Construction & Farm Machinery & Heavy Trucks–(continued) | |
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | | $ | 95,000 | | | $ | 94,525 | |
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | | | 50,000 | | | | 56,375 | |
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | | | 65,000 | | | | 63,050 | |
Terex Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 6.50%, 04/01/20 | | | 10,000 | | | | 10,650 | |
Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | | | 15,000 | | | | 15,825 | |
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | | | 85,000 | | | | 90,631 | |
| | | | | | | | 435,362 | |
|
Construction Materials–1.11% | |
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Notes, 9.50%, 12/14/16(b) | | | 100,000 | | | | 108,880 | |
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | | | 170,000 | | | | 183,600 | |
| | | | | | | | 292,480 | |
|
Consumer Finance–1.34% | |
Ally Financial Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.50%, 09/15/20 | | | 75,000 | | | | 91,031 | |
8.00%, 03/15/20 | | | 140,000 | | | | 172,200 | |
General Motors Financial Co. Inc., Sr. Unsec. Gtd. Notes, 4.75%, 08/15/17(b) | | | 20,000 | | | | 21,100 | |
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | | | 60,000 | | | | 66,450 | |
| | | | | | | | 350,781 | |
|
Data Processing & Outsourced Services–2.02% | |
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | | | 160,000 | | | | 175,000 | |
First Data Corp., | | | | | | | | |
Sec. Gtd. Notes, 8.25%, 01/15/21(b) | | | 85,000 | | | | 85,425 | |
Sr. Sec. Gtd. Notes, | | | | | | | | |
6.75%, 11/01/20(b) | | | 145,000 | | | | 147,537 | |
7.38%, 06/15/19(b) | | | 60,000 | | | | 62,550 | |
SunGard Data Systems Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.38%, 11/15/18 | | | 30,000 | | | | 32,288 | |
7.63%, 11/15/20 | | | 25,000 | | | | 27,500 | |
| | | | | | | | 530,300 | |
|
Department Stores–0.23% | |
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | | | 65,000 | | | | 60,044 | |
|
Distillers & Vintners–0.62% | |
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 9.13%, 12/01/16(b) | | | 100,000 | | | | 65,000 | |
Constellation Brands Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
4.63%, 03/01/23 | | | 10,000 | | | | 10,500 | |
7.25%, 05/15/17 | | | 65,000 | | | | 76,375 | |
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 | |
Distillers & Vintners–(continued) | |
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | | $ | 10,000 | | | $ | 11,513 | |
| | | | | | | | 163,388 | |
|
Diversified Banks–0.21% | |
RBS Capital Trust II (United Kingdom), Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(e) | | | 50,000 | | | | 43,375 | |
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | | | 10,000 | | | | 10,507 | |
| | | | | | | | 53,882 | |
|
Diversified Metals & Mining–1.26% | |
FMG Resources Pty. Ltd. (Australia), | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.38%, 02/01/16(b) | | | 90,000 | | | | 93,600 | |
6.88%, 04/01/22(b) | | | 80,000 | | | | 82,400 | |
7.00%, 11/01/15(b) | | | 10,000 | | | | 10,600 | |
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | | | 45,000 | | | | 27,450 | |
Vedanta Resources PLC (India), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | | | 100,000 | | | | 115,973 | |
| | | | | | | | 330,023 | |
|
Electrical Components & Equipment–0.32% | |
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | | | 55,000 | | | | 56,925 | |
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | | | 25,000 | | | | 27,313 | |
| | | | | | | | 84,238 | |
|
Electronic Manufacturing Services–0.39% | |
Sanmina Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | | | 100,000 | | | | 102,500 | |
|
Environmental & Facilities Services–0.21% | |
Clean Harbors Inc., Sr. Unsec. Gtd. Notes, 5.13%, 06/01/21(b) | | | 20,000 | | | | 20,850 | |
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | | | 35,000 | | | | 33,250 | |
| | | | | | | | 54,100 | |
|
Forest Products–0.30% | |
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | | | 85,000 | | | | 77,350 | |
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17 (Acquired 10/14/10; Cost $10,000)(b)(c) | | | 10,000 | | | | 1,550 | |
| | | | | | | | 78,900 | |
|
Gas Utilities–0.73% | |
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | | | 40,000 | | | | 39,750 | |
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.38%, 08/01/21 | | | 55,000 | | | | 60,088 | |
Sr. Unsec. Notes, 7.38%, 03/15/20 | | | 85,000 | | | | 92,437 | |
| | | | | | | | 192,275 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Gold–0.16% | |
Eldorado Gold Corp. (Canada), Sr. Unsec. Notes, 6.13%, 12/15/20(b) | | $ | 40,000 | | | $ | 41,000 | |
|
Health Care Equipment–0.32% | |
Biomet Inc., | | | | | | | | |
Sr. Unsec. Gtd. Notes, 6.50%, 08/01/20(b) | | | 20,000 | | | | 21,300 | |
Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/20(b) | | | 35,000 | | | | 35,000 | |
DJO Finance LLC/Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/18 | | | 10,000 | | | | 9,675 | |
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | | | 20,000 | | | | 17,850 | |
| | | | | | | | 83,825 | |
|
Health Care Facilities–2.17% | |
HCA, Inc., | | | | | | | | |
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | | | 50,000 | | | | 54,750 | |
Sr. Unsec. Gtd. Global Notes, 5.88%, 05/01/23 | | | 245,000 | | | | 254,187 | |
HealthSouth Corp., | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
5.75%, 11/01/24 | | | 20,000 | | | | 20,500 | |
7.25%, 10/01/18 | | | 54,000 | | | | 59,130 | |
7.75%, 09/15/22 | | | 31,000 | | | | 34,177 | |
Radiation Therapy Services Inc., Sr. Sec. Gtd. Global Notes, 8.88%, 01/15/17 | | | 70,000 | | | | 68,950 | |
Tenet Healthcare Corp., | | | | | | | | |
Sr. Sec. Gtd. Notes, 4.75%, 06/01/20(b) | | | 5,000 | | | | 5,088 | |
Sr. Unsec. Global Notes, 8.00%, 08/01/20 | | | 20,000 | | | | 21,650 | |
Sr. Unsec. Notes, 6.75%, 02/01/20(b) | | | 50,000 | | | | 51,750 | |
| | | | | | | | 570,182 | |
|
Health Care Services–0.20% | |
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | | | 50,000 | | | | 53,000 | |
|
Health Care Technology–0.52% | |
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | | | 125,000 | | | | 136,563 | |
|
Homebuilding–2.88% | |
Beazer Homes USA Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 07/15/15 | | | 60,000 | | | | 60,675 | |
8.13%, 06/15/16 | | | 100,000 | | | | 107,500 | |
K. Hovnanian Enterprises Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/16 | | | 195,000 | | | | 192,319 | |
Sr. Unsec. Gtd. Notes, 11.88%, 10/15/15 | | | 15,000 | | | | 16,388 | |
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | | | 85,000 | | | | 95,837 | |
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | | | 90,000 | | | | 98,437 | |
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/22 | | | 30,000 | | | | 32,925 | |
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 | |
Homebuilding–(continued) | |
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | $ | 35,000 | | | $ | 36,137 | |
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 7.75%, 04/15/20(b) | | | 77,000 | | | | 82,294 | |
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | | | 30,000 | | | | 34,238 | |
| | | | | | | | 756,750 | |
|
Hotels, Resorts & Cruise Lines–0.45% | |
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | | | 7,000 | | | | 7,779 | |
Royal Caribbean Cruises Ltd., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
5.25%, 11/15/22 | | | 55,000 | | | | 58,300 | |
7.25%, 03/15/18 | | | 15,000 | | | | 17,062 | |
7.50%, 10/15/27 | | | 30,000 | | | | 34,125 | |
| | | | | | | | 117,266 | |
|
Household Products–0.52% | |
Central Garden & Pet Co., Sr. Unsec. Gtd. Sub. Notes, 8.25%, 03/01/18 | | | 80,000 | | | | 85,000 | |
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC, Sr. Sec. Gtd. Notes, 5.75%, 10/15/20(b) | | | 50,000 | | | | 51,813 | |
| | | | | | | | 136,813 | |
|
Housewares & Specialties–0.24% | |
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | | | 50,000 | | | | 52,125 | |
Spectrum Brands Escrow Corp., Sr. Unsec. Notes, 6.38%, 11/15/20(b) | | | 10,000 | | | | 10,675 | |
| | | | | | | | 62,800 | |
|
Independent Power Producers & Energy Traders–1.44% | |
AES Corp. (The), Sr. Unsec. Global Notes, 7.75%, 10/15/15 | | | 155,000 | | | | 174,762 | |
Calpine Corp., Sr. Sec. Gtd. Notes, 7.50%, 02/15/21(b) | | | 74,000 | | | | 82,140 | |
NRG Energy Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.63%, 01/15/18 | | | 90,000 | | | | 99,900 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.63%, 03/15/23(b) | | | 20,000 | | | | 21,500 | |
| | | | | | | | 378,302 | |
Industrial Machinery–0.43% | |
Actuant Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/15/22 | | | 30,000 | | | | 31,162 | |
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | | | 10,000 | | | | 10,775 | |
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | | | 10,000 | | | | 10,325 | |
SPX Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 09/01/17 | | | 55,000 | | | | 61,669 | |
| | | | | | | | 113,931 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
Insurance Brokers–0.17% | |
Onex USI Acquisition Corp., Sr. Unsec. Notes, 7.75%, 01/15/21(b) | | $ | 45,000 | | | $ | 45,169 | |
|
Integrated Oil & Gas–0.06% | |
Northern Tier Energy LLC/ Northern Tier Finance Corp., Sr. Sec. Gtd. Notes, 7.13%, 11/15/20(b) | | | 15,000 | | | | 15,525 | |
|
Internet Software & Services–0.26% | |
Equinix Inc., Sr. Unsec. Notes, 7.00%, 07/15/21 | | | 60,000 | | | | 66,900 | |
|
Leisure Facilities–0.10% | |
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | | | 25,000 | | | | 26,625 | |
|
Leisure Products–0.55% | |
Toys R Us-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | | | 140,000 | | | | 143,325 | |
|
Marine–0.26% | |
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Global Notes, 8.63%, 11/01/17 | | | 30,000 | | | | 28,200 | |
Stena AB (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | | | 40,000 | | | | 39,850 | |
| | | | | | | | 68,050 | |
|
Movies & Entertainment–1.48% | |
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | | | 85,000 | | | | 94,350 | |
Cinemark USA Inc., Sr. Unsec. Gtd. Notes, 5.13%, 12/15/22(b) | | | 15,000 | | | | 15,262 | |
Live Nation Entertainment Inc., Sr. Unsec. Gtd. Notes, 7.00%, 09/01/20(b) | | | 110,000 | | | | 115,225 | |
NAI Entertainment Holdings LLC, Sr. Sec. Gtd. Notes, 8.25%, 12/15/17(b) | | | 148,000 | | | | 163,540 | |
| | | | | | | | 388,377 | |
|
Multi-Line Insurance–3.53% | |
American International Group Inc., Jr. Unsec. Sub. Global Deb., 8.18%, 05/15/58 | | | 215,000 | | | | 280,575 | |
Fairfax Financial Holdings Ltd. (Canada), Sr. Unsec. Notes, 5.80%, 05/15/21(b) | | | 45,000 | | | | 46,266 | |
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | | | 85,000 | | | | 98,281 | |
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | | | 230,000 | | | | 261,050 | |
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | | | 165,000 | | | | 240,978 | |
| | | | | | | | 927,150 | |
|
Office Services & Supplies–0.21% | |
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | | | 20,000 | | | | 21,650 | |
Ricoh USA Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | | | 35,000 | | | | 33,775 | |
| | | | | | | | 55,425 | |
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 Drilling–0.30% | |
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | | $ | 9,000 | | | $ | 9,720 | |
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | | | 65,000 | | | | 69,550 | |
| | | | | | | | 79,270 | |
|
| Oil & Gas Equipment & Services–0.94% | |
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | | | 45,000 | | | | 48,206 | |
Gulfmark Offshore Inc., Sr. Unsec. Notes, 6.38%, 03/15/22(b) | | | 25,000 | | | | 25,813 | |
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | | | 125,000 | | | | 125,625 | |
SESI, LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 05/01/19 | | | 45,000 | | | | 48,136 | |
| | | | | | | | 247,780 | |
|
| Oil & Gas Exploration & Production–6.33% | |
Berry Petroleum Co., Sr. Unsec. Notes, | | | | | | | | |
6.38%, 09/15/22 | | | 40,000 | | | | 41,900 | |
6.75%, 11/01/20 | | | 35,000 | | | | 37,800 | |
Chaparral Energy Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.63%, 11/15/22 | | | 20,000 | | | | 21,150 | |
8.25%, 09/01/21 | | | 110,000 | | | | 120,175 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.63%, 11/15/22(b) | | | 40,000 | | | | 42,300 | |
Chesapeake Energy Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 11/15/20 | | | 65,000 | | | | 71,012 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.13%, 02/15/21 | | | 10,000 | | | | 10,463 | |
6.63%, 08/15/20 | | | 93,000 | | | | 100,440 | |
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | | | 85,000 | | | | 93,500 | |
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
7.13%, 04/01/21 | | | 30,000 | | | | 33,938 | |
8.25%, 10/01/19 | | | 50,000 | | | | 56,187 | |
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | | | 60,000 | | | | 63,600 | |
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | | | 135,000 | | | | 131,287 | |
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | | | 45,000 | | | | 45,281 | |
Halcon Resources Corp., Sr. Unsec. Gtd. Notes, 8.88%, 05/15/21(b) | | | 70,000 | | | | 74,375 | |
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | | | 10,000 | | | | 10,925 | |
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | | | 55,000 | | | | 58,678 | |
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/24 | | | 15,000 | | | | 16,266 | |
Oasis Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 01/15/23 | | | 40,000 | | | | 43,100 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Oil & Gas Exploration & Production–(continued) | |
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.13%, 06/15/19 | | $ | 65,000 | | | $ | 71,175 | |
6.50%, 11/15/20 | | | 45,000 | | | | 49,838 | |
QEP Resources Inc., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
5.25%, 05/01/23 | | | 30,000 | | | | 32,025 | |
Sr. Unsec. Notes, | | | | | | | | |
5.38%, 10/01/22 | | | 55,000 | | | | 59,400 | |
Range Resources Corp., | | | | | | | | |
Sr. Unsec. Gtd. Sub. Notes, | | | | | | | | |
5.00%, 08/15/22 | | | 15,000 | | | | 15,788 | |
5.75%, 06/01/21 | | | 105,000 | | | | 112,875 | |
SM Energy Co., Sr. Unsec. Global Notes, | | | | | | | | |
6.50%, 11/15/21 | | | 30,000 | | | | 32,250 | |
6.50%, 01/01/23 | | | 20,000 | | | | 21,500 | |
6.63%, 02/15/19 | | | 70,000 | | | | 75,075 | |
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | | | 55,000 | | | | 59,331 | |
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | | | 55,000 | | | | 59,675 | |
| | | | | | | | 1,661,309 | |
|
| Oil & Gas Refining & Marketing–0.70% | |
CVR Refining LLC/Coffeyville Finance Inc., Sr. Sec. Gtd. Notes, 6.50%, 11/01/22(b) | | | 70,000 | | | | 70,000 | |
Tesoro Corp., Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | | | 25,000 | | | | 26,750 | |
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Notes, 5.88%, 10/01/20(b) | | | 30,000 | | | | 31,275 | |
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | | | 50,000 | | | | 55,125 | |
| | | | | | | | 183,150 | |
|
| Oil & Gas Storage & Transportation–3.38% | |
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
4.88%, 05/15/23 | | | 35,000 | | | | 35,788 | |
5.88%, 04/15/21 | | | 75,000 | | | | 80,062 | |
6.13%, 07/15/22 | | | 10,000 | | | | 10,825 | |
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Notes, 6.63%, 10/01/20(b) | | | 25,000 | | | | 26,250 | |
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | | | 115,000 | | | | 123,912 | |
Eagle Rock Energy Partners L.P./Eagle Rock Energy Finance Corp., Sr. Unsec. Gtd. Notes, 8.38%, 06/01/19(b) | | | 30,000 | | | | 30,750 | |
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | | | 95,000 | | | | 109,844 | |
Inergy Midstream L.P./NRGM Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 12/15/20(b) | | | 35,000 | | | | 36,356 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Oil & Gas Storage & Transportation–(continued) | |
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 5.50%, 02/15/23 | | $ | 80,000 | | | $ | 87,100 | |
6.25%, 06/15/22 | | | 45,000 | | | | 49,669 | |
6.50%, 08/15/21 | | | 70,000 | | | | 76,825 | |
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | | | 105,000 | | | | 115,500 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
5.25%, 05/01/23(b) | | | 25,000 | | | | 25,875 | |
6.38%, 08/01/22(b) | | | 20,000 | | | | 21,900 | |
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | | | 55,000 | | | | 58,300 | |
| | | | | | | | 888,956 | |
|
| Other Diversified Financial Services–0.15% | |
Citigroup, Inc., Series A, Jr. Unsec. Sub. Global Notes, 5.95%(e) | | | 40,000 | | | | 40,420 | |
|
| Packaged Foods & Meats–0.79% | |
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | | | 65,000 | | | | 68,088 | |
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | | | 60,000 | | | | 66,150 | |
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | | | 80,000 | | | | 73,400 | |
| | | | | | | | 207,638 | |
|
| Paper Packaging–0.59% | |
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | | | 145,000 | | | | 155,513 | |
|
| Paper Products–0.72% | |
Boise Cascade LLC/Boise Cascade Finance Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/01/20(b) | | | 10,000 | | | | 10,350 | |
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | | | 75,000 | | | | 82,313 | |
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | | | 90,000 | | | | 95,625 | |
| | | | | | | | 188,288 | |
|
| Personal Products–0.43% | |
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | | | 100,000 | | | | 114,000 | |
|
| Pharmaceuticals–0.06% | |
Endo Health Solutions Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 12/15/20 | | | 15,000 | | | | 16,125 | |
|
| Real Estate Services–0.33% | |
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | | | 80,000 | | | | 87,800 | |
|
| Regional Banks–1.46% | |
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | | | 25,000 | | | | 25,875 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Regional Banks–(continued) | |
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | | $ | 160,000 | | | $ | 174,400 | |
Synovus Financial Corp.,
Sr. Unsec. Global Notes, 7.88%, 02/15/19 | | | 50,000 | | | | 55,500 | |
Unsec. Sub. Global Notes, | | | | | | | | |
5.13%, 06/15/17 | | | 130,000 | | | | 128,700 | |
| | | | | | | | 384,475 | |
|
| Research & Consulting Services–0.37% | |
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | | | 90,000 | | | | 96,525 | |
|
| Semiconductor Equipment–1.51% | |
Amkor Technology Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 6.63%, 06/01/21 | | | 175,000 | | | | 175,875 | |
Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/18 | | | 100,000 | | | | 104,250 | |
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | | | 110,000 | | | | 117,700 | |
| | | | | | | | 397,825 | |
|
| Semiconductors–0.72% | |
Freescale Semiconductor Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | | | 109,000 | | | | 119,627 | |
Sr. Unsec. Gtd. Global Notes, 10.75%, 08/01/20 | | | 65,000 | | | | 70,038 | |
| | | | | | | | 189,665 | |
|
| Specialized Finance–3.83% | |
Air Lease Corp., Sr. Unsec. Global Notes, 5.63%, 04/01/17 | | | 105,000 | | | | 111,825 | |
Aircastle Ltd., | | | | | | | | |
Sr. Unsec. Global Notes, 6.75%, 04/15/17 | | | 140,000 | | | | 151,200 | |
Sr. Unsec. Global Sub. Notes, 7.63%, 04/15/20 | | | 45,000 | | | | 50,625 | |
Sr. Unsec. Notes, 6.25%, 12/01/19(b) | | | 10,000 | | | | 10,475 | |
CIT Group Inc., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
4.25%, 08/15/17 | | | 70,000 | | | | 72,625 | |
5.00%, 08/15/22 | | | 50,000 | | | | 53,875 | |
5.25%, 03/15/18 | | | 90,000 | | | | 97,200 | |
Sr. Unsec. Notes, 5.50%, 02/15/19(b) | | | 65,000 | | | | 70,850 | |
International Lease Finance Corp., | | | | | | | | |
Sr. Sec. Gtd. Notes, 7.13%, 09/01/18(b) | | | 65,000 | | | | 75,522 | |
Sr. Unsec. Global Notes, | | | | | | | | |
5.75%, 05/15/16 | | | 20,000 | | | | 21,080 | |
5.88%, 08/15/22 | | | 100,000 | | | | 106,375 | |
6.25%, 05/15/19 | | | 30,000 | | | | 32,241 | |
8.63%, 09/15/15 | | | 75,000 | | | | 84,469 | |
8.75%, 03/15/17 | | | 44,000 | | | | 50,902 | |
Sr. Unsec. Notes, 8.25%, 12/15/20 | | | 15,000 | | | | 17,925 | |
| | | | | | | | 1,007,189 | |
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 | |
| Specialized REIT’s–1.08% | |
Felcor Lodging L.P., Sr. Sec. Notes, 5.63%, 03/01/23(b) | | $ | 20,000 | | | $ | 20,125 | |
Host Hotels & Resorts L.P., | | | | | | | | |
Sr. Unsec. Global Notes, 5.25%, 03/15/22 | | | 50,000 | | | | 55,438 | |
Sr. Unsec. Gtd. Global Notes, 6.00%, 11/01/20 | | | 75,000 | | | | 82,687 | |
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | | | 60,000 | | | | 65,400 | |
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | | | 55,000 | | | | 60,019 | |
| | | | | | | | 283,669 | |
|
| Specialty Chemicals–1.09% | |
Ashland Inc., Sr. Unsec. Gtd. Notes, 4.75%, 08/15/22(b) | | | 20,000 | | | | 20,850 | |
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | | | 70,000 | | | | 63,350 | |
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | | | 140,000 | | | | 154,350 | |
PQ Corp., Sr. Sec. Notes, 8.75%, 05/01/18(b) | | | 45,000 | | | | 47,475 | |
| | | | | | | | 286,025 | |
|
| Specialty Stores–0.23% | |
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | | | 55,000 | | | | 60,775 | |
|
| Steel–0.97% | |
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 6.75%, 02/25/22 | | | 30,000 | | | | 31,494 | |
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 8.25%, 11/01/19(b) | | | 70,000 | | | | 75,075 | |
Steel Dynamics Inc., Sr. Unsec. Gtd. Notes, 6.13%, 08/15/19(b) | | | 80,000 | | | | 85,000 | |
United States Steel Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 7.50%, 03/15/22 | | | 25,000 | | | | 26,500 | |
Sr. Unsec. Notes, 7.00%, 02/01/18 | | | 35,000 | | | | 37,100 | |
| | | | | | | | 255,169 | |
|
| Systems Software–0.27% | |
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16 (Acquired 12/06/10-01/06/11; Cost $97,013)(b) | | | 95,000 | | | | 69,825 | |
|
| Technology Distributors–0.04% | |
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | | | 10,000 | | | | 10,575 | |
|
| Tires & Rubber–0.32% | |
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | | | 75,000 | | | | 84,750 | |
|
| Trading Companies & Distributors–0.38% | |
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/18 | | | 40,000 | | | | 43,200 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Trading Companies & Distributors–(continued) | |
United Rentals North America Inc., | | | | | | | | |
Sr. Sec. Gtd. Notes, 5.75%, 07/15/18(b) | | $ | 10,000 | | | $ | 10,825 | |
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | | | 40,000 | | | | 45,300 | |
| | | | | | | | 99,325 | |
|
| Trucking–1.75% | |
Avis Budget Car Rental LLC/Avis Budget Finance Inc., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
8.25%, 01/15/19 | | | 130,000 | | | | 144,300 | |
9.75%, 03/15/20 | | | 25,000 | | | | 29,000 | |
HDTFS Inc., | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
5.88%, 10/15/20(b) | | | 5,000 | | | | 5,250 | |
6.25%, 10/15/22(b) | | | 10,000 | | | | 10,725 | |
Hertz Corp. (The), | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.75%, 04/15/19 | | | 45,000 | | | | 49,612 | |
7.38%, 01/15/21 | | | 125,000 | | | | 138,125 | |
7.50%, 10/15/18 | | | 75,000 | | | | 83,250 | |
| | | | | | | | 460,262 | |
|
| Wireless Telecommunication Services–6.11% | |
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | | | 30,000 | | | | 32,363 | |
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | | | 200,000 | | | | 205,500 | |
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/20(b) | | | 200,000 | | | | 220,500 | |
MetroPCS Wireless Inc., | | | | | | | | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
6.63%, 11/15/20 | | | 120,000 | | | | 128,700 | |
7.88%, 09/01/18 | | | 65,000 | | | | 70,484 | |
Sprint Capital Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
6.88%, 11/15/28 | | | 55,000 | | | | 57,544 | |
6.90%, 05/01/19 | | | 160,000 | | | | 174,800 | |
Sprint Nextel Corp., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
6.00%, 11/15/22 | | | 60,000 | | | | 61,800 | |
7.00%, 08/15/20 | | | 55,000 | | | | 60,362 | |
11.50%, 11/15/21 | | | 25,000 | | | | 34,125 | |
Sr. Unsec. Gtd. Notes, | | | | | | | | |
7.00%, 03/01/20(b) | | | 30,000 | | | | 35,250 | |
9.00%, 11/15/18(b) | | | 65,000 | | | | 80,600 | |
VimpelCom (Russia), Unsec. Loan Participation Notes, 7.75%, 02/02/21(b) | | | 200,000 | | | | 232,000 | |
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | | | 200,000 | | | | 210,500 | |
| | | | | | | | 1,604,528 | |
Total U.S. Dollar Denominated Bonds and Notes (Cost $22,257,191) | | | | 23,699,277 | |
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 | |
Non-U.S. Dollar Denominated Bonds & Notes–5.01%(f) | |
| Broadcasting–0.81% | |
Central European Media Enterprises Ltd. (Czech Republic), REGS, Jr. Sec. Gtd. Euro Notes, 11.63%, 09/15/16(b) | | EUR | 100,000 | | | $ | 139,527 | |
CET 21 spol sro (Czech Republic), Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | | EUR | 50,000 | | | | 72,402 | |
| | | | | | | | 211,929 | |
|
| Casinos & Gaming–1.13% | |
Codere Finance Luxembourg S.A. (Spain), | | | | | | | | |
Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | | EUR | 100,000 | | | | 109,510 | |
REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 06/15/15(b) | | EUR | 100,000 | | | | 109,510 | |
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22(b) | | CAD | 75,000 | | | | 78,668 | |
| | | | | | | | 297,688 | |
|
| Construction Materials–1.07% | |
Cemex Finance Europe B.V. (Mexico), Sr. Unsec. Gtd. Euro Notes, 4.75%, 03/05/14 | | EUR | 100,000 | | | | 135,568 | |
Spie BondCo 3 SCA, (Luxembourg), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 11.00%, 08/15/19(b) | | EUR | 100,000 | | | | 144,804 | |
| | | | | | | | 280,372 | |
|
| Distillers & Vintners–0.15% | |
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 8.88%, 12/01/16(b) | | EUR | 50,000 | | | | 40,242 | |
|
| Diversified Chemicals–0.24% | |
Kerling PLC (United Kingdom), Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | | EUR | 50,000 | | | | 63,496 | |
|
| Health Care Technology–0.26% | |
Cegedim S.A. (France), Sr. Unsec. Euro Bonds, 7.00%, 07/27/15 | | EUR | 50,000 | | | | 67,718 | |
|
| Investment Banking & Brokerage–0.57% | |
Boparan Finance PLC (United Kingdom), REGS, Sr. Unsec. Gtd. Euro Notes, 9.75%, 04/30/18(b) | | EUR | 100,000 | | | | 149,224 | |
|
| Leisure Facilities–0.50% | |
Cirsa Funding Luxembourg S.A. (Spain), | | | | | | | | |
Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | | EUR | 50,000 | | | | 66,135 | |
REGS,
Sr. Unsec. Gtd. Euro Notes, 8.75%, 05/15/18(b) | | EUR | 50,000 | | | | 66,135 | |
| | | | | | | | 132,270 | |
|
| Other Diversified Financial Services–0.28% | |
TVN Finance Corp II AB (Poland), Sr. Unsec. Gtd. Notes, 10.75%, 11/15/17(b) | | EUR | 50,000 | | | | 73,227 | |
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $1,303,874) | | | | 1,316,166 | |
| | | | | | | | |
| | | | Shares | | | | Value | |
Preferred Stocks–2.30% | |
| Automobile Manufacturers–0.36% | |
General Motors Co., Series B, $2.38 Conv. Pfd. | | | 2,130 | | | $ | 93,997 | |
|
| Consumer Finance–0.33% | |
Ally Financial, Inc., Series G, 7.00%
Pfd.(b) | | | 89 | | | | 87,417 | |
|
| Diversified Banks–0.30% | |
Royal Bank of Scotland PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | | | 3,335 | | | | 79,740 | |
|
| Industrial REIT’s–0.11% | |
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | | | 1,045 | | | | 27,870 | |
|
| Multi-Line Insurance–0.47% | |
Hartford Financial Services Group Inc. (The), 7.88% Jr. Sub. Pfd. | | | 4,255 | | | | 122,161 | |
|
| Regional Banks–0.58% | |
Zions Bancorp., Series C, 9.50% Pfd. | | | 5,910 | | | | 152,951 | |
|
| Tires & Rubber–0.15% | |
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | | | 855 | | | | 40,365 | |
Total Preferred Stocks
(Cost $587,906) | | | | 604,501 | |
|
Common Stocks & Other Equity Interests–0.40% | |
|
| Automobile Manufacturers–0.30% | |
General Motors Co.(g)(h) | | | 1,239 | | | | 35,721 | |
General Motors Co. -Wts. expiring 07/10/16(g)(h) | | | 1,125 | | | | 21,938 | |
General Motors Co. -Wts. expiring 07/10/19(g)(h) | | | 1,125 | | | | 14,051 | |
Motors Liquidation Co. GUC Trust(g)(h) | | | 311 | | | | 6,568 | |
| | | | | | | | 78,278 | |
|
| Paper Products–0.10% | |
NewPage Holding Corp. (Acquired 07/21/11-08/29/11; Cost $60,477)(b)(j) | | | 280 | | | | 27,534 | |
Total Common Stocks & Other Equity Interests (Cost $161,695) | | | | 105,812 | |
|
Money Market Funds–1.09% | |
Liquid Assets Portfolio –Institutional
Class(i) | | | 142,461 | | | | 142,461 | |
Premier Portfolio –Institutional Class(i) | | | 142,460 | | | | 142,460 | |
Total Money Market Funds
(Cost $284,921) | | | | 284,921 | |
TOTAL INVESTMENTS–99.02%
(Cost $24,595,587) | | | | 26,010,677 | |
OTHER ASSETS LESS LIABILITIES–0.98% | | | | 256,721 | |
NET ASSETS–100.00% | | | $ | 26,267,398 | |
Investment Abbreviations:
| | |
| CAD | | — Canadian Dollar |
| Conv. | | — Convertible |
| Ctfs. | | — Certificates |
| Deb. | | — Debentures |
| EUR | | — Euro |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
| | |
| Gtd. | | — Guaranteed |
| Jr. | | — Junior |
| Pfd. | | — Preferred |
| REGS | | — Regulation S |
| REIT | | — Real Estate Investment Trust |
| Sec. | | — Secured |
| Sr. | | — Senior |
| Sub. | | — Subordinated |
| Unsec. | | — Unsecured |
| Wts. | | — Warrants |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $7,929,680, which represented 30.19% 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 December 31, 2012 was $141,950, which represented less than 1% of the Fund’s Net Assets. |
| (d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2012. |
| (e) | Perpetual bond with no specified maturity date. |
| (f) | Foreign denominated security. Principal amount is denominated in currency indicated. |
| (g) | Acquired as part of the General Motors reorganization. |
| (h) | Non-income producing security. |
| (i) | The money market fund and the Fund are affiliated by having the same investment adviser. |
| (j) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
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
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $24,310,666) | | $ | 25,725,756 | |
Investments in affiliated money market funds, at value and cost | | | 284,921 | |
Total investments, at value (Cost $24,595,587) | | | 26,010,677 | |
Foreign currencies, at value (Cost $58,253) | | | 58,418 | |
Receivable for: | | | | |
Fund shares sold | | | 2,400 | |
Dividends and interest | | | 453,300 | |
Investment for trustee deferred compensation and retirement plans | | | 11,035 | |
Other assets | | | 1,539 | |
Total assets | | | 26,537,369 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 120,914 | |
Fund shares reacquired | | | 44,546 | |
Foreign currency contracts | | | 35,235 | |
Accrued fees to affiliates | | | 14,198 | |
Accrued other operating expenses | | | 41,520 | |
Trustee deferred compensation and retirement plans | | | 13,558 | |
Total liabilities | | | 269,971 | |
Net assets applicable to shares outstanding | | $ | 26,267,398 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 108,543,769 | |
Undistributed net investment income | | | 1,633,343 | |
Undistributed net realized gain (loss) | | | (78,079,777 | ) |
Unrealized appreciation (depreciation) | | | (5,829,937 | ) |
| | | $ | 26,267,398 | |
| |
Net Assets: | | | | |
Series I | | $ | 14,431,847 | |
Series II | | $ | 11,835,551 | |
| |
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | | | | |
Series I | | | 12,335,324 | |
Series II | | | 10,110,896 | |
Series I: | | | | |
Net asset value per share | | $ | 1.17 | |
Series II: | | | | |
Net asset value per share | | $ | 1.17 | |
| | | | |
Investment income: | | | | |
Interest | | $ | 1,897,453 | |
Dividends | | | 71,054 | |
Dividends from affiliated money market funds | | | 581 | |
Total investment income | | | 1,969,088 | |
| |
Expenses: | | | | |
Advisory fees | | | 109,930 | |
Administrative services fees | | | 76,159 | |
Custodian fees | | | 8,651 | |
Distribution fees — Series II | | | 30,299 | |
Transfer agent fees | | | 2,700 | |
Trustees’ and officers’ fees and benefits | | | 22,134 | |
Other | | | 15,167 | |
Total expenses | | | 265,040 | |
Less: Fees waived | | | (589 | ) |
Net expenses | | | 264,451 | |
Net investment income | | | 1,704,637 | |
| |
Realized and unrealized gain from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities | | | 535,944 | |
Foreign currencies | | | (5,248 | ) |
Foreign currency contracts | | | 130,234 | |
| | | | 660,930 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 2,165,580 | |
Foreign currencies | | | 1,635 | |
Foreign currency contracts | | | (136,825 | ) |
| | | | 2,030,390 | |
Net realized and unrealized gain | | | 2,691,320 | |
Net increase in net assets resulting from operations | | $ | 4,395,957 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income | | $ | 1,704,637 | | | $ | 1,769,132 | |
Net realized gain | | | 660,930 | | | | 1,092,339 | |
Change in net unrealized appreciation (depreciation) | | | 2,030,390 | | | | (2,352,285 | ) |
Net increase in net assets resulting from operations | | | 4,395,957 | | | | 509,186 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (1,020,193 | ) | | | (1,187,359 | ) |
Series ll | | | (821,089 | ) | | | (1,065,238 | ) |
Total distributions from net investment income | | | (1,841,282 | ) | | | (2,252,597 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (319,697 | ) | | | (1,728,255 | ) |
Series ll | | | (1,623,079 | ) | | | (3,049,386 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (1,942,776 | ) | | | (4,777,641 | ) |
Net increase (decrease) in net assets | | | 611,899 | | | | (6,521,052 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 25,655,499 | | | | 32,176,551 | |
End of year (includes undistributed net investment income of $1,633,343 and $1,509,910, respectively) | | $ | 26,267,398 | | | $ | 25,655,499 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations 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”).
Invesco V.I. High Yield Securities Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. High Yield Securities 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 the 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 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. (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 July 1, 2012, the Adviser has 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 1.50% and Series II shares to 1.75% of average daily net assets. Prior to July 1, 2012, 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 1.75% 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
Invesco V.I. High Yield Securities Fund
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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $589.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $26,159 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 873,714 | | | $ | 93,986 | | | $ | 27,534 | | | $ | 995,234 | |
Corporate Debt Securities | | | — | | | | 25,015,443 | | | | 0 | | | | 25,015,443 | |
| | | | 873,714 | | | | 25,109,429 | | | | 27,534 | | | | 26,010,677 | |
Foreign Currency Contracts* | | | — | | | | (34,835 | ) | | | — | | | | (34,835 | ) |
Total Investments | | $ | 873,714 | | | $ | 25,074,594 | | | $ | 27,534 | | | $ | 25,975,842 | |
| * | Unrealized appreciation (depreciation). |
Invesco V.I. High Yield Securities Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/ Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign currency contracts (a) | | $ | — | | | $ | 35,235 | |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts. |
Effect of Derivative Instruments for the year ended December 31, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
| | | | |
| | | Location of Gain (Loss) on
Statement of Operations | |
| | | Foreign Currency
Contracts* | |
Realized Gain | | | | |
Currency risk | | $ | 130,234 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Currency risk | | $ | (136,825 | ) |
Total | | $ | (6,591 | ) |
| * | The average notional value of foreign currency contracts outstanding during the period was $1,532,039. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | Counterparty | | Deliver | | | Receive | | | |
| 02/08/13 | | RBC Dain Rauscher | | | EUR | | | | 907,000 | | | | USD | | | | 1,162,322 | | | $ | 1,197,157 | | | $ | (34,835 | ) |
Closed Foreign Currency Contracts | |
| | | | | Contract to | | | Notional
Value | | | Realized Gain
(Loss) | |
Settlement
Date | | Counterparty | | Deliver | | | Receive | | | |
| 02/08/13 | | RBC Dain Rauscher | | | EUR | | | | 117,000 | | | | USD | | | | 149,439 | | | $ | 149,839 | | | $ | (400 | ) |
Total foreign currency contracts | | | | | | | | | | | | | | | | | | | | | | $ | (35,235 | ) |
Currency Abbreviations:
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. High Yield Securities Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 1,841,282 | | | $ | 2,252,597 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 1,698,555 | |
Net unrealized appreciation — investments | | | 1,360,224 | |
Net unrealized appreciation (depreciation) — other investments | | | (7,210,193 | ) |
Temporary book/tax differences | | | (12,242 | ) |
Capital loss carryforward | | | (78,112,715 | ) |
Shares of beneficial interest | | | 108,543,769 | |
Total net assets | | $ | 26,267,398 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $262,449 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2013 | | $ | 15,736,680 | | | $ | — | | | $ | 15,736,680 | |
December 31, 2014 | | | 6,219,062 | | | | — | | | | 6,219,062 | |
December 31, 2016 | | | 1,794,343 | | | | — | | | | 1,794,343 | |
December 31, 2017 | | | 10,401,018 | | | | — | | | | 10,401,018 | |
December 31, 2018 | | | 43,961,612 | | | | — | | | | 43,961,612 | |
| | | $ | 78,112,715 | | | $ | | | | $ | 78,112,715 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $12,639,277 and $14,467,575, 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 | | $ | 1,664,199 | |
Aggregate unrealized (depreciation) of investment securities | | | (303,975 | ) |
Net unrealized appreciation of investment securities | | $ | 1,360,224 | |
Cost of investments for tax purposes is $24,650,453.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of expired capital loss carryforwards, on December 31, 2012, undistributed net investment income was increased by $260,078, undistributed net realized gain (loss) was increased by $23,575,179 and shares of beneficial interest was decreased by $23,835,257. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. High Yield Securities Fund
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Year ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,110,767 | | | $ | 1,270,624 | | | | 692,930 | | | $ | 784,581 | |
Series II | | | 254,166 | | | | 292,559 | | | | 139,366 | | | | 158,013 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 902,825 | | | | 1,020,193 | | | | 1,164,078 | | | | 1,187,359 | |
Series II | | | 726,627 | | | | 821,089 | | | | 1,044,351 | | | | 1,065,238 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,277,659 | ) | | | (2,610,514 | ) | | | (3,232,497 | ) | | | (3,700,195 | ) |
Series II | | | (2,386,876 | ) | | | (2,736,727 | ) | | | (3,722,675 | ) | | | (4,272,637 | ) |
Net increase (decrease) in share activity | | | (1,670,150 | ) | | $ | (1,942,776 | ) | | | (3,914,447 | ) | | $ | (4,777,641 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 94% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income to
average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 1.06 | | | $ | 0.08 | | | $ | 0.12 | | | $ | 0.20 | | | $ | (0.09 | ) | | $ | 1.17 | | | | 18.86 | % | | $ | 14,432 | | | | 0.90 | %(d) | | | 0.90 | %(d) | | | 6.62 | %(d) | | | 50 | % |
Year ended 12/31/11 | | | 1.15 | | | | 0.07 | | | | (0.06 | ) | | | 0.01 | | | | (0.10 | ) | | | 1.06 | | | | 1.10 | | | | 13,403 | | | | 1.67 | | | | 1.67 | | | | 6.24 | | | | 63 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 1.06 | | | | 0.07 | | | | 0.12 | | | | 0.19 | | | | (0.08 | ) | | | 1.17 | | | | 18.50 | | | | 11,836 | | | | 1.15 | (d) | | | 1.15 | (d) | | | 6.37 | (d) | | | 50 | |
Year ended 12/31/11 | | | 1.15 | | | | 0.07 | | | | (0.06 | ) | | | 0.01 | | | | (0.10 | ) | | | 1.06 | | | | 0.77 | | | | 12,252 | | | | 1.92 | | | | 1.92 | | | | 5.99 | | | | 63 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $14,054 and $12,120 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. |
NOTE 12—Significant Event
The Board of Trustees unanimously approved an Agreement and Plan of Reorganization (the “Agreement”) pursuant to which the Fund would transfer all of its assets and liabilities to Invesco V.I. High Yield Fund (the “Acquiring Fund”).
The Agreement requires approval of the Fund’s shareholders and will be submitted to the shareholders for their consideration at a meeting to be held in or around March 2013. Upon closing of the reorganization, shareholders of the Fund will receive a corresponding class of shares of the Acquiring Fund in exchange for their shares of the Fund and the Fund will liquidate and cease operations.
Invesco V.I. High Yield Securities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. High Yield Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. High Yield Securities Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 26, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period 2,3 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period 2,4 | | |
Series I | | $ | 1,000.00 | | | $ | 1,086.10 | | | $ | 3.30 | | | $ | 1,021.97 | | | $ | 3.20 | | | | 0.63 | % |
Series II | | | 1,000.00 | | | | 1,082.90 | | | | 4.61 | | | | 1,020.71 | | | | 4.47 | | | | 0.88 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. The annualized expense ratios have been restated to reflect litigation expenses. Had these expenses occurred the annualized expense ratios for the most recent fiscal half year would have been 1.14% and 1.39% for Series I and Series II, respectively. |
| 3 | The actual expenses paid restated as if the changes discussed above have been in effect throughout the entire most recent fiscal half year are $5.98 and $7.28 for Series I and Series II, respectively. |
| 4 | The hypothetical expenses paid restated as if the changes discussed above have been in effect throughout the entire most recent fiscal half year are $5.79 and $7.05 for Series I and Series II, respectively. |
Invesco V.I. High Yield Securities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 3.00 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. High Yield Securities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. High Yield Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. High Yield Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. High Yield Securities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. High Yield Securities Fund
Invesco V.I. International Growth Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. International Growth Fund delivered double-digit gains but underperformed its style-specific and peer group benchmarks. The Fund’s high single-digit cash position throughout the fiscal year detracted from performance as markets rebounded at the end of the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 15.53 | % |
| Series II Shares | | | | 15.26 | |
| MSCI EAFE Index‚ (Broad Market Index) | | | | 17.32 | |
| MSCI EAFE Growth Index‚ (Style-Specific Index) | | | | 16.86 | |
| Lipper VUF International Growth Funds Index n (Peer Group Index) | | | | 19.17 | |
| Source | (s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nLipper Inc. |
How we invest
When selecting stocks for your Fund, we use a disciplined investment strategy that emphasizes fundamental research, supported by both quantitative analysis and portfolio construction techniques. Our EQV (earnings, quality, valuation) strategy focuses primarily on identifying quality companies that have experienced, or exhibit the potential for, accelerated or above-average earnings growth, but whose stock prices do not fully reflect these attributes.
While research responsibilities within the portfolio management team are focused by geographic region, we select investments for the Fund using a bottom-up investment approach, which means we construct the Fund primarily on a stock-by-stock basis. We focus on the strengths of individual companies rather than sectors, countries or market-cap trends.
We believe disciplined sell decisions are key to successful investing. We consider selling a stock for one of the following reasons:
| n | | A company’s fundamentals deteriorate, or it posts disappointing earnings. |
| n | | A stock appears overvalued. |
| n | | A more attractive investment opportunity becomes available. |
Market conditions and your Fund
Global equity markets rebounded in the beginning of 2012 following a difficult and volatile year in 2011. Improvements in global economic indicators and continued accommodative policy measures from central banks provided support for the rally in stocks, with some of the worst performing areas of the market in recent years leading the way in the beginning of 2012. During the year, macroeconomic concerns stemming largely from Greece and Spain eased somewhat as the pro-euro party won the Greek elections and Spanish banks were provided a bailout of up to 100 billion euros. Eurozone leaders also took steps to allow for the direct recapitalization of banks through the European Stability Mechanism (the bailout fund) and to move closer to a regional banking union during their most
recent summit. In addition, the European Central Bank (ECB) announced new measures to support eurozone economies through potentially unlimited purchases of sovereign debt, with ECB President Mario Draghi pledging to “do whatever it takes” to save the euro (although key details of the plan remain unresolved). The US Federal Reserve announced a third round of quantitative easing with a promise to continue until the labor market outlook improved materially, and the Bank of Japan took steps to increase its asset purchase program. These easing measures were well received by investors and helped to drive equity markets higher during the year.
In this environment, we continued to construct the Fund’s portfolio with a bottom-up approach, selecting stocks on an individual basis. The Fund fared better than its style-specific benchmark in six of 10 sectors, significantly outperforming in the materials and information technology (IT) sectors. In each sector, strong stock selection was a key driver of relative results.
In the materials sector, strong stock selection led the Fund to meaningfully outperform the style-specific index. The Fund’s underweight exposure to this weak sector versus its style-specific index also supported relative results.
As a group, the Fund’s holdings in the consumer discretionary sector delivered double-digit gains, outperforming the style-specific index’s holdings for the reporting period. The Fund’s holdings in the media, multiline retail and hotels, restaurants and leisure industries were particularly strong. Top contributors in this sector included UK-based retailer Next, German automobile maker Volkswagen and UK-based professional information solutions publisher Reed Elsevier.
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Consumer Discretionary | | | | 22.2 | % |
| Information Technology | | | | 12.5 | |
| Financials | | | | 10.6 | |
| Consumer Staples | | | | 10.2 | |
| Industrials | | | | 9.8 | |
| Health Care | | | | 9.3 | |
| Energy | | | | 8.7 | |
| Materials | | | | 4.8 | |
| Telecommunication Services | | | | 2.4 | |
| Utilities | | | | 0.9 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 8.6 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
| 1. SAP AG | | | | 2.5 | % |
| 2. Reed Elsevier PLC | | | | 2.5 | |
| 3. Compass Group PLC | | | | 2.4 | |
| 4. Anheuser-Busch InBev N.V. | | | | 2.3 | |
| 5. Suncor Energy, Inc. | | | | 2.0 | |
| 6. Imperial Tobacco Group PLC | | | | 2.0 | |
| 7. Brambles Ltd. | | | | 1.8 | |
8. Volkswagen AG-Preference
Shares | | | | 1.8 | |
| 9. Roche Holding AG | | | | 1.8 | |
10. Teva Pharmaceutical Industries
Ltd.-ADR | | | | 1.7 | |
| | | | | |
| Total Net Assets | | | | $1.4 billion | |
| |
| Total Number of Holdings* | | | | 77 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. International Growth Fund
In contrast, stock selection combined with an underweight exposure to the strong-performing consumer staples sector detracted from relative returns.
The Fund’s high single-digit cash position throughout the fiscal year detracted from performance as markets rebounded at the end of the reporting period. It is important to note that we do not use cash for “top-down” tactical asset allocation purposes. Historically when the portfolio’s cash position has been higher than average, it has reflected a lack of good EQV investment opportunities in the market-place rather than an overall negative opinion on markets. However, concerns about further downside risk led us to be cautious investors throughout the reporting period.
In broad geographic terms, the Fund benefited most significantly from strong stock performance in the UK, the largest country allocation in the portfolio. Within the UK, one of the largest contributors to Fund performance included Compass Group, a global leader in foodservice management and support services.
In the Asia Pacific region, outperformance of the style-specific index was led by the Fund’s continued underweight exposure to Japan. The Japanese economy continued to face significant headwinds, including a weak export market, the result of the yen remaining near record highs. This put significant pressure on export-oriented companies. Much of the growth in the Japanese stock market this year reflected a temporary benefit resulting from the resumption of production after the devastating 2011 earthquake and tsunami. In our opinion, this boost is unlikely to last much beyond 2012.
As mentioned above, stock selection in the portfolio is driven by the underlying fundamentals of each individual company, not by any top-down macroeconomic views. This focus on bottom-up stock selection is the key driver of the portfolio’s overall profile. The Fund ended the reporting period with overweight exposure (relative to our style-specific benchmark) to the consumer discretionary, IT, energy and telecommunication services sectors. The Fund had underweight exposure to the consumer staples, materials, industrials, financials, health care and utilities sectors.
With market volatility likely to continue for some time, our focus remains on ensuring that our portfolio is comprised of high-quality, reasonably valued companies capable of sustained earnings growth. We believe that this balanced EQV-focused approach may help deliver attractive returns over the long term.
We thank you for your continued investment in Invesco V.I. International Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Clas Olsson Portfolio manager and chief investment officer of Invesco’s international growth investments team, is |
| lead manager of Invesco V.I. International Growth Fund. He joined Invesco in 1994. Mr. Olsson became a commissioned officer at the Royal Swedish Naval Academy in 1988. He also earned a BBA from The University of Texas at Austin. |
| | |
 | | Steve Cao Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. International Growth |
| Fund. He joined Invesco in 1997. Mr. Cao earned a BA in English from the Tianjin Foreign Language Institute and an MBA from Texas A&M University. He is also a Certified Public Accountant. |
| | |
 | | Matthew Dennis Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. International Growth |
| Fund. He joined Invesco in 2000. Mr. Dennis earned a BA in economics from The University of Texas at Austin and an MS in finance from Texas A&M University. |
| | |
 | | Jason Holzer Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. International Growth |
| Fund. He joined Invesco in 1996. Mr. Holzer earned a BA in quantitative economics and an MS in engineering economic systems from Stanford University. |
| | |
 | | Mark Jason Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. International Growth |
| Fund. He joined Invesco in 2001. Mr. Jason earned a BS in finance and a BS in real estate from California State University, Northridge. |
Invesco V.I. International Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (5/5/93) | | | | 7.41 | % |
| 10 Years | | | | 10.53 | |
| 5 Years | | | | -0.39 | |
| 1 Year | | | | 15.53 | |
| |
| Series II Shares | | | | | |
| Inception (9/19/01) | | | | 7.99 | % |
| 10 Years | | | | 10.25 | |
| 5 Years | | | | -0.64 | |
| 1 Year | | | | 15.26 | |
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. 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.
Invesco V.I. International Growth Fund
Invesco V.I. International Growth Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Geographic focus risk. From time to time the Fund may invest a substantial amount of its assets in securities of issuers located in a single country or a
limited number of countries. If the Fund focuses its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging market countries.
Growth investing risk. Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result they tend to be more sensitive to changes in their earnings and can be more volatile.
Investing in the European Union risk. Many countries in the European Union are susceptible to high economic risks associated with high levels of debt, notably due to investments in sovereign debts of European countries such as Greece, Italy and Spain. One or more member states might exit the European Union, placing its currency and banking system in jeopardy. The European Union faces major issues involving its membership, structure, procedures and policies, including the adoption, abandonment or adjustment of the new constitutional treaty, the European Union’s enlargement to the south and east, and resolution of the European Union’s problematic fiscal and democratic accountability. Efforts of the member states to further unify their economic and monetary policies may increase the potential for the downward movement of one member state’s market to cause a similar effect on other member states’ markets. European countries that are part of the European Economic and Monetary Union may be significantly affected by the tight fiscal and monetary controls that the union seeks to impose on its members.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
About indexes used in this report
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East.
The MSCI EAFE® Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East.
The Lipper VUF International Growth Funds Index is an unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the 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.
Other information
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. International Growth Fund
Schedule of Investments
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–91.38% | |
| Australia–5.14% | |
BHP Billiton Ltd. | | | 387,469 | | | $ | 15,148,628 | |
Brambles Ltd. | | | 3,267,078 | | | | 26,028,641 | |
CSL Ltd. | | | 273,542 | | | | 15,470,076 | |
WorleyParsons Ltd. | | | 657,369 | | | | 16,234,741 | |
| | | | | | | | 72,882,086 | |
|
| Belgium–2.28% | |
Anheuser-Busch InBev N.V. | | | 369,776 | | | | 32,300,729 | |
|
| Brazil–1.73% | |
Banco Bradesco S.A.–ADR | | | 1,416,552 | | | | 24,605,508 | |
|
| Canada–8.39% | |
Agrium Inc. | | | 134,833 | | | | 13,465,643 | |
Canadian National Railway Co. | | | 132,030 | | | | 12,013,972 | |
Canadian Natural Resources Ltd. | | | 340,209 | | | | 9,815,237 | |
Cenovus Energy Inc. | | | 394,929 | | | | 13,243,867 | |
CGI Group Inc.–Class A(a) | | | 508,229 | | | | 11,744,508 | |
Fairfax Financial Holdings Ltd. | | | 39,373 | | | | 14,221,002 | |
Potash Corp. of Saskatchewan Inc. | | | 400,673 | | | | 16,338,514 | |
Suncor Energy, Inc. | | | 858,148 | | | | 28,276,439 | |
| | | | | | | | 119,119,182 | |
|
| China–4.90% | |
Baidu, Inc. –ADR(a) | | | 236,688 | | | | 23,737,439 | |
China Mobile Ltd. | | | 1,480,500 | | | | 17,343,589 | |
CNOOC Ltd. | | | 5,214,000 | | | | 11,449,488 | |
Industrial & Commercial Bank of China Ltd.–Class H | | | 23,652,000 | | | | 17,058,281 | |
| | | | | | | | 69,588,797 | |
|
| Denmark–0.98% | |
Novo Nordisk A.S.–Class B | | | 85,235 | | | | 13,915,642 | |
|
| France–4.53% | |
Cap Gemini S.A. | | | 220,478 | | | | 9,604,393 | |
Eutelsat Communications S.A. | | | 279,237 | | | | 9,267,847 | |
L’Oreal S.A. | | | 71,381 | | | | 9,967,063 | |
Publicis Groupe S.A. | | | 305,046 | | | | 18,269,429 | |
Schneider Electric S.A. | | | 230,673 | | | | 17,197,228 | |
| | | | | | | | 64,305,960 | |
|
| Germany–7.67% | |
Adidas AG | | | 257,459 | | | | 22,934,708 | |
Deutsche Boerse AG | | | 187,535 | | | | 11,441,605 | |
Fresenius Medical Care AG & Co. KGaA | | | 204,991 | | | | 14,157,368 | |
SAP AG | | | 439,795 | | | | 35,216,315 | |
Volkswagen AG–Preference Shares | | | 110,415 | | | | 25,109,575 | |
| | | | | | | | 108,859,571 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Hong Kong–2.26% | |
Galaxy Entertainment Group Ltd.(a) | | | 4,009,000 | | | $ | 15,992,445 | |
Hutchison Whampoa Ltd. | | | 1,510,000 | | | | 16,019,674 | |
| | | | | | | | 32,012,119 | |
|
| Ireland–1.71% | |
Shire PLC | | | 260,953 | | | | 8,016,868 | |
WPP PLC | | | 1,119,631 | | | | 16,280,888 | |
| | | | | | | | 24,297,756 | |
|
| Israel–1.74% | |
Teva Pharmaceutical Industries Ltd.–ADR | | | 660,798 | | | | 24,674,197 | |
|
| Japan–5.28% | |
Canon Inc. | | | 150,100 | | | | 5,879,443 | |
Denso Corp. | | | 287,600 | | | | 9,993,755 | |
Fanuc Corp. | | | 73,700 | | | | 13,687,365 | |
Keyence Corp. | | | 73,500 | | | | 20,258,450 | |
Komatsu Ltd. | | | 297,837 | | | | 7,611,387 | |
Toyota Motor Corp. | | | 375,200 | | | | 17,489,832 | |
| | | | | | | | 74,920,232 | |
|
| Mexico–3.65% | |
America Movil S.A.B. de C.V.–ADR | | | 698,812 | | | | 16,170,510 | |
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | | | 120,151 | | | | 12,099,206 | |
Grupo Televisa S.A.B.–ADR | | | 884,282 | | | | 23,504,215 | |
| | | | | | | | 51,773,931 | |
|
| Netherlands–1.23% | |
Unilever N.V. | | | 463,092 | | | | 17,466,912 | |
|
| Singapore–2.33% | |
Keppel Corp. Ltd. | | | 2,125,661 | | | | 19,317,156 | |
United Overseas Bank Ltd. | | | 837,000 | | | | 13,710,429 | |
| | | | | | | | 33,027,585 | |
|
| South Korea–2.52% | |
Hyundai Mobis | | | 73,457 | | | | 20,039,083 | |
NHN Corp. | | | 73,018 | | | | 15,659,797 | |
| | | | | | | | 35,698,880 | |
|
| Spain–1.13% | |
Amadeus IT Holding S.A.–Class A | | | 641,922 | | | | 16,101,842 | |
|
| Sweden–4.40% | |
Investment AB Kinnevik–Class B | | | 433,738 | | | | 9,064,947 | |
Investor AB–Class B | | | 636,032 | | | | 16,685,473 | |
Swedbank AB–Class A | | | 727,648 | | | | 14,321,917 | |
Telefonaktiebolaget LM Ericsson–Class B | | | 1,036,186 | | | | 10,424,396 | |
Volvo AB–Class B | | | 864,575 | | | | 11,924,701 | |
| | | | | | | | 62,421,434 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Switzerland–8.02% | |
ABB Ltd. | | | 753,828 | | | $ | 15,637,881 | |
Julius Baer Group Ltd. | | | 401,686 | | | | 14,438,699 | |
Nestle S.A. | | | 323,111 | | | | 21,034,861 | |
Novartis AG | | | 239,018 | | | | 15,118,542 | |
Roche Holding AG | | | 122,208 | | | | 24,873,698 | |
Syngenta AG | | | 56,333 | | | | 22,702,679 | |
| | | | | | | | 113,806,360 | |
|
| Taiwan–1.08% | |
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | | | 890,024 | | | | 15,272,812 | |
|
| Turkey–1.07% | |
Akbank T.A.S. | | | 3,053,947 | | | | 15,117,871 | |
|
| United Kingdom–18.40% | |
BG Group PLC | | | 1,215,588 | | | | 20,388,951 | |
British American Tobacco PLC | | | 474,212 | | | | 24,034,994 | |
British Sky Broadcasting Group PLC | | | 1,192,941 | | | | 14,906,230 | |
Centrica PLC | | | 2,347,627 | | | | 12,756,766 | |
Compass Group PLC | | | 2,820,635 | | | | 33,368,221 | |
Gazprom OAO–ADR | | | 760,500 | | | | 7,292,338 | |
Imperial Tobacco Group PLC | | | 725,580 | | | | 28,025,923 | |
Informa PLC | | | 1,688,165 | | | | 12,492,433 | |
Kingfisher PLC | | | 3,498,804 | | | | 16,151,672 | |
Next PLC | | | 234,536 | | | | 14,479,743 | |
Pearson PLC | | | 532,595 | | | | 10,414,768 | |
Reed Elsevier PLC | | | 3,325,189 | | | | 34,923,812 | |
Royal Dutch Shell PLC–Class B | | | 471,279 | | | | 16,684,290 | |
Smith & Nephew PLC | | | 1,371,839 | | | | 15,185,836 | |
| | | | | | | | 261,105,977 | |
|
| United States–0.94% | |
Avago Technologies Ltd. | | | 420,309 | | | | 13,306,983 | |
Total Common Stocks & Other Equity Interests (Cost $934,547,606) | | | | 1,296,582,366 | |
| | | | | | | | |
| | | Shares | | | Value | |
Money Market Funds–8.50% | |
Liquid Assets Portfolio–Institutional Class(b) | | | 60,276,542 | | | $ | 60,276,542 | |
Premier Portfolio–Institutional Class(b) | | | 60,276,541 | | | | 60,276,541 | |
Total Money Market Funds
(Cost $120,553,083) | | | | 120,553,083 | |
TOTAL INVESTMENTS–99.88%
(Cost $1,055,100,689) | | | | 1,417,135,449 | |
OTHER ASSETS LESS LIABILITIES–0.12% | | | | 1,715,913 | |
NET ASSETS–100.00% | | | $ | 1,418,851,362 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Non-income producing security. |
| (b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $934,547,606) | | $ | 1,296,582,366 | |
Investments in affiliated money market funds, at value and cost | | | 120,553,083 | |
Total investments, at value (Cost $1,055,100,689) | | | 1,417,135,449 | |
Foreign currencies, at value (Cost $514,174) | | | 517,416 | |
Receivable for: | | | | |
Investments sold | | | 1,295,738 | |
Fund shares sold | | | 957,495 | |
Dividends | | | 2,009,696 | |
Investment for trustee deferred compensation and retirement plans | | | 77,819 | |
Other assets | | | 190 | |
Total assets | | | 1,421,993,803 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 1,484,710 | |
Accrued fees to affiliates | | | 1,340,432 | |
Accrued other operating expenses | | | 95,647 | |
Trustee deferred compensation and retirement plans | | | 221,652 | |
Total liabilities | | | 3,142,441 | |
Net assets applicable to shares outstanding | | $ | 1,418,851,362 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 1,284,343,013 | |
Undistributed net investment income | | | 13,999,707 | |
Undistributed net realized gain (loss) | | | (241,544,197 | ) |
Unrealized appreciation | | | 362,052,839 | |
| | | $ | 1,418,851,362 | |
|
Net Assets: | |
Series I | | $ | 591,490,817 | |
Series II | | $ | 827,360,545 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 19,695,815 | |
Series II | | | 27,873,359 | |
Series I: | | | | |
Net asset value per share | | $ | 30.03 | |
Series II: | | | | |
Net asset value per share | | $ | 29.68 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $2,612,167) | | $ | 29,217,575 | |
Dividends from affiliated money market funds | | | 173,207 | |
Total investment income | | | 29,390,782 | |
| |
Expenses: | | | | |
Advisory fees | | | 9,327,362 | |
Administrative services fees | | | 3,480,071 | |
Custodian fees | | | 338,600 | |
Distribution fees — Series II | | | 1,828,836 | |
Transfer agent fees | | | 65,691 | |
Trustees’ and officers’ fees and benefits | | | 69,138 | |
Other | | | 55,474 | |
Total expenses | | | 15,165,172 | |
Less: Fees waived | | | (175,809 | ) |
Net expenses | | | 14,989,363 | |
Net investment income | | | 14,401,419 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $37,339) | | | 16,963,841 | |
Foreign currencies | | | (216,406 | ) |
| | | | 16,747,435 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities (net of foreign taxes of $52,335) | | | 154,116,074 | |
Foreign currencies | | | (242,300 | ) |
| | | | 153,873,774 | |
Net realized and unrealized gain | | | 170,621,209 | |
Net increase in net assets resulting from operations | | $ | 185,022,628 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income | | $ | 14,401,419 | | | $ | 19,119,924 | |
Net realized gain | | | 16,747,435 | | | | 53,816,330 | |
Change in net unrealized appreciation (depreciation) | | | 153,873,774 | | | | (159,536,857 | ) |
Net increase (decrease) in net assets resulting from operations | | | 185,022,628 | | | | (86,600,603 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (8,556,390 | ) | | | (8,703,100 | ) |
Series ll | | | (9,968,702 | ) | | | (6,565,728 | ) |
Total distributions from net investment income | | | (18,525,092 | ) | | | (15,268,828 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (26,680,260 | ) | | | 6,595,238 | |
Series ll | | | 127,622,176 | | | | 90,856,363 | |
Net increase in net assets resulting from share transactions | | | 100,941,916 | | | | 97,451,601 | |
Net increase (decrease) in net assets | | | 267,439,452 | | | | (4,417,830 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,151,411,910 | | | | 1,155,829,740 | |
End of year (includes undistributed net investment income of $13,999,707 and $18,339,786, respectively) | | $ | 1,418,851,362 | | | $ | 1,151,411,910 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. International Growth Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the performance of their duties to the Fund. Additionally, in the normal course of business, the |
Invesco V.I. International Growth Fund
| | Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable.
| J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | | | |
| Average Net Assets | | Rate |
First $250 million | | | 0 | .75% | | |
Over $250 million | | | 0 | .70% | | |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada 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 July 1, 2012, the Adviser has 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 2.25% and Series II shares to 2.50% of average daily net assets. Prior to July 1, 2012, 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 1.11% and Series II shares to 1.36% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $175,809.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $309,850 for accounting and fund administrative services and reimbursed $3,170,221 for services provided by insurance companies.
Invesco V.I. International Growth 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $370,338,789 and from Level 2 to Level 1 of $21,034,861, due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Australia | | $ | — | | | $ | 72,882,086 | | | $ | — | | | $ | 72,882,086 | |
Belgium | | | — | | | | 32,300,729 | | | | — | | | | 32,300,729 | |
Brazil | | | 24,605,508 | | | | — | | | | — | | | | 24,605,508 | |
Canada | | | 119,119,182 | | | | — | | | | — | | | | 119,119,182 | |
China | | | 23,737,439 | | | | 45,851,358 | | | | — | | | | 69,588,797 | |
Denmark | | | — | | | | 13,915,642 | | | | — | | | | 13,915,642 | |
France | | | — | | | | 64,305,960 | | | | — | | | | 64,305,960 | |
Germany | | | 35,216,315 | | | | 73,643,256 | | | | — | | | | 108,859,571 | |
Hong Kong | | | — | | | | 32,012,119 | | | | — | | | | 32,012,119 | |
Ireland | | | — | | | | 24,297,756 | | | | — | | | | 24,297,756 | |
Israel | | | 24,674,197 | | | | — | | | | — | | | | 24,674,197 | |
Japan | | | — | | | | 74,920,232 | | | | — | | | | 74,920,232 | |
Mexico | | | 51,773,931 | | | | — | | | | — | | | | 51,773,931 | |
Netherlands | | | — | | | | 17,466,912 | | | | — | | | | 17,466,912 | |
Singapore | | | — | | | | 33,027,585 | | | | — | | | | 33,027,585 | |
South Korea | | | — | | | | 35,698,880 | | | | — | | | | 35,698,880 | |
Spain | | | — | | | | 16,101,842 | | | | — | | | | 16,101,842 | |
Sweden | | | — | | | | 62,421,434 | | | | — | | | | 62,421,434 | |
Switzerland | | | 21,034,861 | | | | 92,771,499 | | | | — | | | | 113,806,360 | |
Taiwan | | | 15,272,812 | | | | — | | | | — | | | | 15,272,812 | |
Turkey | | | — | | | | 15,117,871 | | | | — | | | | 15,117,871 | |
United Kingdom | | | 16,151,672 | | | | 244,954,305 | | | | — | | | | 261,105,977 | |
United States | | | 133,860,066 | | | | — | | | | — | | | | 133,860,066 | |
| | | $ | 465,445,983 | | | $ | 951,689,466 | | | $ | — | | | $ | 1,417,135,449 | |
Invesco V.I. International Growth 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 year ended December 31, 2012, the Fund engaged in securities sales of $135,819, which resulted in net realized gains of $37,339.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 18,525,092 | | | $ | 15,268,828 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 17,912,503 | |
Net unrealized appreciation—investments | | | 340,322,039 | |
Net unrealized appreciation —other investments | | | 18,079 | |
Temporary book/tax differences | | | (212,381 | ) |
Capital loss carryforward | | | (223,531,891 | ) |
Shares of beneficial interest | | | 1,284,343,013 | |
Total net assets | | $ | 1,418,851,362 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and passive foreign investment companies.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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. International Growth Fund
The Fund utilized $12,836,124 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 42,539,639 | | | $ | — | | | $ | 42,539,639 | |
December 31, 2017 | | | 143,189,697 | | | | — | | | | 143,189,697 | |
December 31, 2018 | | | 37,802,555 | | | | — | | | | 37,802,555 | |
| | | $ | 223,531,891 | | | $ | — | | | $ | 223,531,891 | |
| * | 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 02, 2011, the date of the reorganizations of Invesco Van Kampen V.I. International Growth Equity Fund into the Fund are 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 year ended December 31, 2012 was $356,811,603 and $289,652,148, 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 | | $ | 349,103,402 | |
Aggregate unrealized (depreciation) of investment securities | | | (8,781,363 | ) |
Net unrealized appreciation of investment securities | | $ | 340,322,039 | |
Cost of investments for tax purposes is $1,076,813,410.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2012, undistributed net investment income was decreased by $216,406 and undistributed net realized gain (loss) was increased by $216,406. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Year ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 3,825,772 | | | $ | 108,462,127 | | | | 4,674,557 | | | $ | 132,444,153 | |
Series II | | | 7,868,132 | | | | 219,142,823 | | | | 5,695,478 | | | | 157,043,118 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 293,127 | | | | 8,556,390 | | | | 292,246 | | | | 8,703,100 | |
Series II | | | 345,296 | | | | 9,968,702 | | | | 222,492 | | | | 6,565,728 | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 426 | | | | 13,190 | |
Series II | | | — | | | | — | | | | 1,107,888 | | | | 34,002,342 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (5,060,588 | ) | | | (143,698,777 | ) | | | (4,761,021 | ) | | | (134,565,205 | ) |
Series II | | | (3,624,167 | ) | | | (101,489,349 | ) | | | (3,833,060 | ) | | | (106,754,825 | ) |
Net increase in share activity | | | 3,647,572 | | | $ | 100,941,916 | | | | 3,399,006 | | | $ | 97,451,601 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 32% 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 Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. International Growth Fund
| (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 (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target 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. |
| | The pro forma results of operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 19,406,572 | |
Net realized/unrealized gains (losses) | | | (102,914,763 | ) |
Change in net assets resulting from operations | | $ | (83,508,191 | ) |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses) on
securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio
of net
investment
income to
average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 26.37 | | | $ | 0.35 | | | $ | 3.73 | | | $ | 4.08 | | | $ | (0.42 | ) | | $ | — | | | $ | (0.42 | ) | | $ | 30.03 | | | | 15.53 | % | | $ | 591,491 | | | | 1.00 | %(d) | | | 1.01 | %(d) | | | 1.24 | %(d) | | | 24 | % |
Year ended 12/31/11 | | | 28.69 | | | | 0.50 | | | | (2.38 | ) | | | (1.88 | ) | | | (0.44 | ) | | | — | | | | (0.44 | ) | | | 26.37 | | | | (6.74 | ) | | | 544,143 | | | | 1.02 | | | | 1.03 | | | | 1.75 | | | | 26 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 26.08 | | | | 0.28 | | | | 3.69 | | | | 3.97 | | | | (0.37 | ) | | | — | | | | (0.37 | ) | | | 29.68 | | | | 15.26 | | | | 827,361 | | | | 1.25 | (d) | | | 1.26 | (d) | | | 0.99 | (d) | | | 24 | |
Year ended 12/31/11 | | | 28.35 | | | | 0.42 | | | | (2.36 | ) | | | (1.94 | ) | | | (0.33 | ) | | | — | | | | (0.33 | ) | | | 26.08 | | | | (6.99 | ) | | | 607,269 | | | | 1.27 | | | | 1.28 | | | | 1.50 | | | | 26 | |
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 | |
| (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 year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $23,376,285 and sold of $8,831,296 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 based on average daily net assets (000’s omitted) of $583,089 and $731,534 for Series I and Series II, respectively. |
Invesco V.I. International Growth Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. International Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. International Growth Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | Actual | | | HYPOTHETICAL (5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period 2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period 2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,106.20 | | | $ | 5.35 | | | $ | 1,020.06 | | | $ | 5.13 | | | | 1.01 | % |
Series II | | | 1,000.00 | | | | 1,104.70 | | | | 6.67 | | | | 1,018.80 | | | | 6.39 | | | | 1.26 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction * | | | 0 | % |
Foreign Taxes | | $ | 0.0506 | per share |
Foreign Source Income | | $ | 0.6547 | per share |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. International Growth Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. International Growth Fund
Invesco V.I. Mid Cap Core Equity Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
Invesco V.I. Mid Cap Core Equity Fund delivered positive returns for the year ended December 31, 2012, which trailed the broad market as measured by the S&P 500 Index and the Fund’s style-specific benchmark, the Russell Midcap Index. The Fund benefited from holdings in the industrials and information technology (IT) sectors, while the energy sector detracted from both absolute and relative results. The Fund’s underweight position in the consumer discretionary sector was the largest detractor from results versus the style-specific benchmark. The Fund’s allocation to cash also tempered results for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 10.96 | % |
| Series II Shares | | | | 10.62 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell Midcap Index¡ (Style-Specific Index) | | | | 17.28 | |
| Lipper VUF Mid-Cap Core Funds Index¿ (Peer Group Index) | | | | 16.60 | |
| Source(s): | ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; |
| | ¡Invesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
How we invest
We seek to manage your Fund with the goal of achieving long-run realized investor returns in excess of the Fund’s passive benchmarks across a full market cycle, which we define as market trough to market trough, or peak-to-peak. As Fund managers, we believe investors need a reason to stick with the Fund for long periods of time in order to realize these returns, and believe the best way we can encourage this behavior is by delivering a smoother (less volatile) investor experience – especially in turbulent, down-trending markets. The portfolio we construct is intended to provide attractive participation during positive-trending equity markets, but with a greater emphasis on comparative downside protection during more turbulent, down-trending equity markets. We position the Fund to act as a “conservative cornerstone” – a stable foundational component within a well-diversified portfolio of assets.
The Fund’s portfolio is composed of “core stocks.” A core stock encompasses elements of growth (revenues, profits, economic value) and value (both absolute and comparative measures). Along this growth-value continuum, we seek to identify and invest in areas of temporary disconnection between market perception and the view our research uncovers.
To build a portfolio of core stocks, we conduct thorough fundamental research of businesses to gain a deeper understanding of the companies’ prospects, growth potential and return on invested capital (ROIC) characteristics. The analytical process we use to identify potential investments for the Fund includes three phases: financial, business and valuation.
Financial analysis provides insights into historical ROIC (a key indicator of business quality) and historical capital allocation (a key indicator of management quality). Business analysis evaluates the competitive landscape and any structural or cyclical business opportunities or threats and allows us to identify key revenue, profit
and return drivers of the company. Both the financial and business analyses serve as bases to construct valuation models that help us assess a company’s intrinsic worth. Our valuation analysis employs three primary techniques, including discounted cash flow, traditional valuation multiples and net asset value.
We consider selling a stock when it exceeds our target price, we have not seen a demonstrable improvement in fundamentals, or a more compelling investments opportunity exists.
Market conditions and your Fund
The year began with improving economic data in the US and a rally in the equity markets. However, the ongoing European debt crisis intensified in April and May, dominating headlines and creating significant volatility in equity markets across the globe.
With pressure from overseas, US economic data began to decelerate and indicators for manufacturing, employment, consumer spending and consumer confidence weakened over the summer. Despite these headwinds, corporate earnings were resilient, and the equity markets delivered strong results for the year. All sectors in the S&P 500 Index posted gains. The financials and consumer discretionary sectors were the leading performers, while the utilities and energy sectors lagged.
The Fund’s investments in industrials were the largest contributor to returns for the reporting period, including companies such as Terex, a global equipment manufacturer. The company’s commercial construction, late-cycle end markets had been depressed in recent years. We invested in the company as we believed there were opportunities to improve working capital and increase margins and believed that its aerial work platforms business had troughed. The stock performed well during the reporting period as strong sales growth indicated a more
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Information Technology | | | | 17.6 | % |
| Industrials | | | | 12.2 | |
| Financials | | | | 11.4 | |
| Consumer Staples | | | | 8.8 | |
| Health Care | | | | 8.8 | |
| Consumer Discretionary | | | | 8.0 | |
| Materials | | | | 7.6 | |
| Energy | | | | 6.8 | |
| Utilities | | | | 0.7 | |
| Money Market Funds Plus Other Assets Less Liabilities | | | | 18.1 | |
| | | | | |
| Top 10 Equity Holdings* | | |
| | | | | |
| | | | | |
1. Kellogg Co. | | | | 2.4 | % |
2. Linear Technology Corp. | | | | 2.3 | |
3. Northern Trust Corp. | | | | 2.1 | |
4. Symantec Corp. | | | | 2.0 | |
5. Progressive Corp. (The) | | | | 1.9 | |
6. Xilinx, Inc. | | | | 1.7 | |
7. Agilent Technologies, Inc. | | | | 1.7 | |
8. Dr. Pepper Snapple Group, Inc. | | | | 1.6 | |
9. International Flavors & Fragrances Inc. | | | | 1.6 | |
| 10. Amphenol Corp.-Class A | | | | 1.6 | |
| | | | | |
| Total Net Assets | | | | $377.3 million | |
| |
| Total Number of Holdings* | | | | 80 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Mid Cap Core Equity Fund
sustainable recovery in its end markets, and we trimmed our position as a result.
Another strong contributor to the Fund’s results was Adobe. The company is a leading provider of creative multimedia, content-authoring software and document technologies, and it markets widely known software products, such as Photoshop, Illustrator, Acrobat and Flash. In our opinion, Adobe is a high-quality company that is a dominant player in its respective business lines. We invested in the company several years ago as its growth slowed and a series of acquisitions created some uncertainty. The stock performed well during the reporting period as expanded product offerings improved sales. We used the opportunity to reduce our position in the stock.
The largest detractor for the reporting period was Weatherford International. The company dealt with a series of tax reporting issues, which included a restatement of its financial results for the second consecutive year. As a result of these issues, the company’s chief financial officer departed in March, which we believe was a step in the right direction. We believe the company is currently undervalued and, in the long term, has an opportunity to improve margins and capital efficiency.
Another detractor was Navistar, which manufactures heavy and medium trucks. The company’s stock was under pressure due to decelerating industry truck orders across segments and geographies and a failed emission certification from the Environmental Protection Agency. While the company took appropriate steps to rationalize costs, reduce facilities and improve its balance sheet, we had greater confidence in the risk/reward profile of other investments and sold our position during the reporting period.
Over the course of the fiscal year, we took profits in the health care, energy and industrials sectors and increased our exposure to the consumer staples and materials sectors. At the end of the reporting period, our largest overweight positions relative to the Russell Midcap Index were in the IT and consumer staples sectors, and the largest underweight positions were in the consumer discretionary and financials sectors.
Regardless of market conditions, our goal remains the same: to serve as a conservative cornerstone for your mid-cap investment allocation, seeking to provide upside participation with a measure of downside protection, so that over a full market cycle we have the potential to deliver strong investment results with
reduced risk relative to the Fund’s style-specific benchmark. As always, we would like to thank you for your continued investment in Invesco V.I. Mid Cap Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Ronald Sloan Chartered Financial Analyst, portfolio manager and chief investment officer of Invesco’s domestic core |
| investments team, is lead manager of Invesco V.I. Mid Cap Core Equity Fund. He joined Invesco in 1998. Mr. Sloan earned a BS in business administration and an MBA from the University of Missouri. |
| | |
 | | Douglas Asiello Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Mid Cap Core Equity Fund. He |
| joined Invesco in 2000. Mr. Asiello earned a BA in international relations and Spanish from Vanderbilt University. He also earned an MBA with a concentration in finance from the Wharton School and an MA in international management from the Joseph H. Lauder Institute of Management and International Studies, both of the University of Pennsylvania. |
| | |
 | | Brian Nelson Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Mid Cap Core Equity Fund. He |
| joined Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara. |
Invesco V.I. Mid Cap Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
Average Annual Total Returns
As of 12/31/12
| | | | | |
| Series I Shares | | | | | |
| Inception (9/10/01) | | | | 6.33 | % |
| 10 Years | | | | 7.68 | |
| 5 Years | | | | 1.99 | |
| 1 Year | | | | 10.96 | |
| |
| Series II Shares | | | | | |
| Inception (9/10/01) | | | | 6.07 | % |
| 10 Years | | | | 7.42 | |
| 5 Years | | | | 1.74 | |
| 1 Year | | | | 10.62 | |
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
Invesco V.I. Mid Cap Core Equity Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Cash/cash equivalents risk. Holding cash or cash equivalents may negatively affect performance.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small and mid-capitalization risk. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–81.94% | |
| Aerospace & Defense–1.52% | |
Exelis Inc. | | | 223,686 | | | $ | 2,520,941 | |
Moog Inc.–Class A(b) | | | 78,143 | | | | 3,206,208 | |
| | | | | | | | 5,727,149 | |
|
| Apparel Retail–0.32% | |
Guess?, Inc. | | | 49,272 | | | | 1,209,135 | |
|
| Application Software–1.51% | |
Adobe Systems Inc.(b) | | | 151,272 | | | | 5,699,929 | |
|
| Asset Management & Custody Banks–2.06% | |
Northern Trust Corp. | | | 155,205 | | | | 7,785,083 | |
|
| Brewers–2.47% | |
Boston Beer Company, Inc. (The)–Class A(b) | | | 30,322 | | | | 4,076,793 | |
Molson Coors Brewing Co.–Class B | | | 122,754 | | | | 5,252,644 | |
| | | | | | | | 9,329,437 | |
|
| Communications Equipment–2.78% | |
Acme Packet, Inc.(b) | | | 107,014 | | | | 2,367,149 | |
F5 Networks, Inc.(b) | | | 48,325 | | | | 4,694,774 | |
Polycom, Inc.(b) | | | 196,765 | | | | 2,058,162 | |
Tellabs, Inc. | | | 605,607 | | | | 1,380,784 | |
| | | | | | | | 10,500,869 | |
|
| Computer & Electronics Retail–1.11% | |
GameStop Corp.–Class A | | | 167,490 | | | | 4,202,324 | |
|
| Computer Storage & Peripherals–1.09% | |
NetApp, Inc.(b) | | | 122,501 | | | | 4,109,909 | |
|
| Construction & Engineering–1.00% | |
Chicago Bridge & Iron Co. N.V.–New York Shares | | | 81,227 | | | | 3,764,871 | |
|
| Construction & Farm Machinery & Heavy Trucks–1.86% | |
Joy Global Inc. | | | 48,905 | | | | 3,119,161 | |
Terex Corp.(b) | | | 139,152 | | | | 3,911,563 | |
| | | | | | | | 7,030,724 | |
|
| Construction Materials–0.99% | |
CRH PLC (Ireland) | | | 180,903 | | | | 3,752,330 | |
|
| Data Processing & Outsourced Services–0.44% | |
Western Union Co. (The) | | | 121,304 | | | | 1,650,947 | |
|
| Department Stores–0.83% | |
Macy’s, Inc. | | | 80,121 | | | | 3,126,321 | |
|
| Diversified Chemicals–1.23% | |
Huntsman Corp. | | | 292,877 | | | | 4,656,744 | |
|
| Diversified Metals & Mining–0.77% | |
Compass Minerals International, Inc. | | | 38,633 | | | | 2,886,271 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Electronic Components–1.56% | |
Amphenol Corp.–Class A | | | 91,232 | | | $ | 5,902,710 | |
|
| Electronic Manufacturing Services–0.93% | |
Molex Inc. | | | 128,999 | | | | 3,525,543 | |
|
| Environmental & Facilities Services–1.28% | |
Republic Services, Inc. | | | 165,020 | | | | 4,840,037 | |
|
| Food Retail–0.61% | |
Safeway Inc. | | | 127,620 | | | | 2,308,646 | |
|
| Footwear–0.96% | |
Wolverine World Wide, Inc. | | | 88,668 | | | | 3,633,615 | |
|
| General Merchandise Stores–1.99% | |
Big Lots, Inc.(b) | | | 145,714 | | | | 4,147,020 | |
Family Dollar Stores, Inc. | | | 53,180 | | | | 3,372,144 | |
| | | | | | | | 7,519,164 | |
|
| Health Care Equipment–0.78% | |
Boston Scientific Corp.(b) | | | 512,227 | | | | 2,935,061 | |
|
| Health Care Services–0.81% | |
Quest Diagnostics Inc. | | | 52,126 | | | | 3,037,382 | |
|
| Homebuilding–0.77% | |
D.R. Horton, Inc. | | | 147,080 | | | | 2,909,242 | |
|
| Industrial Machinery–4.96% | |
Dover Corp. | | | 63,831 | | | | 4,194,335 | |
Flowserve Corp. | | | 22,008 | | | | 3,230,774 | |
ITT Corp. | | | 191,037 | | | | 4,481,728 | |
SPX Corp. | | | 44,070 | | | | 3,091,511 | |
Stanley Black & Decker Inc. | | | 49,960 | | | | 3,695,541 | |
| | | | | | | | 18,693,889 | |
|
| Insurance Brokers–1.33% | |
Marsh & McLennan Cos., Inc. | | | 145,297 | | | | 5,008,388 | |
|
| Investment Banking & Brokerage–0.96% | |
Charles Schwab Corp. (The) | | | 250,884 | | | | 3,602,694 | |
|
| Life & Health Insurance–1.40% | |
Torchmark Corp. | | | 102,154 | | | | 5,278,297 | |
|
| Life Sciences Tools & Services–2.56% | |
Agilent Technologies, Inc. | | | 157,777 | | | | 6,459,391 | |
Life Technologies Corp.(b) | | | 64,990 | | | | 3,189,709 | |
| | | | | | | | 9,649,100 | |
|
| Managed Health Care–2.44% | |
Aetna Inc. | | | 85,794 | | | | 3,972,262 | |
Health Net Inc.(b) | | | 98,271 | | | | 2,387,985 | |
Humana Inc. | | | 41,341 | | | | 2,837,233 | |
| | | | | | | | 9,197,480 | |
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 | |
| Marine–0.91% | |
Kirby Corp.(b) | | | 55,181 | | | $ | 3,415,152 | |
|
| Multi-Sector Holdings–0.37% | |
PICO Holdings, Inc.(b) | | | 69,441 | | | | 1,407,569 | |
|
| Multi-Utilities–0.75% | |
CMS Energy Corp. | | | 116,127 | | | | 2,831,176 | |
|
| Office Services & Supplies–1.68% | |
Avery Dennison Corp. | | | 124,324 | | | | 4,341,394 | |
Pitney Bowes Inc. | | | 186,668 | | | | 1,986,148 | |
| | | | | | | | 6,327,542 | |
|
| Oil & Gas Drilling–0.90% | |
Transocean Ltd.(b) | | | 75,810 | | | | 3,384,917 | |
|
| Oil & Gas Equipment & Services–4.02% | |
Cameron International Corp.(b) | | | 62,789 | | | | 3,545,067 | |
Dresser-Rand Group, Inc.(b) | | | 53,974 | | | | 3,030,100 | |
Lufkin Industries, Inc. | | | 49,589 | | | | 2,882,609 | |
Weatherford International Ltd.(b) | | | 509,144 | | | | 5,697,321 | |
| | | | | | | | 15,155,097 | |
|
| Oil & Gas Exploration & Production–1.89% | |
Concho Resources Inc.(b) | | | 30,016 | | | | 2,418,089 | |
Southwestern Energy Co.(b) | | | 111,171 | | | | 3,714,223 | |
Talisman Energy Inc. (Canada) | | | 87,198 | | | | 988,191 | |
| | | | | | | | 7,120,503 | |
|
| Packaged Foods & Meats–3.57% | |
JM Smucker Co. (The) | | | 51,757 | | | | 4,463,524 | |
Kellogg Co. | | | 161,468 | | | | 9,017,988 | |
| | | | | | | | 13,481,512 | |
|
| Paper Packaging–0.88% | |
Packaging Corp. of America | | | 86,087 | | | | 3,311,767 | |
|
| Personal Products–0.53% | |
Avon Products, Inc. | | | 138,269 | | | | 1,985,543 | |
|
| Pharmaceuticals–2.19% | |
Endo Health Solutions Inc.(b) | | | 117,874 | | | | 3,096,550 | |
Shire PLC–ADR (Ireland) | | | 56,134 | | | | 5,174,432 | |
| | | | | | | | 8,270,982 | |
|
| Property & Casualty Insurance–2.90% | |
Arch Capital Group Ltd.(b) | | | 89,692 | | | | 3,948,242 | |
Progressive Corp. (The) | | | 330,726 | | | | 6,978,318 | |
| | | | | | | | 10,926,560 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Restaurants–1.05% | |
Darden Restaurants, Inc. | | | 87,582 | | | $ | 3,947,321 | |
|
| Semiconductor Equipment–2.05% | |
Lam Research Corp.(b) | | | 89,479 | | | | 3,232,876 | |
Teradyne, Inc.(b) | | | 266,621 | | | | 4,503,229 | |
| | | | | | | | 7,736,105 | |
|
| Semiconductors–4.82% | |
Hittite Microwave Corp.(b) | | | 5,850 | | | | 363,285 | |
Linear Technology Corp. | | | 247,183 | | | | 8,478,377 | |
Microchip Technology Inc. | | | 86,858 | | | | 2,830,702 | |
Xilinx, Inc. | | | 181,576 | | | | 6,518,579 | |
| | | | | | | | 18,190,943 | |
|
| Soft Drinks–1.60% | |
Dr. Pepper Snapple Group, Inc. | | | 136,234 | | | | 6,018,818 | |
|
| Specialized Finance–1.13% | |
Moody’s Corp. | | | 85,062 | | | | 4,280,320 | |
|
| Specialty Chemicals–3.09% | |
International Flavors & Fragrances Inc. | | | 89,648 | | | | 5,965,178 | |
Sigma-Aldrich Corp. | | | 77,547 | | | | 5,705,908 | |
| | | | | | | | 11,671,086 | |
|
| Steel–0.61% | |
Allegheny Technologies, Inc. | | | 75,368 | | | | 2,288,172 | |
|
| Systems Software–2.45% | |
CA, Inc. | | | 77,298 | | | | 1,699,010 | |
Symantec Corp.(b) | | | 400,779 | | | | 7,538,653 | |
| | | | | | | | 9,237,663 | |
|
| Thrifts & Mortgage Finance–1.23% | |
People’s United Financial Inc. | | | 383,692 | | | | 4,638,836 | |
Total Common Stocks & Other Equity Interests
(Cost $268,701,606) | | | | 309,100,875 | |
| | |
Money Market Funds–18.82% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(c) | | | 35,505,592 | | | | 35,505,592 | |
Premier Portfolio–Institutional Class(c) | | | 35,505,593 | | | | 35,505,593 | |
Total Money Market Funds
(Cost $71,011,185) | | | | | | | 71,011,185 | |
TOTAL INVESTMENTS–100.76%
(Cost $339,712,791) | | | | 380,112,060 | |
OTHER ASSETS LESS LIABILITIES–(0.76)% | | | | (2,856,291 | ) |
NET ASSETS–100.00% | | | $ | 377,255,769 | |
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. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $268,701,606) | | $ | 309,100,875 | |
Investments in affiliated money market funds, at value and cost | | | 71,011,185 | |
Total investments, at value (Cost $339,712,791) | | | 380,112,060 | |
Foreign currencies, at value (Cost $12,627) | | | 12,512 | |
Receivable for: | | | | |
Investments sold | | | 74,920 | |
Fund shares sold | | | 158,200 | |
Dividends | | | 187,277 | |
Investment for trustee deferred compensation and retirement plans | | | 37,130 | |
Total assets | | | 380,582,099 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 2,325,949 | |
Fund shares reacquired | | | 550,273 | |
Accrued fees to affiliates | | | 293,125 | |
Accrued other operating expenses | | | 51,461 | |
Trustee deferred compensation and retirement plans | | | 105,522 | |
Total liabilities | | | 3,326,330 | |
Net assets applicable to shares outstanding | | $ | 377,255,769 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 307,878,407 | |
Undistributed net investment income | | | 2,422,420 | |
Undistributed net realized gain | | | 26,555,675 | |
Unrealized appreciation | | | 40,399,267 | |
| | | $ | 377,255,769 | |
|
Net Assets: | |
Series I | | $ | 286,607,465 | |
Series II | | $ | 90,648,304 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 22,543,871 | |
Series II | | | 7,204,715 | |
Series I: | | | | |
Net asset value per share | | $ | 12.71 | |
Series II: | | | | |
Net asset value per share | | $ | 12.58 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $14,778) | | $ | 6,590,455 | |
Dividends from affiliated money market funds | | | 119,131 | |
Total investment income | | | 6,709,586 | |
| |
Expenses: | | | | |
Advisory fees | | | 2,843,679 | |
Administrative services fees | | | 1,064,219 | |
Custodian fees | | | 26,859 | |
Distribution fees — Series II | | | 199,533 | |
Transfer agent fees | | | 56,229 | |
Trustees’ and officers’ fees and benefits | | | 35,930 | |
Other | | | 84,507 | |
Total expenses | | | 4,310,956 | |
Less: Fees waived | | | (123,844 | ) |
Net expenses | | | 4,187,112 | |
Net investment income | | | 2,522,474 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $80,038) | | | 29,196,991 | |
Foreign currencies | | | (11,234 | ) |
| | | | 29,185,757 | |
Change in net unrealized appreciation of: | | | | |
Investment securities | | | 9,094,575 | |
Foreign currencies | | | 187 | |
| | | | 9,094,762 | |
Net realized and unrealized gain | | | 38,280,519 | |
Net increase in net assets resulting from operations | | $ | 40,802,993 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 2,522,474 | | | $ | 193,399 | |
Net realized gain | | | 29,185,757 | | | | 34,284,773 | |
Change in net unrealized appreciation (depreciation) | | | 9,094,762 | | | | (61,222,115 | ) |
Net increase (decrease) in net assets resulting from operations | | | 40,802,993 | | | | (26,743,943 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (192,445 | ) | | | (1,052,469 | ) |
Series II | | | — | | | | (54,708 | ) |
Total distributions from net investment income | | | (192,445 | ) | | | (1,107,177 | ) |
| | |
Distributions to shareholders from net realized gains: | | | | | | | | |
Series I | | | (2,501,779 | ) | | | — | |
Series II | | | (715,819 | ) | | | — | |
Total distributions from net realized gains | | | (3,217,598 | ) | | | — | |
| | |
Share transactions-net: | | | | | | | | |
Series I | | | (65,952,656 | ) | | | (66,537,862 | ) |
Series II | | | 18,517,470 | | | | 8,287,414 | |
Net increase (decrease) in net assets resulting from share transactions | | | (47,435,186 | ) | | | (58,250,448 | ) |
Net increase (decrease) in net assets | | | (10,042,236 | ) | | | (86,101,568 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 387,298,005 | | | | 473,399,573 | |
End of year (includes undistributed net investment income of $2,422,420 and $103,625, respectively) | | $ | 377,255,769 | | | $ | 387,298,005 | |
Notes to Financial Statements
December 31, 2012
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-five 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
Invesco V.I. Mid Cap Core Equity Fund
appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. Mid Cap Core Equity 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 the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
| I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable.
| J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | | | |
| Average Net Assets | | Rate |
First $500 million | | | 0 | .725% | | |
Next $500 million | | | 0 | .700% | | |
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. (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 April 30, 2013, 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $123,844.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $97,700 for accounting and fund administrative services and reimbursed $966,519 for services provided by insurance companies.
Invesco V.I. Mid Cap Core Equity 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $1,548 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 376,359,730 | | | $ | 3,752,330 | | | $ | — | | | $ | 380,112,060 | |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $986,595 and securities sales of $1,439,008, which resulted in net realized gains of $80,038.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 192,445 | | | $ | 1,107,177 | |
Long-Term Capital Gain | | | 3,217,598 | | | | — | |
Total | | $ | 3,410,043 | | | $ | 1,107,177 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 7,329,628 | |
Undistributed long-term gain | | | 22,746,759 | |
Net unrealized appreciation — investments | | | 39,402,076 | |
Net unrealized appreciation (depreciation) — other investments | | | (2 | ) |
Temporary book/tax differences | | | (101,099 | ) |
Shares of beneficial interest | | | 307,878,407 | |
Total net assets | | $ | 377,255,769 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Trust to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 does not have a capital loss carryforward at period-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 year ended December 31, 2012 was $183,194,662 and $226,086,426, 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 | | $ | 52,660,656 | |
Aggregate unrealized (depreciation) of investment securities | | | (13,258,580 | ) |
Net unrealized appreciation of investment securities | | $ | 39,402,076 | |
Cost of investments for tax purposes is $340,709,984.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2012, undistributed net investment income was decreased by $11,234 and undistributed net realized gain was increased by $11,234. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,583,675 | | | $ | 19,472,516 | | | | 2,474,245 | | | $ | 30,771,619 | |
Series II | | | 3,461,169 | | | | 42,291,036 | | | | 3,309,461 | | | | 40,140,590 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 217,627 | | | | 2,694,224 | | | | 98,178 | | | | 1,052,469 | |
Series II | | | 58,386 | | | | 715,819 | | | | 5,142 | | | | 54,708 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (7,110,775 | ) | | | (88,119,396 | ) | | | (7,967,805 | ) | | | (98,361,950 | ) |
Series II | | | (2,000,498 | ) | | | (24,489,385 | ) | | | (2,643,335 | ) | | | (31,907,884 | ) |
Net increase (decrease) in share activity | | | (3,790,416 | ) | | $ | (47,435,186 | ) | | | (4,724,114 | ) | | $ | (58,250,448 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 66% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income (loss)
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 11.56 | | | $ | 0.09 | | | $ | 1.18 | | | $ | 1.27 | | | $ | (0.01 | ) | | $ | (0.11 | ) | | $ | (0.12 | ) | | $ | 12.71 | | | | 10.96 | % | | $ | 286,607 | | | | 1.02 | %(d) | | | 1.05 | %(d) | | | 0.69 | %(d) | | | 59 | % |
Year ended 12/31/11 | | | 12.39 | | | | 0.01 | | | | (0.80 | ) | | | (0.79 | ) | | | (0.04 | ) | | | — | | | | (0.04 | ) | | | 11.56 | | | | (6.38 | ) | | | 322,102 | | | | 1.01 | | | | 1.03 | | | | 0.08 | | | | 57 | |
Year ended 12/31/10 | | | 10.92 | | | | 0.03 | | | | 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 | | | | 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 | | | | (4.33 | ) | | | (4.19 | ) | | | (0.22 | ) | | | (1.57 | ) | | | (1.79 | ) | | | 8.59 | | | | (28.52 | ) | | | 352,788 | | | | 1.01 | | | | 1.04 | | | | 1.05 | | | | 62 | |
Series II | |
Year ended 12/31/12 | | | 11.47 | | | | 0.06 | | | | 1.16 | | | | 1.22 | | | | — | | | | (0.11 | ) | | | (0.11 | ) | | | 12.58 | | | | 10.62 | | | | 90,648 | | | | 1.27 | (d) | | | 1.30 | (d) | | | 0.44 | (d) | | | 59 | |
Year ended 12/31/11 | | | 12.28 | | | | (0.02 | ) | | | (0.78 | ) | | | (0.80 | ) | | | (0.01 | ) | | | — | | | | (0.01 | ) | | | 11.47 | | | | (6.50 | ) | | | 65,196 | | | | 1.26 | | | | 1.28 | | | | (0.17 | ) | | | 57 | |
Year ended 12/31/10 | | | 10.83 | | | | 0.00 | | | | 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 | | | | 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 | | | | (4.28 | ) | | | (4.18 | ) | | | (0.18 | ) | | | (1.57 | ) | | | (1.75 | ) | | | 8.52 | | | | (28.68 | ) | | | 48,489 | | | | 1.26 | | | | 1.29 | | | | 0.80 | | | | 62 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $312,418 and $79,813 for Series I and Series II shares, respectively. |
Invesco V.I. Mid Cap Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Mid Cap Core Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,063.50 | | | $ | 5.25 | | | $ | 1,020.05 | | | $ | 5.13 | | | | 1.01 | % |
Series II | | | 1,000.00 | | | | 1,062.60 | | | | 6.54 | | | | 1,018.80 | | | | 6.40 | | | | 1.26 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | | |
Federal and State Income Tax |
Long-Term Capital Gain Dividends | | | $ | 3,217,598 | |
Corporate Dividends Received Deduction* | | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Mid Cap Core Equity Fund
Invesco V.I. Money Market Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Fund information
This annual report on Invesco V.I. Money Market Fund covers the year ended December 31, 2012.
As of December 31, 2012, the Fund had 55 holdings and its net assets totaled $157.6 million. As of the same date, the Fund’s weighted average maturity was 29 days and the Fund’s weighted average life was 44 days.
Weighted average maturity (WAM) is an average of the maturities of all securities held in the portfolio, weighted by each security’s percentage of net assets. The days to maturity for WAM is the lower of the stated maturity date or next interest rate reset date. WAM reflects how a portfolio would react to interest rate changes.
Weighted average life (WAL) is an average of all the maturities of all securities held in the portfolio, weighted by each security’s percentage of net assets. The days to maturity for WAL is the lower of the stated maturity date or next demand feature date. WAL reflects how a portfolio would react to deteriorating credit (widening spreads) or tightening liquidity conditions.
How we invest
The Fund invests only in high-quality US dollar-denominated short-term fixed income obligations. During the year covered by this report, as always, your Fund focused on three objectives:
| n | | The highest possible yield consistent with safety of principal |
Market conditions and your Fund
The year ended December 31, 2012, was characterized by continued volatility as a result of economic uncertainty in the US and Europe.
Early in the reporting period, the Euro-pean debt crisis escalated amid concerns that policy makers in Europe would not be able to contain the unfolding banking and sovereign debt crisis which threatened to undermine the region’s common currency. In the second and third quarters of 2012, extraordinary liquidity measures by the European Central Bank and expanded European Union bailout funds helped shore up European markets and restore investor confidence.
Meanwhile, in the US, there was little new on the macroeconomic front. Gross domestic product, the broadest measure of overall US economic activity, continued to expand, albeit slowly, with annualized rates of 2.0% or less in the first two quarters of 2012.1 The economy grew at a slightly faster pace of 3.1% in the third quarter.1 But even this rate was too low to meaningfully reduce unemployment, which remained elevated – although it declined to 7.8% by December.2
Against this backdrop, the US Federal Reserve (the Fed) continued its aggressive monetary stimulus, introducing the third round of open-ended quantitative easing (QE3) in September. QE3 consists of a $40 billion purchase of mortgage backed securities (MBS) each month with
the goal of putting downward pressure on longer-term interest rates, supporting mortgage markets and helping to make broader financial conditions more accommodative.3 The Fed has not announced a definite end-date for QE3, instead noting that the outlook for the job market will need to improve substantially before it ends the policy. In December, in advance of the expiration of Operation Twist, which aimed to lower long-term interest rates in order to boost borrowing by extending the average maturity of portfolio holdings on the Fed’s balance sheet, the Fed announced that it would begin purchasing $45 billion in Treasuries per month in addition to the $40 billion in MBS it currently purchases as part of QE3.3 The Fed also maintained its target policy rate in a range of between zero and 0.25%, providing macroeconomic thresholds of 6.5% unemployment and 2%+ inflation for maintaining this ultra-low rate environment.3 With no change to monetary policy, money market funds continued to operate in an ultra-low interest rate environment.
Rates of repurchase agreements (repos) have been elevated since the beginning of 2012, largely because of Operation Twist. In 2011, the average Treasury repo rate was under 0.10%.4 Once the Fed began Operation Twist, dealer balance sheets began to increase as the Fed sold short-term securities to buy long-term bonds. Dealers had to finance the short-term securities on their balance sheets until they could be sold, leading to higher repo rates.
Other short-term rates remained low or trended lower. Yields on three-month Treasuries were largely unchanged from 0.02% on December 31, 2011, to 0.05% on December 30, 2012, although yields reached highs above 0.10% a few times during the year.3 And the rates at which banks were willing to borrow short-
term in dollars were extremely volatile during the reporting period. As the crisis in Europe began to wane, the three-month Libor5 fell from 0.58% on December 30, 2011, to 0.31% on December 30, 2012.3
In this evolving and challenging environment for money market funds, Invesco Global Liquidity remains committed to the preservation of principal and providing daily liquidity, while seeking to deliver a competitive yield.
Thank you for investing with us.
| 1 | Source: Bureau of Economic Analysis |
| 2 | Source: Bureau of Labor Statistics |
| 3 | Source: US Federal Reserve |
| 4 | Source: Depository Trust & Clearing Corporation |
| 5 | Libor is the world’s most widely followed benchmark for short-term interest rates. Fixed daily, the Libor is the interest rate at which banks in the London interbank market can borrow overnight funds from one another. It serves as a base when determining interest rates for corporations and other large borrowers. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Team managed by Invesco Advisers, Inc.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, you may lose money by investing in the Fund.
| | | | | |
| Portfolio Composition by Maturity |
In days, as of 12/31/12 | |
| 1–7 | | | | 43.7 | % |
| 8–30 | | | | 23.2 | |
| 31–60 | | | | 18.7 | |
| 61–90 | | | | 3.8 | |
| 91–180 | | | | 10.4 | |
| 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.
Invesco V.I. Money Market Fund
Invesco V.I. Money Market Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal in the Fund risks of investing
Counterparty risk. Counterparty risk is the risk that the other party to the contract will not fulfill its contractual obligations, which may cause losses or additional costs to the Fund.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Foreign securities risk. The value of the Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Industry focus risk. To the extent a fund invests in securities issued or guaranteed by companies in the banking and financial services industries, the fund’s performance will depend on the overall condition of those industries, which may be affected by the following factors: the supply of short-term financing; changes in government regulation and interest rates; and overall economy.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Liquidity risk. The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose its entire investment in such securities.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability and interest rate fluctuations.
Money market fund risk. 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. The share price of money market funds can fall below the $1.00 share price. You should not rely on or expect the Fund’s adviser or its affiliates to enter into support agreements or take other actions to maintain the Fund’s $1.00 share price. The credit quality of the Fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the Fund’s share price. The Fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets. Further regulation could impact the way the Fund is managed, possibly negatively impacting its return. Additionally, the Fund’s yield will vary as the short-term securities in its portfolio mature or are sold and the proceeds are reinvested in other securities.
Municipal securities risk. The Fund may invest in municipal securities. Constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives and the issuer’s regional economic conditions may affect the municipal security’s value, interest payments, repayment of principal and the Fund’s ability to sell it. Failure of a municipal security issuer to comply with applicable tax requirements may make income paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities.
Repurchase agreement risk. If the seller of a repurchase agreement in which the Fund invests defaults on its obligation or declares bankruptcy, the Fund may experience delays in selling the securities underlying the repurchase agreement, resulting in losses.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
Variable-rate demand notes risk. The absence of an active secondary market for certain variable and floating rate notes could make it difficult to dispose of the instruments, and a portfolio could suffer a loss if the issuer defaults during periods in which a portfolio is not entitled to exercise its demand rights.
Invesco V.I. Money Market Fund
Schedule of Investments
December 31, 2012
| | | | | | | | | | | | | | | | |
| | | Interest
Rate | | | Maturity
Date | | | Principal
Amount
(000) | | | Value | |
Commercial Paper–47.48%(a) | | | | | | | | | | | | | | | | |
| Asset-Backed Securities–Commercial Loans/Leases–1.90% | | | | | | | | | | | | | | | | |
Atlantis One Funding Corp.(b)(c) | | | 0.46 | % | | | 03/06/13 | | | $ | 3,000 | | | $ | 2,997,547 | |
| | | | |
| Asset-Backed Securities–Consumer Receivables–6.66% | | | | | | | | | | | | | | | | |
Barton Capital LLC(c) | | | 0.40 | % | | | 02/04/13 | | | | 2,000 | | | | 1,999,244 | |
Old Line Funding, LLC(c) | | | 0.33 | % | | | 01/14/13 | | | | 4,000 | | | | 3,999,523 | |
Old Line Funding, LLC(c) | | | 0.32 | % | | | 04/15/13 | | | | 1,000 | | | | 999,076 | |
Thunder Bay Funding, LLC(c) | | | 0.35 | % | | | 01/08/13 | | | | 3,500 | | | | 3,499,762 | |
| | | | | | | | | | | | | | | | 10,497,605 | |
| | | | |
| Asset-Backed Securities–Fully Supported–1.27% | | | | | | | | | | | | | | | | |
Kells Funding LLC (CEP-Federal Republic of Germany)(b)(c) | | | 0.33 | % | | | 05/15/13 | | | | 2,000 | | | | 1,997,543 | |
| | | | |
| Asset-Backed Securities–Fully Supported Bank–5.52% | | | | | | | | | | | | | | | | |
Cancara Asset Securitisation Ltd./LLC (CEP-Lloyds TSB Bank PLC)(b)(c) | | | 0.24 | % | | | 02/01/13 | | | | 5,000 | | | | 4,998,967 | |
Matchpoint Master Trust (CEP-BNP Paribas)(b)(c) | | | 0.30 | % | | | 01/28/13 | | | | 3,700 | | | | 3,699,168 | |
| | | | | | | | | | | | | | | | 8,698,135 | |
| | | | |
| Asset-Backed Securities–Multi-Purpose–4.38% | | | | | | | | | | | | | | | | |
Mont Blanc Capital Corp.(b)(c) | | | 0.28 | % | | | 02/05/13 | | | | 5,500 | | | | 5,498,503 | |
Regency Markets No. 1, LLC(b)(c) | | | 0.27 | % | | | 01/15/13 | | | | 1,409 | | | | 1,408,852 | |
| | | | | | | | | | | | | | | | 6,907,355 | |
| | | | |
| Asset-Backed Securities–Securities–3.80% | | | | | | | | | | | | | | | | |
Scaldis Capital Ltd./LLC(b)(c) | | | 0.33 | % | | | 01/16/13 | | | | 5,000 | | | | 4,999,312 | |
Scaldis Capital Ltd./LLC(b) | | | 0.32 | % | | | 01/18/13 | | | | 1,000 | | | | 999,849 | |
| | | | | | | | | | | | | | | | 5,999,161 | |
| | | | |
| Diversified Banks–9.51% | | | | | | | | | | | | | | | | |
Caisse de Depots et Consignations(b)(c) | | | 0.26 | % | | | 01/18/13 | | | | 2,000 | | | | 1,999,754 | |
Mizuho Funding, LLC(b)(c) | | | 0.26 | % | | | 01/02/13 | | | | 5,000 | | | | 4,999,964 | |
Standard Chartered Bank(b)(c) | | | 0.50 | % | | | 01/09/13 | | | | 2,000 | | | | 1,999,778 | |
Standard Chartered Bank(b)(c) | | | 0.28 | % | | | 02/04/13 | | | | 4,000 | | | | 3,998,942 | |
Sumitomo Mitsui Banking Corp.(b) | | | 0.25 | % | | | 01/08/13 | | | | 2,000 | | | | 1,999,905 | |
| | | | | | | | | | | | | | | | 14,998,343 | |
| | | | |
| Household Products–0.92% | | | | | | | | | | | | | | | | |
Reckitt Benckiser Treasury Services PLC(b)(c) | | | 0.45 | % | | | 05/10/13 | | | | 1,200 | | | | 1,198,065 | |
Reckitt Benckiser Treasury Services PLC(b)(c) | | | 0.42 | % | | | 09/06/13 | | | | 250 | | | | 249,277 | |
| | | | | | | | | | | | | | | | 1,447,342 | |
| | | | |
| Regional Banks–13.52% | | | | | | | | | | | | | | | | |
Commonwealth Bank of Australia(b)(c) | | | 0.40 | % | | | 01/07/13 | | | | 5,000 | | | | 4,999,667 | |
Fortis Funding LLC(b)(c) | | | 0.40 | % | | | 01/02/13 | | | | 1,334 | | | | 1,333,985 | |
HSBC Bank PLC(b)(c) | | | 0.37 | % | | | 02/01/13 | | | | 1,000 | | | | 999,681 | |
HSBC USA Inc.(b) | | | 0.25 | % | | | 02/11/13 | | | | 3,000 | | | | 2,999,146 | |
Nationwide Building Society(b)(c) | | | 0.52 | % | | | 02/06/13 | | | | 3,000 | | | | 2,998,440 | |
Nationwide Building Society(b)(c) | | | 0.35 | % | | | 04/26/13 | | | | 5,000 | | | | 4,994,410 | |
Nordea North America Inc.(b) | | | 0.24 | % | | | 02/13/13 | | | | 3,000 | | | | 2,999,140 | |
| | | | | | | | | | | | | | | | 21,324,469 | |
Total Commercial Paper (Cost $74,867,500) | | | | | | | | | | | | | | | 74,867,500 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
| | | | | | | | | | | | | | | | |
| | | Interest
Rate | | | Maturity
Date | | | Principal
Amount
(000) | | | Value | |
Variable Rate Demand Notes–12.74%(d) | | | | | | | | | | | | | | | | |
| Credit Enhanced–12.74% | | | | | | | | | | | | | | | | |
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC-Wells Fargo Bank, N.A.)(e) | | | 0.21 | % | | | 10/01/33 | | | $ | 4,700 | | | $ | 4,700,000 | |
Benjamin Rose Institute (The) (Kethley House); Series 2005, VRD Taxable Notes (LOC-JPMorgan Chase Bank, N.A.)(e) | | | 0.20 | % | | | 12/01/28 | | | | 3,460 | | | | 3,460,000 | |
Collier (County of), Florida Industrial Development Authority (Allete, Inc.); Series 2006, Ref. VRD IDR (LOC-Wells Fargo Bank, N.A.)(e) | | | 0.20 | % | | | 10/01/25 | | | | 1,000 | | | | 1,000,000 | |
Connecticut (State of) Development Authority (Northeast Foods, Inc.); Series 1998, VRD IDR (LOC-Bank of America, N.A.)(e) | | | 0.30 | % | | | 06/01/13 | | | | 625 | | | | 625,000 | |
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC-PNC Bank, N.A.)(e) | | | 0.12 | % | | | 05/15/17 | | | | 600 | | | | 600,000 | |
M3 Realty, LLC; Series 2007, VRD RN (LOC-General Electric Capital Corp.)(c)(e) | | | 0.30 | % | | | 01/01/33 | | | | 2,110 | | | | 2,110,000 | |
Massachusetts (State of) Development Finance Agency (Milton Academy); Series 2009 B, VRD Taxable RB (LOC-TD Bank, N.A.)(e) | | | 0.19 | % | | | 03/01/39 | | | | 3,300 | | | | 3,300,000 | |
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) | | | 0.14 | % | | | 03/01/26 | | | | 375 | | | | 375,000 | |
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC-Wells Fargo Bank, N.A.)(e) | | | 0.21 | % | | | 12/01/27 | | | | 2,405 | | | | 2,405,000 | |
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) | | | 0.18 | % | | | 12/01/18 | | | | 310 | | | | 310,000 | |
St. Jean Industries, Inc.; Series 2006, VRD Taxable Notes (LOC-General Electric Capital
Corp.)(c)(e) | | | 0.27 | % | | | 10/01/21 | | | | 800 | | | | 800,000 | |
St. Paul (City of), Minnesota Port Authority; Series 2009-10 CC, VRD District Cooling RB (LOC-Deutsche Bank AG)(b)(e) | | | 0.19 | % | | | 03/01/29 | | | | 400 | | | | 400,000 | |
Total Variable Rate Demand Notes (Cost $20,085,000) | | | | | | | | | | | | | | | 20,085,000 | |
| | | | |
Other Bonds & Notes–11.95% | | | | | | | | | | | | | | | | |
Barclays Bank PLC, Sr. Unsec. Global Notes(b) | | | 2.50 | % | | | 01/23/13 | | | | 2,685 | | | | 2,688,526 | |
General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes | | | 5.45 | % | | | 01/15/13 | | | | 2,000 | | | | 2,003,801 | |
General Electric Co., Sr. Unsec. Global Notes | | | 5.00 | % | | | 02/01/13 | | | | 2,666 | | | | 2,676,486 | |
Toyota Motor Credit Corp., Sr. Unsec. Floating Rate Medium-Term Notes(b)(f) | | | 0.90 | % | | | 01/15/13 | | | | 4,500 | | | | 4,500,000 | |
UBS AG Stamford CT, Sr. Unsec. Medium-Term Notes(b) | | | 2.75 | % | | | 01/08/13 | | | | 955 | | | | 955,440 | |
U.S. Bancorp., Sr. Unsec. Medium-Term Notes | | | 2.00 | % | | | 06/14/13 | | | | 3,000 | | | | 3,022,920 | |
Wells Fargo Bank, N.A., Unsec. Medium-Term Notes(f) | | | 0.36 | % | | | 01/17/14 | | | | 3,000 | | | | 3,000,000 | |
Total Other Bonds & Notes (Cost $18,847,173) | | | | | | | | | | | | | | | 18,847,173 | |
| | | | |
Certificates of Deposit–10.15% | | | | | | | | | | | | | | | | |
Bank of Nova Scotia(b)(f) | | | 0.31 | % | | | 05/31/13 | | | | 4,000 | | | | 4,000,000 | |
Landesbank Hessen-Thurin(b) | | | 0.42 | % | | | 01/10/13 | | | | 2,000 | | | | 2,000,000 | |
Norinchukin Bank (The)(b) | | | 0.28 | % | | | 01/08/13 | | | | 2,000 | | | | 2,000,000 | |
Royal Bank of Canada(b)(f) | | | 0.40 | % | | | 01/03/14 | | | | 2,000 | | | | 2,000,000 | |
Standard Chartered Bank(b)(c) | | | 0.35 | % | | | 01/11/13 | | | | 2,000 | | | | 2,000,000 | |
Toronto-Dominion Bank(b) | | | 0.27 | % | | | 05/20/13 | | | | 4,000 | | | | 4,000,000 | |
Total Certificates of Deposit (Cost $16,000,000) | | | | | | | | | | | | | | | 16,000,000 | |
TOTAL INVESTMENTS (excluding Repurchase Agreements)–82.32% (Cost $129,799,673) | | | | | | | | | | | | | | | 129,799,673 | |
| | | | |
| | | | | | | | | Repurchase
Amount | | | | |
Repurchase Agreements–16.73%(g) | | | | | | | | | | | | | | | | |
BNP Paribas Securities Corp., Joint agreement dated 12/31/12, aggregate maturing value $200,002,111 (collateralized by U.S. Government sponsored agency obligations valued at $204,000,001; 4.50%-6.00%, 12/20/37-05/15/41) | | | 0.19 | % | | | 01/02/13 | | | | 7,000,074 | | | | 7,000,000 | |
Credit Suisse Securities (USA) LLC, Joint open agreement dated 02/23/12, (collateralized by Mortgage-backed securities & other instruments valued at $525,000,051; 0%-7.82%, 07/25/18-12/25/59)(b)(f)(h) | | | 0.32 | % | | | — | | | | — | | | | 5,000,000 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
| | | | | | | | | | | | | | | | |
| | | Interest
Rate | | | Maturity
Date | | | Repurchase
Amount | | | Value | |
| Repurchase Agreements–(continued) | | | | | | | | | | | | | | | | |
RBC Capital Markets Corp., Joint agreement dated 12/31/12, aggregate maturing value of $500,005,833 (collateralized by U.S. Government sponsored agency obligations valued at $510,000,001; 2.50%-4.50%, 10/01/27-11/01/42) | | | 0.21 | % | | | 01/02/13 | | | $ | 7,000,082 | | | $ | 7,000,000 | |
Wells Fargo Securities, LLC, Joint agreement dated 12/31/12, aggregate maturing value $750,009,167 (collateralized by U.S. Government sponsored agency obligations valued at $765,000,000; 1.98%-6.50%, 06/01/21-01/01/43) | | | 0.22 | % | | | 01/02/13 | | | | 7,381,440 | | | | 7,381,350 | |
Total Repurchase Agreements (Cost $26,381,350) | | | | | | | | | | | | | | | 26,381,350 | |
TOTAL INVESTMENTS(i)(j)–99.05% (Cost $156,181,023) | | | | | | | | | | | | | | | 156,181,023 | |
OTHER ASSETS LESS LIABILITIES–0.95% | | | | | | | | | | | | | | | 1,495,818 | |
NET ASSETS–100.00% | | | | | | | | | | | | | | $ | 157,676,841 | |
Investment Abbreviations:
| | |
| CEP | | – Credit Enhancement Provider |
| IDR | | – Industrial Development Revenue Bonds |
| LOC | | – Letter of Credit |
| RB | | – Revenue Bonds |
| Ref. | | – Refunding |
| RN | | – Revenue Notes |
| Sr. | | – Senior |
| Unsec. | | – Unsecured |
| VRD | | – Variable Rate Demand |
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) | 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: 19.4%; Japan: 8.6%; Canada: 6.3%; Netherlands: 5.4%; other countries less than 5% each: 20.0%. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $70,779,460, which represented 44.89% of the Fund’s Net Assets. |
| (d) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2012. |
| (e) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. |
| (f) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2012. |
| (g) | Principal amount equals value at period end. See Note 1I. |
| (h) | Either party may terminate the agreement upon demand. Interest rates, principal amount and collateral are redetermined daily. |
| (i) | Also represents cost for federal income tax purposes. |
| (j) | 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. |
| | | | |
| Entity | | Percentage | |
Wells Fargo Bank, N.A. | | | 7.1 | % |
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
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, excluding repurchase agreements, at value and cost | | $ | 129,799,673 | |
Repurchase agreements, at value and cost | | | 26,381,350 | |
Total investments, at value and cost | | | 156,181,023 | |
Receivable for: | | | | |
Investments sold | | | 90,000 | |
Fund shares sold | | | 1,337,344 | |
Interest | | | 173,549 | |
Fund expenses absorbed | | | 7,725 | |
Investment for trustee deferred compensation and retirement plans | | | 41,625 | |
Other assets | | | 46,135 | |
Total assets | | | 157,877,401 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 65,805 | |
Dividends | | | 544 | |
Accrued fees to affiliates | | | 76,348 | |
Accrued other operating expenses | | | 179 | |
Trustee deferred compensation and retirement plans | | | 57,684 | |
Total liabilities | | | 200,560 | |
Net assets applicable to shares outstanding | | $ | 157,676,841 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 157,680,082 | |
Undistributed net investment income | | | (2,496 | ) |
Undistributed net realized gain (loss) | | | (745 | ) |
| | | $ | 157,676,841 | |
| |
Net Assets: | | | | |
Series I | | $ | 156,931,162 | |
Series II | | $ | 745,679 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 156,930,691 | |
Series II | | | 745,469 | |
Series I: | | | | |
Net asset value per share | | $ | 1.00 | |
Series II: | | | | |
Net asset value per share | | $ | 1.00 | |
| | | | |
Investment income: | |
Interest | | $ | 577,207 | |
| |
Expenses: | | | | |
Advisory fees | | | 872,758 | |
Administrative services fees | | | 282,655 | |
Distribution fees — Series II | | | 2,241 | |
Trustees’ and officers’ fees and benefits | | | 29,447 | |
Other | | | (6,969 | ) |
Total expenses | | | 1,180,132 | |
Less: Fees waived | | | (668,624 | ) |
Net expenses | | | 511,508 | |
Net investment income | | | 65,699 | |
Net realized gain from investment securities | | | 1,398 | |
Net increase in net assets resulting from operations | | $ | 67,097 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 65,699 | | | $ | 53,933 | |
Net realized gain | | | 1,398 | | | | — | |
Net increase in net assets resulting from operations | | | 67,097 | | | | 53,933 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (65,457 | ) | | | (53,437 | ) |
Series ll | | | (242 | ) | | | (496 | ) |
Total distributions from net investment income | | | (65,699 | ) | | | (53,933 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (41,602,983 | ) | | | 172,954,380 | |
Series ll | | | (276,342 | ) | | | (2,229 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (41,879,325 | ) | | | 172,952,151 | |
Net increase (decrease) in net assets | | | (41,877,927 | ) | | | 172,952,151 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 199,554,768 | | | | 26,602,617 | |
End of year (includes undistributed net investment income of $(2,496) and $(2,496), respectively) | | $ | 157,676,841 | | | $ | 199,554,768 | |
Notes to Financial Statements
December 31, 2012
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-five 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 current income consistent with preservation of capital and liquidity.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of 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.
Invesco V.I. Money Market Fund
| 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 declared and paid annually and recorded on the 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 the 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. 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 nongovernment 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. (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 April 30, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. 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 waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.
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.
Invesco V.I. Money Market Fund
For the year ended December 31, 2012, Invesco voluntarily waived advisory fees of $666,383 and reimbursed class level expenses of $2,241 for Series II shares in order to increase the Fund’s yield.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $57,670 for accounting and fund administrative services and reimbursed $224,985 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 year ended December 31, 2012, 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 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Short-Term Investments | | $ | — | | | $ | 156,181,023 | | | $ | — | | | $ | 156,181,023 | |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Money Market Fund
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 65,699 | | | $ | 53,933 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 50,228 | |
Temporary book/tax differences | | | (52,724 | ) |
Capital loss carryforward | | | (745 | ) |
Shares of beneficial interest | | | 157,680,082 | |
Total net assets | | $ | 157,676,841 | |
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $1,398 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2018 | | $ | 745 | | | $ | — | | | $ | 745 | |
| * | 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 | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 690,431,189 | | | $ | 690,431,189 | | | | 255,614,975 | | | $ | 255,614,975 | |
Series II | | | 9,878 | | | | 9,878 | | | | 171,905 | | | | 171,905 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 26,307 | | | | 26,307 | | | | 11,674 | | | | 11,674 | |
Series II | | | 242 | | | | 242 | | | | 496 | | | | 496 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (732,060,479 | ) | | | (732,060,479 | ) | | | (82,672,269 | ) | | | (82,672,269 | ) |
Series II | | | (286,462 | ) | | | (286,462 | ) | | | (174,630 | ) | | | (174,630 | ) |
Net increase (decrease) in share activity | | | (41,879,325 | ) | | $ | (41,879,325 | ) | | | 172,952,151 | | | $ | 172,952,151 | |
| (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 Fund 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, 13% of the outstanding shares of the Fund are owned by an affiliated mutual fund. An affiliated mutual fund is another mutual fund that is 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net realized
gains (losses)
on securities | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses to average net assets
with fee waivers
and/or expenses absorbed | | | Ratio of
expenses
to average net
assets without fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 1.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | (0.00 | ) | | $ | 1.00 | | | | 0.03 | % | | $ | 156,931 | | | | 0.23 | %(c) | | | 0.54 | %(c) | | | 0.03 | %(c) |
Year ended 12/31/11 | | | 1.00 | | | | 0.00 | | | | — | | | | 0.00 | | | | (0.00 | ) | | | 1.00 | | | | 0.05 | | | | 198,533 | | | | 0.17 | | | | 0.57 | | | | 0.05 | |
Year ended 12/31/10 | | | 1.00 | | | | 0.00 | | | | (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 | | | | — | | | | 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 | | | | — | | | | 0.02 | | | | (0.02 | ) | | | 1.00 | | | | 2.04 | | | | 49,004 | | | | 0.86 | | | | 0.86 | | | | 2.02 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 1.00 | | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | (0.00 | ) | | | 1.00 | | | | 0.03 | | | | 746 | | | | 0.23 | (c) | | | 0.79 | (c) | | | 0.03 | (c) |
Year ended 12/31/11 | | | 1.00 | | | | 0.00 | | | | — | | | | 0.00 | | | | (0.00 | ) | | | 1.00 | | | | 0.05 | | | | 1,022 | | | | 0.17 | | | | 0.82 | | | | 0.05 | |
Year ended 12/31/10 | | | 1.00 | | | | 0.00 | | | | (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 | | | | — | | | | 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 | | | | — | | | | 0.02 | | | | (0.02 | ) | | | 1.00 | | | | 1.78 | | | | 2,266 | | | | 1.11 | | | | 1.11 | | | | 1.77 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Ratios are based on average daily net assets (000’s) of $217,293 and $896 for Series I and Series II shares, respectively. |
Invesco V.I. Money Market Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Money Market Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Money Market Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,000.10 | | | $ | 1.56 | | | $ | 1,023.58 | | | $ | 1.58 | | | | 0.31 | % |
| Series II | | | 1,000.00 | | | | 1,000.10 | | | | 1.56 | | | | 1,023.58 | | | | 1.58 | | | | 0.31 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 0 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Money Market Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 – 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian Bank of New York Mellon
2 Hanson Place
Brooklyn, NY 11217-1431 |
Invesco V.I. Money Market Fund
Invesco V.I. S&P 500 Index Fund
Annual Report to Shareholders n December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. S&P 500 Index Fund slightly underperformed the S&P 500 Index but performed in line with the Lipper VUF S&P 500 Funds Index. The Fund seeks to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 15.66 | % |
| Series II Shares | | | | 15.52 | |
| S&P 500 Index‚ (Broad Market/Style-Specific Index) | | | | 16.00 | |
| Lipper VUF S&P 500 Funds Indexn (Peer Group Index) | | | | 15.63 | |
| Source(s): | ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc. |
How we invest
The Fund invests in a diversified portfolio of common stocks represented in the S&P 500 Index. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies. The Fund generally invests in each stock included in the S&P 500 Index in proportion to its market value or market capitalization. The Fund may invest in foreign securities represented in the S&P 500 Index, including depositary receipts. Changes to the Fund’s portfolio are the result of Standard & Poor’s either adding a security to, or deleting a security from, the S&P 500 Index. Changes are not the result of any stock selection model.
The Fund also may invest in S&P 500 futures contracts. This type of investment is a derivative instrument since the price is derived from one or more underlying assets. The purpose of this investment is to provide full stock market exposure to the Fund’s nominal cash holdings.
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk
aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
The Fund stayed true to its process by investing in all components of the S&P 500 Index. Sectors that contributed the most to overall Fund performance were the consumer discretionary, financials, health care and information technology (IT) sectors. While all sectors delivered positive overall performance, the utilities, materials and telecommunication services sectors contributed the least to the Fund’s overall performance. In addition, the Fund’s allocation to S&P 500 futures contracts was a slight contributor to Fund performance.
In the financials sector, Bank of America, JPMorgan Chase and Wells Fargo were top contributors to Fund performance.
Also contributing to the Fund’s performance was IT giant Apple. During the reporting period, Apple released several new products to the marketplace, including the iPhone 5 and iPad Mini. In addition, General Electric was a strong
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Information Technology | | | | 18.8 | % |
| Financials | | | | 15.3 | |
| Health Care | | | | 11.9 | |
| Consumer Discretionary | | | | 11.5 | |
| Energy | | | | 10.9 | |
| Consumer Staples | | | | 10.5 | |
| Industrials | | | | 9.9 | |
| Materials | | | | 3.7 | |
| Utilities | | | | 3.4 | |
| Telecommunication Services | | | | 3.0 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 1.1 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
| 1. Apple Inc. | | | | 3.9 | % |
| 2. Exxon Mobil Corp. | | | | 3.1 | |
| 3. General Electric Co. | | | | 1.7 | |
| 4. Chevron Corp. | | | | 1.6 | |
| 5. International Business Machines Corp. | | | | 1.6 | |
| 6. Microsoft Corp. | | | | 1.6 | |
| 7. Johnson & Johnson | | | | 1.5 | |
| 8. AT&T Inc. | | | | 1.5 | |
| 9. Google Inc.-Class A | | | | 1.5 | |
| 10. Procter & Gamble Co. (The) | | | | 1.4 | |
| | | | | |
| Total Net Assets | | | | $97.3 million | |
| |
| Total Number of Holdings* | | | | 499 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* Excluding money market fund holdings.
Invesco V.I. S&P 500 Index Fund
contributor to the Fund’s performance. During the reporting period, General Electric made several acquisitions including Xcellerex (not a Fund holding), a supplier of manufacturing technologies for the biopharmaceutical industry.
Several stocks declined during the reporting period, including IT companies Intel and Hewlett Packard. Hewlett Packard struggled during the reporting period due to a year of management upheavals and disappointing earnings, mostly tied to the company writing down approximately $8.8 billion of its acquisition of Autonomy (not a Fund holding). Also declining was oil and gas producer Occidental Petroleum. During the reporting period, the company was able to top Wall Street earnings estimates but was hurt by lower oil and natural gas prices.2
At the close of the reporting period, global central banks remained accommodative and market valuations remained attractive from an historical perspective. That said, underlying issues plaguing markets over the past several years, such as high sovereign debt levels across the developed markets (particularly in Europe) have not been resolved and could continue to weigh on global economic growth and add to market volatility.
We welcome new investors who joined the Fund during the year and thank all of our shareholders for your investment in Invesco V.I. S&P 500 Index Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Anthony Munchak Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. S&P 500 Index Fund. He joined |
| Invesco in 2000. Mr. Munchak earned a BS and an MS in finance from Boston College and an MBA from Bentley College. |
| | |
 | | Glen Murphy Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. S&P 500 Index Fund. He joined |
| Invesco in 1995. Mr. Murphy earned a BBA from the University of Massachusetts Amherst and an MS in finance from Boston College. |
| | |
 | | Francis Orlando Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. S&P 500 Index Fund. He joined |
| Invesco in 1987. Mr. Orlando earned a BBA from Merrimack College and an MBA from Boston University. |
| | |
 | | Daniel Tsai Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. S&P 500 Index Fund. He joined |
| Invesco in 2000. Mr. Tsai earned a BS in mechanical engineering from National Taiwan University, an MS in mechanical engineering from the University of Michigan and an MS in computer science from Wayne State University. |
| | |
 | | Anne Unflat Portfolio manager, is manager of Invesco V.I. S&P 500 Index Fund. She joined Invesco in 1998. Ms. Unflat earned |
| a BA in economics from Queens College and an MBA in finance from St. John’s University. |
Invesco V.I. S&P 500 Index Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| | | | | |
| Series I Shares | | | | | |
| Inception (5/18/98) | | | | 3.31 | % |
| 10 Years | | | | 6.83 | |
| 5 Years | | | | 1.47 | |
| 1 Year | | | | 15.66 | |
| |
| Series II Shares | | | | | |
| Inception (6/5/00) | | | | 1.14 | % |
| 10 Years | | | | 6.57 | |
| 5 Years | | | | 1.23 | |
| 1 Year | | | | 15.52 | |
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 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 0.40% and 0.65%, 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.
Invesco V.I. S&P 500 Index Fund
Invesco V.I. S&P 500 Index 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.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Indexing risk. The Fund is operated as a passively managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Fund’s portfolio. The Fund will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the Adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares.
The Fund’s ability to correlate its performance, before expenses, with the S&P 500 Index may be affected by, among other things, changes in securities markets, the manner in which the S&P 500 Index is calculated and the timing of purchases and sales, and also depends to some extent on the size of the Fund’s portfolio, the size of cash flows into and out of the Fund and differences between how and when the Fund and the Index are valued.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates; political and social instability; changes in economic or taxation policies; difficulties when enforcing obligations; decreased liquidity; and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment; general economic and market conditions; regional or global instability; and currency and interest rate fluctuations.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Lipper VUF S&P 500 Funds Index is an unmanaged index considered representative of 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–98.95% | |
| Advertising–0.14% | |
Interpublic Group of Cos., Inc. (The) | | | 3,228 | | | $ | 35,573 | |
Omnicom Group Inc. | | | 2,000 | | | | 99,920 | |
| | | | | | | | 135,493 | |
|
| Aerospace & Defense–2.36% | |
Boeing Co. (The) | | | 5,130 | | | | 386,597 | |
General Dynamics Corp. | | | 2,498 | | | | 173,036 | |
Honeywell International Inc. | | | 5,922 | | | | 375,869 | |
L-3 Communications Holdings, Inc. | | | 710 | | | | 54,400 | |
Lockheed Martin Corp. | | | 2,028 | | | | 187,164 | |
Northrop Grumman Corp. | | | 1,862 | | | | 125,834 | |
Precision Castparts Corp. | | | 1,099 | | | | 208,173 | |
Raytheon Co. | | | 2,501 | | | | 143,957 | |
Rockwell Collins, Inc. | | | 1,070 | | | | 62,242 | |
Textron Inc. | | | 2,092 | | | | 51,861 | |
United Technologies Corp. | | | 6,374 | | | | 522,732 | |
| | | | | | | | 2,291,865 | |
|
| Agricultural Products–0.14% | |
Archer-Daniels-Midland Co. | | | 4,962 | | | | 135,909 | |
|
| Air Freight & Logistics–0.76% | |
C.H. Robinson Worldwide, Inc. | | | 1,216 | | | | 76,875 | |
Expeditors International of Washington, Inc. | | | 1,585 | | | | 62,687 | |
FedEx Corp. | | | 2,199 | | | | 201,692 | |
United Parcel Service, Inc.–Class B | | | 5,416 | | | | 399,322 | |
| | | | | | | | 740,576 | |
|
| Airlines–0.06% | |
Southwest Airlines Co. | | | 5,590 | | | | 57,242 | |
|
| Aluminum–0.07% | |
Alcoa Inc. | | | 8,040 | | | | 69,787 | |
|
| Apparel Retail–0.56% | |
Abercrombie & Fitch Co.–Class A | | | 621 | | | | 29,789 | |
Gap, Inc. (The) | | | 2,246 | | | | 69,716 | |
Limited Brands, Inc. | | | 1,796 | | | | 84,520 | |
Ross Stores, Inc. | | | 1,686 | | | | 91,297 | |
TJX Cos., Inc. (The) | | | 5,513 | | | | 234,027 | |
Urban Outfitters, Inc.(b) | | | 839 | | | | 33,023 | |
| | | | | | | | 542,372 | |
|
| Apparel, Accessories & Luxury Goods–0.34% | |
Coach, Inc. | | | 2,148 | | | | 119,236 | |
Fossil, Inc.(b) | | | 408 | | | | 37,985 | |
Ralph Lauren Corp. | | | 459 | | | | 68,813 | |
VF Corp. | | | 661 | | | | 99,791 | |
| | | | | | | | 325,825 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Application Software–0.60% | |
Adobe Systems Inc.(b) | | | 3,742 | | | $ | 140,999 | |
Autodesk, Inc.(b) | | | 1,709 | | | | 60,413 | |
Citrix Systems, Inc.(b) | | | 1,408 | | | | 92,576 | |
Intuit Inc. | | | 2,103 | | | | 125,128 | |
Salesforce.com, Inc.(b) | | | 987 | | | | 165,915 | |
| | | | | | | | 585,031 | |
|
| Asset Management & Custody Banks–1.16% | |
Ameriprise Financial, Inc. | | | 1,555 | | | | 97,390 | |
Bank of New York Mellon Corp. (The) | | | 8,802 | | | | 226,211 | |
BlackRock, Inc. | | | 947 | | | | 195,754 | |
Franklin Resources, Inc. | | | 1,040 | | | | 130,728 | |
Invesco Ltd.(c) | | | 3,354 | | | | 87,506 | |
Legg Mason, Inc. | | | 904 | | | | 23,251 | |
Northern Trust Corp. | | | 1,648 | | | | 82,664 | |
State Street Corp. | | | 3,510 | | | | 165,005 | |
T. Rowe Price Group Inc. | | | 1,912 | | | | 124,528 | |
| | | | | | | | 1,133,037 | |
|
| Auto Parts & Equipment–0.32% | |
BorgWarner, Inc.(b) | | | 884 | | | | 63,312 | |
Delphi Automotive PLC (United Kingdom)(b) | | | 2,232 | | | | 85,374 | |
Johnson Controls, Inc. | | | 5,153 | | | | 158,197 | |
| | | | | | | | 306,883 | |
|
| Automobile Manufacturers–0.38% | |
Ford Motor Co. | | | 28,862 | | | | 373,763 | |
| | |
| Automotive Retail–0.26% | | | | | | | | |
AutoNation, Inc.(b) | | | 306 | | | | 12,148 | |
AutoZone, Inc.(b) | | | 281 | | | | 99,595 | |
CarMax, Inc.(b) | | | 1,720 | | | | 64,569 | |
O’Reilly Automotive, Inc.(b) | | | 866 | | | | 77,438 | |
| | | | | | | | 253,750 | |
|
| Biotechnology–1.62% | |
Alexion Pharmaceuticals, Inc.(b) | | | 1,467 | | | | 137,619 | |
Amgen Inc. | | | 5,808 | | | | 501,347 | |
Biogen Idec Inc.(b) | | | 1,788 | | | | 262,246 | |
Celgene Corp.(b) | | | 3,197 | | | | 251,636 | |
Gilead Sciences, Inc.(b) | | | 5,727 | | | | 420,648 | |
| | | | | | | | 1,573,496 | |
|
| Brewers–0.05% | |
Molson Coors Brewing Co.–Class B | | | 1,171 | | | | 50,107 | |
|
| Broadcasting–0.33% | |
CBS Corp.–Class B | | | 4,485 | | | | 170,654 | |
Discovery Communications, Inc.–Class A(b) | | | 1,805 | | | | 114,582 | |
Scripps Networks Interactive–Class A | | | 664 | | | | 38,459 | |
| | | | | | | | 323,695 | |
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 | |
| Building Products–0.05% | |
Masco Corp. | | | 2,668 | | | $ | 44,449 | |
|
| Cable & Satellite–1.26% | |
Cablevision Systems Corp.–Class A | | | 1,636 | | | | 24,442 | |
Comcast Corp.–Class A | | | 20,066 | | | | 750,067 | |
DIRECTV(b) | | | 4,566 | | | | 229,031 | |
Time Warner Cable Inc. | | | 2,281 | | | | 221,690 | |
| | | | | | | | 1,225,230 | |
|
| Casinos & Gaming–0.10% | |
International Game Technology | | | 2,017 | | | | 28,581 | |
Wynn Resorts Ltd. | | | 597 | | | | 67,156 | |
| | | | | | | | 95,737 | |
|
| Coal & Consumable Fuels–0.11% | |
CONSOL Energy Inc. | | | 1,714 | | | | 55,020 | |
Peabody Energy Corp. | | | 2,056 | | | | 54,710 | |
| | | | | | | | 109,730 | |
|
| Communications Equipment–1.96% | |
Cisco Systems, Inc. | | | 40,139 | | | | 788,731 | |
F5 Networks, Inc.(b) | | | 594 | | | | 57,707 | |
Harris Corp. | | | 852 | | | | 41,714 | |
JDS Uniphase Corp.(b) | | | 1,777 | | | | 24,060 | |
Juniper Networks, Inc.(b) | | | 3,934 | | | | 77,382 | |
Motorola Solutions, Inc. | | | 2,120 | | | | 118,042 | |
QUALCOMM, Inc. | | | 12,882 | | | | 798,942 | |
| | | | | | | | 1,906,578 | |
|
| Computer & Electronics Retail–0.05% | |
Best Buy Co., Inc. | | | 2,062 | | | | 24,435 | |
GameStop Corp.–Class A | | | 915 | | | | 22,957 | |
| | | | | | | | 47,392 | |
|
| Computer Hardware–4.23% | |
Apple Inc. | | | 7,111 | | | | 3,790,021 | |
Dell Inc. | | | 10,980 | | | | 111,227 | |
Hewlett-Packard Co. | | | 14,817 | | | | 211,142 | |
| | | | | | | | 4,112,390 | |
|
| Computer Storage & Peripherals–0.74% | |
EMC Corp.(b) | | | 15,926 | | | | 402,928 | |
NetApp, Inc.(b) | | | 2,737 | | | | 91,826 | |
SanDisk Corp.(b) | | | 1,819 | | | | 79,236 | |
Seagate Technology PLC | | | 2,539 | | | | 77,389 | |
Western Digital Corp. | | | 1,676 | | | | 71,213 | |
| | | | | | | | 722,592 | |
|
| Construction & Engineering–0.16% | |
Fluor Corp. | | | 1,257 | | | | 73,836 | |
Jacobs Engineering Group, Inc.(b) | | | 997 | | | | 42,442 | |
Quanta Services, Inc.(b) | | | 1,605 | | | | 43,801 | |
| | | | | | | | 160,079 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Construction & Farm Machinery & Heavy Trucks–1.04% | |
Caterpillar Inc. | | | 4,944 | | | $ | 442,883 | |
Cummins Inc. | | | 1,333 | | | | 144,431 | |
Deere & Co. | | | 2,950 | | | | 254,939 | |
Joy Global Inc. | | | 797 | | | | 50,833 | |
PACCAR Inc. | | | 2,663 | | | | 120,394 | |
| | | | | | | | 1,013,480 | |
|
| Construction Materials–0.05% | |
Vulcan Materials Co. | | | 974 | | | | 50,697 | |
|
| Consumer Electronics–0.06% | |
Garmin Ltd. | | | 840 | | | | 34,289 | |
Harman International Industries, Inc. | | | 524 | | | | 23,391 | |
| | | | | | | | 57,680 | |
|
| Consumer Finance–0.91% | |
American Express Co. | | | 7,360 | | | | 423,053 | |
Capital One Financial Corp. | | | 4,397 | | | | 254,718 | |
Discover Financial Services | | | 3,816 | | | | 147,107 | |
SLM Corp. | | | 3,521 | | | | 60,315 | |
| | | | | | | | 885,193 | |
|
| Data Processing & Outsourced Services–1.60% | |
Automatic Data Processing, Inc. | | | 3,670 | | | | 209,227 | |
Computer Sciences Corp. | | | 1,169 | | | | 46,818 | |
Fidelity National Information Services, Inc. | | | 1,886 | | | | 65,652 | |
Fiserv, Inc.(b) | | | 1,008 | | | | 79,662 | |
MasterCard, Inc.–Class A | | | 807 | | | | 396,463 | |
Paychex, Inc. | | | 2,432 | | | | 75,732 | |
Total System Services, Inc. | | | 1,187 | | | | 25,426 | |
Visa Inc.–Class A | | | 3,938 | | | | 596,922 | |
Western Union Co. (The) | | | 4,534 | | | | 61,708 | |
| | | | | | | | 1,557,610 | |
|
| Department Stores–0.28% | |
JC Penney Co., Inc. | | | 1,112 | | | | 21,917 | |
Kohl’s Corp. | | | 1,598 | | | | 68,682 | |
Macy’s, Inc. | | | 2,987 | | | | 116,553 | |
Nordstrom, Inc. | | | 1,150 | | | | 61,525 | |
| | | | | | | | 268,677 | |
|
| Distillers & Vintners–0.19% | |
Beam Inc. | | | 1,192 | | | | 72,819 | |
Brown-Forman Corp.–Class B | | | 1,140 | | | | 72,105 | |
Constellation Brands, Inc.–Class A(b) | | | 1,144 | | | | 40,486 | |
| | | | | | | | 185,410 | |
|
| Distributors–0.08% | |
Genuine Parts Co. | | | 1,167 | | | | 74,198 | |
|
| Diversified Banks–1.81% | |
Comerica Inc. | | | 1,438 | | | | 43,629 | |
U.S. Bancorp | | | 14,183 | | | | 453,005 | |
Wells Fargo & Co. | | | 37,024 | | | | 1,265,480 | |
| | | | | | | | 1,762,114 | |
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 | |
| Diversified Chemicals–0.93% | |
Dow Chemical Co. (The) | | | 9,066 | | | $ | 293,013 | |
E. I. du Pont de Nemours and Co. | | | 7,049 | | | | 316,994 | |
Eastman Chemical Co. | | | 1,151 | | | | 78,326 | |
FMC Corp. | | | 1,033 | | | | 60,451 | |
PPG Industries, Inc. | | | 1,158 | | | | 156,735 | |
| | | | | | | | 905,519 | |
|
| Diversified Metals & Mining–0.25% | |
Freeport-McMoRan Copper & Gold Inc. | | | 7,153 | | | | 244,633 | |
|
| Diversified REIT’s–0.10% | |
Vornado Realty Trust | | | 1,273 | | | | 101,942 | |
|
| Diversified Support Services–0.07% | |
Cintas Corp. | | | 809 | | | | 33,088 | |
Iron Mountain Inc. | | | 1,267 | | | | 39,340 | |
| | | | | | | | 72,428 | |
|
| Drug Retail–0.72% | |
CVS Caremark Corp. | | | 9,424 | | | | 455,650 | |
Walgreen Co. | | | 6,494 | | | | 240,343 | |
| | | | | | | | 695,993 | |
|
| Education Services–0.02% | |
Apollo Group, Inc.–Class A(b) | | | 800 | | | | 16,736 | |
|
| Electric Utilities–1.96% | |
American Electric Power Co., Inc. | | | 3,653 | | | | 155,910 | |
Duke Energy Corp. | | | 5,324 | | | | 339,671 | |
Edison International | | | 2,454 | | | | 110,896 | |
Entergy Corp. | | | 1,335 | | | | 85,106 | |
Exelon Corp. | | | 6,432 | | | | 191,288 | |
FirstEnergy Corp. | | | 3,151 | | | | 131,586 | |
NextEra Energy, Inc. | | | 3,185 | | | | 220,370 | |
Northeast Utilities | | | 2,364 | | | | 92,385 | |
Pepco Holdings, Inc. | | | 1,760 | | | | 34,514 | |
Pinnacle West Capital Corp. | | | 842 | | | | 42,925 | |
PPL Corp. | | | 4,367 | | | | 125,027 | |
Southern Co. (The) | | | 6,592 | | | | 282,204 | |
Xcel Energy, Inc. | | | 3,650 | | | | 97,491 | |
| | | | | | | | 1,909,373 | |
|
| Electrical Components & Equipment–0.67% | |
Eaton Corp. PLC | | | 3,477 | | | | 188,506 | |
Emerson Electric Co. | | | 5,480 | | | | 290,221 | |
Rockwell Automation, Inc. | | | 1,062 | | | | 89,197 | |
Roper Industries, Inc. | | | 736 | | | | 82,049 | |
| | | | | | | | 649,973 | |
|
| Electronic Components–0.23% | |
Amphenol Corp.–Class A | | | 1,212 | | | | 78,416 | |
Corning Inc. | | | 11,121 | | | | 140,347 | |
| | | | | | | | 218,763 | |
|
| Electronic Equipment & Instruments–0.03% | |
FLIR Systems, Inc. | | | 1,175 | | | | 26,214 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Electronic Manufacturing Services–0.18% | |
Jabil Circuit, Inc. | | | 1,430 | | | $ | 27,585 | |
Molex Inc. | | | 1,058 | | | | 28,915 | |
TE Connectivity Ltd. (Switzerland) | | | 3,193 | | | | 118,524 | |
| | | | | | | | 175,024 | |
|
| Environmental & Facilities Services–0.24% | |
Republic Services, Inc. | | | 2,256 | | | | 66,169 | |
Stericycle, Inc.(b) | | | 644 | | | | 60,066 | |
Waste Management, Inc. | | | 3,283 | | | | 110,768 | |
| | | | | | | | 237,003 | |
|
| Fertilizers & Agricultural Chemicals–0.61% | |
CF Industries Holdings, Inc. | | | 471 | | | | 95,688 | |
Monsanto Co. | | | 4,041 | | | | 382,481 | |
Mosaic Co. (The) | | | 2,083 | | | | 117,960 | |
| | | | | | | | 596,129 | |
|
| Food Distributors–0.14% | |
Sysco Corp. | | | 4,420 | | | | 139,937 | |
|
| Food Retail–0.26% | |
Kroger Co. (The) | | | 3,884 | | | | 101,061 | |
Safeway Inc. | | | 1,833 | | | | 33,159 | |
Whole Foods Market, Inc. | | | 1,293 | | | | 118,090 | |
| | | | | | | | 252,310 | |
|
| Footwear–0.29% | |
NIKE, Inc.–Class B | | | 5,516 | | | | 284,626 | |
|
| Gas Utilities–0.11% | |
AGL Resources Inc. | | | 903 | | | | 36,093 | |
ONEOK, Inc. | | | 1,544 | | | | 66,006 | |
| | | | | | | | 102,099 | |
|
| General Merchandise Stores–0.52% | |
Big Lots, Inc.(b) | | | 472 | | | | 13,433 | |
Dollar General Corp.(b) | | | 2,002 | | | | 88,268 | |
Dollar Tree, Inc.(b) | | | 1,734 | | | | 70,331 | |
Family Dollar Stores, Inc. | | | 723 | | | | 45,846 | |
Target Corp. | | | 4,934 | | | | 291,945 | |
| | | | | | | | 509,823 | |
|
| Gold–0.18% | |
Newmont Mining Corp. | | | 3,738 | | | | 173,593 | |
|
| Health Care Distributors–0.39% | |
AmerisourceBergen Corp. | | | 1,780 | | | | 76,860 | |
Cardinal Health, Inc. | | | 2,569 | | | | 105,792 | |
McKesson Corp. | | | 1,777 | | | | 172,298 | |
Patterson Cos. Inc. | | | 639 | | | | 21,873 | |
| | | | | | | | 376,823 | |
|
| Health Care Equipment–1.70% | |
Baxter International Inc. | | | 4,153 | | | | 276,839 | |
Becton, Dickinson and Co. | | | 1,488 | | | | 116,347 | |
Boston Scientific Corp.(b) | | | 10,380 | | | | 59,477 | |
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 | |
| Health Care Equipment–(continued) | |
C.R. Bard, Inc. | | | 586 | | | $ | 57,276 | |
CareFusion Corp.(b) | | | 1,671 | | | | 47,757 | |
Covidien PLC | | | 3,578 | | | | 206,594 | |
Edwards Lifesciences Corp.(b) | | | 871 | | | | 78,538 | |
Intuitive Surgical, Inc.(b) | | | 299 | | | | 146,620 | |
Medtronic, Inc. | | | 7,645 | | | | 313,598 | |
St. Jude Medical, Inc. | | | 2,329 | | | | 84,170 | |
Stryker Corp. | | | 2,178 | | | | 119,398 | |
Varian Medical Systems, Inc.(b) | | | 833 | | | | 58,510 | |
Zimmer Holdings, Inc. | | | 1,315 | | | | 87,658 | |
| | | | | | | | 1,652,782 | |
|
| Health Care Facilities–0.03% | |
Tenet Healthcare Corp.(b) | | | 784 | | | | 25,456 | |
|
| Health Care Services–0.55% | |
DaVita HealthCare Partners Inc.(b) | | | 625 | | | | 69,081 | |
Express Scripts Holding Co.(b) | | | 6,171 | | | | 333,234 | |
Laboratory Corp. of America Holdings(b) | | | 721 | | | | 62,453 | |
Quest Diagnostics Inc. | | | 1,195 | | | | 69,633 | |
| | | | | | | | 534,401 | |
|
| Health Care Supplies–0.04% | |
DENTSPLY International Inc. | | | 1,090 | | | | 43,175 | |
|
| Health Care Technology–0.09% | |
Cerner Corp.(b) | | | 1,095 | | | | 85,016 | |
|
| Home Entertainment Software–0.03% | |
Electronic Arts Inc.(b) | | | 2,306 | | | | 33,506 | |
|
| Home Furnishings–0.03% | |
Leggett & Platt, Inc. | | | 1,058 | | | | 28,799 | |
|
| Home Improvement Retail–1.03% | |
Home Depot, Inc. (The) | | | 11,303 | | | | 699,091 | |
Lowe’s Cos., Inc. | | | 8,495 | | | | 301,742 | |
| | | | | | | | 1,000,833 | |
|
| Homebuilding–0.14% | |
D.R. Horton, Inc. | | | 2,137 | | | | 42,270 | |
Lennar Corp.–Class A | | | 1,252 | | | | 48,415 | |
PulteGroup Inc.(b) | | | 2,608 | | | | 47,361 | |
| | | | | | | | 138,046 | |
|
| Homefurnishing Retail–0.10% | |
Bed Bath & Beyond Inc.(b) | | | 1,748 | | | | 97,731 | |
|
| Hotels, Resorts & Cruise Lines–0.34% | |
Carnival Corp. | | | 3,369 | | | | 123,878 | |
Marriott International Inc.–Class A | | | 1,860 | | | | 69,322 | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 1,479 | | | | 84,835 | |
Wyndham Worldwide Corp. | | | 1,070 | | | | 56,935 | |
| | | | | | | | 334,970 | |
|
| Household Appliances–0.06% | |
Whirlpool Corp. | | | 583 | | | | 59,320 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Household Products–2.13% | |
Clorox Co. (The) | | | 975 | | | $ | 71,389 | |
Colgate-Palmolive Co. | | | 3,358 | | | | 351,045 | |
Kimberly-Clark Corp. | | | 2,957 | | | | 249,660 | |
Procter & Gamble Co. (The) | | | 20,657 | | | | 1,402,404 | |
| | | | | | | | 2,074,498 | |
|
| Housewares & Specialties–0.05% | |
Newell Rubbermaid Inc. | | | 2,184 | | | | 48,638 | |
|
| Human Resource & Employment Services–0.04% | |
Robert Half International, Inc. | | | 1,090 | | | | 34,684 | |
|
| Hypermarkets & Super Centers–1.22% | |
Costco Wholesale Corp. | | | 3,269 | | | | 322,879 | |
Wal-Mart Stores, Inc. | | | 12,645 | | | | 862,768 | |
| | | | | | | | 1,185,647 | |
|
| Independent Power Producers & Energy Traders–0.11% | |
AES Corp. (The) | | | 4,678 | | | | 50,054 | |
NRG Energy, Inc. | | | 2,436 | | | | 56,004 | |
| | | | | | | | 106,058 | |
|
| Industrial Conglomerates–2.42% | |
3M Co. | | | 4,811 | | | | 446,701 | |
Danaher Corp. | | | 4,393 | | | | 245,569 | |
General Electric Co.(d) | | | 79,281 | | | | 1,664,108 | |
| | | | | | | | 2,356,378 | |
|
| Industrial Gases–0.44% | |
Air Products & Chemicals, Inc. | | | 1,608 | | | | 135,104 | |
Airgas, Inc. | | | 532 | | | | 48,566 | |
Praxair, Inc. | | | 2,246 | | | | 245,825 | |
| | | | | | | | 429,495 | |
|
| Industrial Machinery–0.86% | |
Dover Corp. | | | 1,352 | | | | 88,840 | |
Flowserve Corp. | | | 384 | | | | 56,371 | |
Illinois Tool Works Inc. | | | 3,222 | | | | 195,930 | |
Ingersoll-Rand PLC | | | 2,116 | | | | 101,483 | |
Pall Corp. | | | 839 | | | | 50,558 | |
Parker Hannifin Corp. | | | 1,125 | | | | 95,692 | |
Pentair Ltd. | | | 1,578 | | | | 77,559 | |
Snap-on Inc. | | | 437 | | | | 34,519 | |
Stanley Black & Decker Inc. | | | 1,266 | | | | 93,646 | |
Xylem, Inc. | | | 1,387 | | | | 37,588 | |
| | | | | | | | 832,186 | |
|
| Industrial REIT’s–0.13% | |
Prologis, Inc. | | | 3,484 | | | | 127,131 | |
|
| Insurance Brokers–0.28% | |
Aon PLC | | | 2,408 | | | | 133,885 | |
Marsh & McLennan Cos., Inc. | | | 4,086 | | | | 140,844 | |
| | | | | | | | 274,729 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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| Integrated Oil & Gas–5.40% | |
Chevron Corp. | | | 14,796 | | | $ | 1,600,039 | |
Exxon Mobil Corp. | | | 34,470 | | | | 2,983,379 | |
Hess Corp. | | | 2,238 | | | | 118,524 | |
Murphy Oil Corp. | | | 1,389 | | | | 82,715 | |
Occidental Petroleum Corp. | | | 6,124 | | | | 469,160 | |
| | | | | | | | 5,253,817 | |
|
| Integrated Telecommunication Services–2.71% | |
AT&T Inc. | | | 42,943 | | | | 1,447,608 | |
CenturyLink Inc. | | | 4,718 | | | | 184,568 | |
Frontier Communications Corp. | | | 7,524 | | | | 32,203 | |
Verizon Communications Inc. | | | 21,583 | | | | 933,896 | |
Windstream Corp. | | | 4,495 | | | | 37,219 | |
| | | | | | | | 2,635,494 | |
|
| Internet Retail–1.07% | |
Amazon.com, Inc.(b) | | | 2,738 | | | | 687,977 | |
Expedia, Inc. | | | 704 | | | | 43,261 | |
Netflix Inc.(b) | | | 417 | | | | 38,689 | |
Priceline.com Inc.(b) | | | 376 | | | | 233,545 | |
TripAdvisor Inc.(b) | | | 842 | | | | 35,331 | |
| | | | | | | | 1,038,803 | |
|
| Internet Software & Services–2.19% | |
Akamai Technologies, Inc.(b) | | | 1,335 | | | | 54,615 | |
eBay Inc.(b) | | | 8,804 | | | | 449,180 | |
Google Inc.–Class A(b) | | | 2,012 | | | | 1,427,414 | |
VeriSign, Inc.(b) | | | 1,177 | | | | 45,691 | |
Yahoo! Inc.(b) | | | 7,856 | | | | 156,334 | |
| | | | | | | | 2,133,234 | |
|
| Investment Banking & Brokerage–0.78% | |
Charles Schwab Corp. (The) | | | 8,257 | | | | 118,571 | |
E*TRADE Financial Corp.(b) | | | 1,987 | | | | 17,784 | |
Goldman Sachs Group, Inc. (The) | | | 3,339 | | | | 425,923 | |
Morgan Stanley | | | 10,421 | | | | 199,249 | |
| | | | | | | | 761,527 | |
|
| IT Consulting & Other Services–2.19% | |
Accenture PLC–Class A | | | 4,826 | | | | 320,929 | |
Cognizant Technology Solutions Corp.–Class A(b) | | | 2,269 | | | | 168,019 | |
International Business Machines Corp. | | | 8,029 | | | | 1,537,955 | |
SAIC, Inc. | | | 2,161 | | | | 24,463 | |
Teradata Corp.(b) | | | 1,269 | | | | 78,538 | |
| | | | | | | | 2,129,904 | |
|
| Leisure Products–0.13% | |
Hasbro, Inc. | | | 872 | | | | 31,305 | |
Mattel, Inc. | | | 2,568 | | | | 94,040 | |
| | | | | | | | 125,345 | |
|
| Life & Health Insurance–0.86% | |
Aflac, Inc. | | | 3,528 | | | | 187,407 | |
Lincoln National Corp. | | | 2,078 | | | | 53,820 | |
MetLife, Inc. | | | 8,248 | | | | 271,689 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Life & Health Insurance–(continued) | |
Principal Financial Group, Inc. | | | 2,099 | | | $ | 59,864 | |
Prudential Financial, Inc. | | | 3,511 | | | | 187,242 | |
Torchmark Corp. | | | 718 | | | | 37,099 | |
Unum Group | | | 2,055 | | | | 42,785 | |
| | | | | | | | 839,906 | |
|
| Life Sciences Tools & Services–0.44% | |
Agilent Technologies, Inc. | | | 2,625 | | | | 107,468 | |
Life Technologies Corp.(b) | | | 1,300 | | | | 63,804 | |
PerkinElmer, Inc. | | | 877 | | | | 27,836 | |
Thermo Fisher Scientific, Inc. | | | 2,722 | | | | 173,609 | |
Waters Corp.(b) | | | 659 | | | | 57,412 | |
| | | | | | | | 430,129 | |
|
| Managed Health Care–0.94% | |
Aetna Inc. | | | 2,517 | | | | 116,537 | |
Cigna Corp. | | | 2,172 | | | | 116,115 | |
Coventry Health Care, Inc. | | | 1,029 | | | | 46,130 | |
Humana Inc. | | | 1,195 | | | | 82,013 | |
UnitedHealth Group Inc. | | | 7,722 | | | | 418,841 | |
WellPoint, Inc. | | | 2,287 | | | | 139,324 | |
| | | | | | | | 918,960 | |
|
| Metal & Glass Containers–0.08% | |
Ball Corp. | | | 1,165 | | | | 52,134 | |
Owens-Illinois, Inc.(b) | | | 1,267 | | | | 26,949 | |
| | | | | | | | 79,083 | |
|
| Motorcycle Manufacturers–0.09% | |
Harley-Davidson, Inc. | | | 1,716 | | | | 83,809 | |
|
| Movies & Entertainment–1.63% | |
News Corp.–Class A | | | 15,243 | | | | 389,306 | |
Time Warner Inc. | | | 7,151 | | | | 342,032 | |
Viacom Inc.–Class B | | | 3,492 | | | | 184,168 | |
Walt Disney Co. (The) | | | 13,397 | | | | 667,037 | |
| | | | | | | | 1,582,543 | |
|
| Multi-Line Insurance–0.63% | |
American International Group, Inc.(b) | | | 11,160 | | | | 393,948 | |
Assurant, Inc. | | | 594 | | | | 20,612 | |
Genworth Financial Inc.–Class A(b) | | | 3,741 | | | | 28,095 | |
Hartford Financial Services Group, Inc. (The) | | | 3,341 | | | | 74,972 | |
Loews Corp. | | | 2,354 | | | | 95,925 | |
| | | | | | | | 613,552 | |
|
| Multi-Sector Holdings–0.04% | |
Leucadia National Corp. | | | 1,459 | | | | 34,710 | |
|
| Multi-Utilities–1.22% | |
Ameren Corp. | | | 1,834 | | | | 56,341 | |
CenterPoint Energy, Inc. | | | 3,184 | | | | 61,292 | |
CMS Energy Corp. | | | 1,996 | | | | 48,663 | |
Consolidated Edison, Inc. | | | 2,206 | | | | 122,521 | |
Dominion Resources, Inc. | | | 4,343 | | | | 224,967 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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| Multi-Utilities–(continued) | |
DTE Energy Co. | | | 1,293 | | | $ | 77,645 | |
Integrys Energy Group, Inc. | | | 586 | | | | 30,601 | |
NiSource Inc. | | | 2,333 | | | | 58,068 | |
PG&E Corp. | | | 3,249 | | | | 130,545 | |
Public Service Enterprise Group Inc. | | | 3,792 | | | | 116,035 | |
SCANA Corp. | | | 1,009 | | | | 46,051 | |
Sempra Energy | | | 1,693 | | | | 120,101 | |
TECO Energy, Inc. | | | 1,545 | | | | 25,894 | |
Wisconsin Energy Corp. | | | 1,735 | | | | 63,935 | |
| | | | | | | | 1,182,659 | |
|
| Office Electronics–0.07% | |
Xerox Corp. | | | 9,552 | | | | 65,145 | |
|
| Office REIT’s–0.12% | |
Boston Properties, Inc. | | | 1,135 | | | | 120,094 | |
|
| Office Services & Supplies–0.04% | |
Avery Dennison Corp. | | | 763 | | | | 26,644 | |
Pitney Bowes Inc. | | | 1,474 | | | | 15,683 | |
| | | | | | | | 42,327 | |
|
| Oil & Gas Drilling–0.32% | |
Diamond Offshore Drilling, Inc. | | | 534 | | | | 36,291 | |
Ensco PLC –Class A (United Kingdom) | | | 1,747 | | | | 103,562 | |
Helmerich & Payne, Inc. | | | 795 | | | | 44,528 | |
Nabors Industries Ltd.(b) | | | 2,230 | | | | 32,223 | |
Noble Corp. | | | 1,902 | | | | 66,228 | |
Rowan Cos. PLC–Class A(b) | | | 954 | | | | 29,831 | |
| | | | | | | | 312,663 | |
|
| Oil & Gas Equipment & Services–1.52% | |
Baker Hughes Inc. | | | 3,311 | | | | 135,221 | |
Cameron International Corp.(b) | | | 1,855 | | | | 104,733 | |
FMC Technologies, Inc.(b) | | | 1,795 | | | | 76,880 | |
Halliburton Co. | | | 6,991 | | | | 242,518 | |
National Oilwell Varco Inc. | | | 3,212 | | | | 219,540 | |
Schlumberger Ltd. | | | 10,036 | | | | 695,395 | |
| | | | | | | | 1,474,287 | |
|
| Oil & Gas Exploration & Production–2.42% | |
Anadarko Petroleum Corp. | | | 3,765 | | | | 279,777 | |
Apache Corp. | | | 2,947 | | | | 231,340 | |
Cabot Oil & Gas Corp. | | | 1,581 | | | | 78,639 | |
Chesapeake Energy Corp. | | | 3,910 | | | | 64,984 | |
ConocoPhillips | | | 9,177 | | | | 532,174 | |
Denbury Resources Inc.(b) | | | 2,968 | | | | 48,082 | |
Devon Energy Corp. | | | 2,834 | | | | 147,481 | |
EOG Resources, Inc. | | | 2,047 | | | | 247,257 | |
EQT Corp. | | | 1,126 | | | | 66,412 | |
Marathon Oil Corp. | | | 5,340 | | | | 163,724 | |
Newfield Exploration Co.(b) | | | 1,054 | | | | 28,226 | |
Noble Energy, Inc. | | | 1,339 | | | | 136,230 | |
Pioneer Natural Resources Co. | | | 926 | | | | 98,702 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Oil & Gas Exploration & Production–(continued) | |
QEP Resources Inc. | | | 1,367 | | | $ | 41,379 | |
Range Resources Corp. | | | 1,223 | | | | 76,841 | |
Southwestern Energy Co.(b) | | | 2,623 | | | | 87,634 | |
WPX Energy Inc.(b) | | | 1,538 | | | | 22,886 | |
| | | | | | | | 2,351,768 | |
|
| Oil & Gas Refining & Marketing–0.62% | |
Marathon Petroleum Corp. | | | 2,548 | | | | 160,524 | |
Phillips 66 | | | 4,723 | | | | 250,791 | |
Tesoro Corp. | | | 1,052 | | | | 46,341 | |
Valero Energy Corp. | | | 4,156 | | | | 141,803 | |
| | | | | | | | 599,459 | |
|
| Oil & Gas Storage & Transportation–0.49% | |
Kinder Morgan Inc. | | | 4,767 | | | | 168,418 | |
Spectra Energy Corp. | | | 5,033 | | | | 137,803 | |
Williams Cos., Inc. (The) | | | 5,094 | | | | 166,778 | |
| | | | | | | | 472,999 | |
|
| Other Diversified Financial Services–3.17% | |
Bank of America Corp. | | | 81,486 | | | | 945,238 | |
Citigroup Inc. | | | 22,170 | | | | 877,045 | |
JPMorgan Chase & Co. | | | 28,747 | | | | 1,264,005 | |
| | | | | | | | 3,086,288 | |
|
| Packaged Foods & Meats–1.58% | |
Campbell Soup Co. | | | 1,356 | | | | 47,311 | |
ConAgra Foods, Inc. | | | 3,059 | | | | 90,240 | |
Dean Foods Co.(b) | | | 1,366 | | | | 22,553 | |
General Mills, Inc. | | | 4,863 | | | | 196,514 | |
H.J. Heinz Co. | | | 2,412 | | | | 139,124 | |
Hershey Co. (The) | | | 1,141 | | | | 82,403 | |
Hormel Foods Corp. | | | 1,009 | | | | 31,491 | |
JM Smucker Co. (The) | | | 823 | | | | 70,976 | |
Kellogg Co. | | | 1,859 | | | | 103,825 | |
Kraft Foods Group, Inc. | | | 4,478 | | | | 203,615 | |
McCormick & Co., Inc. | | | 998 | | | | 63,403 | |
Mead Johnson Nutrition Co. | | | 1,534 | | | | 101,075 | |
Mondelez International Inc.–Class A | | | 13,435 | | | | 342,189 | |
Tyson Foods, Inc.–Class A | | | 2,182 | | | | 42,331 | |
| | | | | | | | 1,537,050 | |
|
| Paper Packaging–0.05% | |
Bemis Co., Inc. | | | 777 | | | | 25,998 | |
Sealed Air Corp. | | | 1,486 | | | | 26,020 | |
| | | | | | | | 52,018 | |
|
| Paper Products–0.18% | |
International Paper Co. | | | 3,295 | | | | 131,273 | |
MeadWestvaco Corp. | | | 1,335 | | | | 42,546 | |
| | | | | | | | 173,819 | |
|
| Personal Products–0.16% | |
Avon Products, Inc. | | | 3,223 | | | | 46,282 | |
Estee Lauder Cos. Inc. (The)–Class A | | | 1,808 | | | | 108,227 | |
| | | | | | | | 154,509 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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| Pharmaceuticals–6.09% | |
Abbott Laboratories | | | 11,950 | | | $ | 782,725 | |
Allergan, Inc. | | | 2,316 | | | | 212,447 | |
Bristol-Myers Squibb Co. | | | 12,479 | | | | 406,691 | |
Eli Lilly & Co. | | | 7,720 | | | | 380,750 | |
Forest Laboratories, Inc.(b) | | | 1,761 | | | | 62,198 | |
Hospira, Inc.(b) | | | 1,243 | | | | 38,831 | |
Johnson & Johnson | | | 20,951 | | | | 1,468,665 | |
Merck & Co., Inc. | | | 22,953 | | | | 939,696 | |
Mylan Inc.(b) | | | 3,058 | | | | 84,034 | |
Perrigo Co. | | | 661 | | | | 68,764 | |
Pfizer Inc. | | | 55,664 | | | | 1,396,053 | |
Watson Pharmaceuticals, Inc.(b) | | | 961 | | | | 82,646 | |
| | | | | | | | 5,923,500 | |
|
| Property & Casualty Insurance–2.19% | |
ACE Ltd. | | | 2,568 | | | | 204,926 | |
Allstate Corp. (The) | | | 3,630 | | | | 145,817 | |
Berkshire Hathaway Inc.–Class B(b) | | | 13,790 | | | | 1,236,963 | |
Chubb Corp. (The) | | | 1,980 | | | | 149,134 | |
Cincinnati Financial Corp. | | | 1,124 | | | | 44,016 | |
Progressive Corp. (The) | | | 4,222 | | | | 89,084 | |
Travelers Cos., Inc. (The) | | | 2,883 | | | | 207,057 | |
XL Group PLC | | | 2,303 | | | | 57,713 | |
| | | | | | | | 2,134,710 | |
|
| Publishing–0.16% | |
Gannett Co., Inc. | | | 1,735 | | | | 31,247 | |
McGraw-Hill Cos., Inc. (The) | | | 2,110 | | | | 115,354 | |
Washington Post Co. (The)–Class B | | | 36 | | | | 13,148 | |
| | | | | | | | 159,749 | |
|
| Railroads–0.77% | |
CSX Corp. | | | 7,837 | | | | 154,624 | |
Norfolk Southern Corp. | | | 2,388 | | | | 147,674 | |
Union Pacific Corp. | | | 3,556 | | | | 447,060 | |
| | | | | | | | 749,358 | |
|
| Real Estate Services–0.05% | |
CBRE Group, Inc.–Class A(b) | | | 2,294 | | | | 45,651 | |
|
| Regional Banks–0.94% | |
BB&T Corp. | | | 5,268 | | | | 153,352 | |
Fifth Third Bancorp | | | 6,785 | | | | 103,064 | |
First Horizon National Corp. | | | 1,825 | | | | 18,086 | |
Huntington Bancshares Inc. | | | 6,468 | | | | 41,331 | |
KeyCorp | | | 7,009 | | | | 59,016 | |
M&T Bank Corp. | | | 918 | | | | 90,395 | |
PNC Financial Services Group, Inc. | | | 3,998 | | | | 233,123 | |
Regions Financial Corp. | | | 10,651 | | | | 75,835 | |
SunTrust Banks, Inc. | | | 4,042 | | | | 114,591 | |
Zions Bancorp. | | | 1,361 | | | | 29,125 | |
| | | | | | | | 917,918 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Research & Consulting Services–0.08% | |
Dun & Bradstreet Corp. (The) | | | 337 | | | $ | 26,505 | |
Equifax Inc. | | | 921 | | | | 49,845 | |
| | | | | | | | 76,350 | |
|
| Residential REIT’s–0.29% | |
Apartment Investment & Management Co.–Class A | | | 1,095 | | | | 29,631 | |
AvalonBay Communities, Inc. | | | 864 | | | | 117,150 | |
Equity Residential | | | 2,415 | | | | 136,858 | |
| | | | | | | | 283,639 | |
|
| Restaurants–1.35% | |
Chipotle Mexican Grill, Inc.(b) | | | 237 | | | | 70,498 | |
Darden Restaurants, Inc. | | | 985 | | | | 44,394 | |
McDonald’s Corp. | | | 7,599 | | | | 670,308 | |
Starbucks Corp. | | | 5,621 | | | | 301,398 | |
Yum! Brands, Inc. | | | 3,415 | | | | 226,756 | |
| | | | | | | | 1,313,354 | |
|
| Retail REIT’s–0.44% | |
Kimco Realty Corp. | | | 3,066 | | | | 59,235 | |
Simon Property Group, Inc. | | | 2,338 | | | | 369,615 | |
| | | | | | | | 428,850 | |
|
| Security & Alarm Services–0.19% | |
ADT Corp. (The) | | | 1,757 | | | | 81,683 | |
Tyco International Ltd. | | | 3,539 | | | | 103,516 | |
| | | | | | | | 185,199 | |
|
| Semiconductor Equipment–0.24% | |
Applied Materials, Inc. | | | 9,054 | | | | 103,578 | |
KLA-Tencor Corp. | | | 1,254 | | | | 59,891 | |
Lam Research Corp.(b) | | | 1,290 | | | | 46,607 | |
Teradyne, Inc.(b) | | | 1,447 | | | | 24,440 | |
| | | | | | | | 234,516 | |
|
| Semiconductors–1.73% | |
Advanced Micro Devices, Inc.(b) | | | 4,531 | | | | 10,874 | |
Altera Corp. | | | 2,410 | | | | 83,000 | |
Analog Devices, Inc. | | | 2,278 | | | | 95,813 | |
Broadcom Corp.–Class A | | | 3,922 | | | | 130,250 | |
First Solar, Inc.(b) | | | 451 | | | | 13,927 | |
Intel Corp. | | | 37,606 | | | | 775,812 | |
Linear Technology Corp. | | | 1,734 | | | | 59,476 | |
LSI Corp.(b) | | | 4,201 | | | | 29,743 | |
Microchip Technology Inc. | | | 1,458 | | | | 47,516 | |
Micron Technology, Inc.(b) | | | 7,668 | | | | 48,692 | |
NVIDIA Corp. | | | 4,768 | | | | 58,599 | |
Texas Instruments Inc. | | | 8,473 | | | | 262,155 | |
Xilinx, Inc. | | | 1,974 | | | | 70,866 | |
| | | | | | | | 1,686,723 | |
|
| Soft Drinks–2.11% | |
Coca-Cola Co. (The) | | | 29,179 | | | | 1,057,739 | |
Coca-Cola Enterprises, Inc. | | | 2,039 | | | | 64,698 | |
Dr. Pepper Snapple Group, Inc. | | | 1,585 | | | | 70,025 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
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| Soft Drinks–(continued) | |
Monster Beverage Corp.(b) | | | 1,126 | | | $ | 59,543 | |
PepsiCo, Inc. | | | 11,694 | | | | 800,220 | |
| | | | | | | | 2,052,225 | |
|
| Specialized Consumer Services–0.04% | |
H&R Block, Inc. | | | 2,077 | | | | 38,570 | |
|
| Specialized Finance–0.35% | |
CME Group Inc. | | | 2,304 | | | | 116,836 | |
IntercontinentalExchange Inc.(b) | | | 547 | | | | 67,724 | |
Moody’s Corp. | | | 1,456 | | | | 73,266 | |
NASDAQ OMX Group, Inc. (The) | | | 911 | | | | 22,784 | |
NYSE Euronext | | | 1,821 | | | | 57,434 | |
| | | | | | | | 338,044 | |
|
| Specialized REIT’s–1.09% | |
American Tower Corp. | | | 2,977 | | | | 230,033 | |
HCP, Inc. | | | 3,402 | | | | 153,702 | |
Health Care REIT, Inc. | | | 1,963 | | | | 120,312 | |
Host Hotels & Resorts Inc. | | | 5,427 | | | | 85,041 | |
Plum Creek Timber Co., Inc. | | | 1,216 | | | | 53,954 | |
Public Storage | | | 1,085 | | | | 157,282 | |
Ventas, Inc. | | | 2,225 | | | | 144,002 | |
Weyerhaeuser Co. | | | 4,093 | | | | 113,867 | |
| | | | | | | | 1,058,193 | |
|
| Specialty Chemicals–0.53% | |
Ecolab Inc. | | | 1,983 | | | | 142,578 | |
International Flavors & Fragrances Inc. | | | 613 | | | | 40,789 | |
LyondellBasell Industries N.V.–Class A | | | 2,859 | | | | 163,220 | |
Sherwin-Williams Co. (The) | | | 641 | | | | 98,599 | |
Sigma-Aldrich Corp. | | | 909 | | | | 66,884 | |
| | | | | | | | 512,070 | |
|
| Specialty Stores–0.17% | |
PetSmart, Inc. | | | 814 | | | | 55,629 | |
Staples, Inc. | | | 5,042 | | | | 57,479 | |
Tiffany & Co. | | | 896 | | | | 51,376 | |
| | | | | | | | 164,484 | |
|
| Steel–0.20% | |
Allegheny Technologies, Inc. | | | 837 | | | | 25,411 | |
Cliffs Natural Resources Inc. | | | 1,072 | | | | 41,336 | |
Nucor Corp. | | | 2,391 | | | | 103,244 | |
United States Steel Corp. | | | 1,126 | | | | 26,878 | |
| | | | | | | | 196,869 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Systems Software–2.83% | |
BMC Software, Inc.(b) | | | 1,077 | | | $ | 42,714 | |
CA, Inc. | | | 2,574 | | | | 56,576 | |
Microsoft Corp. | | | 57,269 | | | | 1,530,800 | |
Oracle Corp. | | | 28,418 | | | | 946,888 | |
Red Hat, Inc.(b) | | | 1,453 | | | | 76,951 | |
Symantec Corp.(b) | | | 5,197 | | | | 97,756 | |
| | | | | | | | 2,751,685 | |
|
| Thrifts & Mortgage Finance–0.06% | |
Hudson City Bancorp, Inc. | | | 3,568 | | | | 29,008 | |
People’s United Financial Inc. | | | 2,588 | | | | 31,289 | |
| | | | | | | | 60,297 | |
|
| Tires & Rubber–0.03% | |
Goodyear Tire & Rubber Co. (The)(b) | | | 1,892 | | | | 26,129 | |
|
| Tobacco–1.80% | |
Altria Group, Inc. | | | 15,320 | | | | 481,354 | |
Lorillard, Inc. | | | 983 | | | | 114,687 | |
Philip Morris International Inc. | | | 12,629 | | | | 1,056,290 | |
Reynolds American Inc. | | | 2,470 | | | | 102,332 | |
| | | | | | | | 1,754,663 | |
|
| Trading Companies & Distributors–0.19% | |
Fastenal Co. | | | 2,030 | | | | 94,781 | |
W.W. Grainger, Inc. | | | 450 | | | | 91,066 | |
| | | | | | | | 185,847 | |
|
| Trucking–0.02% | |
Ryder System, Inc. | | | 384 | | | | 19,173 | |
|
| Wireless Telecommunication Services–0.32% | |
Crown Castle International Corp.(b) | | | 2,207 | | | | 159,257 | |
MetroPCS Communications, Inc.(b) | | | 2,407 | | | | 23,925 | |
Sprint Nextel Corp.(b) | | | 22,725 | | | | 128,851 | |
| | | | | | | | 312,033 | |
Total Common Stocks & Other Equity Interests
(Cost $52,394,910) | | | | 96,266,187 | |
|
Money Market Funds–0.81% | |
Liquid Assets Portfolio–Institutional Class(e) | | | 394,030 | | | | 394,030 | |
Premier Portfolio–Institutional Class(e) | | | 394,030 | | | | 394,030 | |
Total Money Market Funds
(Cost $788,060) | | | | 788,060 | |
TOTAL INVESTMENTS–99.76%
(Cost $53,182,970) | | | | 97,054,247 | |
OTHER ASSETS LESS LIABILITIES–0.24% | | | | | | | 237,192 | |
NET ASSETS–100.00% | | | | | | $ | 97,291,439 | |
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 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
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $52,311,432) | | $ | 96,178,681 | |
Investments in affiliates, at value (Cost $871,538) | | | 875,566 | |
Total investments, at value (Cost $53,182,970) | | | 97,054,247 | |
Receivable for: | | | | |
Investments sold | | | 14,306 | |
Variation margin | | | 22,325 | |
Fund shares sold | | | 213,693 | |
Dividends | | | 107,009 | |
Investment for trustee deferred compensation and retirement plans | | | 11,697 | |
Other assets | | | 378 | |
Total assets | | | 97,423,655 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 10,178 | |
Accrued fees to affiliates | | | 67,182 | |
Accrued other operating expenses | | | 31,919 | |
Trustee deferred compensation and retirement plans | | | 22,937 | |
Total liabilities | | | 132,216 | |
Net assets applicable to shares outstanding | | $ | 97,291,439 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 65,843,993 | |
Undistributed net investment income | | | 1,847,064 | |
Undistributed net realized gain (loss) | | | (14,264,696 | ) |
Unrealized appreciation | | | 43,865,078 | |
| | | $ | 97,291,439 | |
|
Net Assets: | |
Series I | | $ | 32,634,238 | |
Series II | | $ | 64,657,201 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 2,531,252 | |
Series II | | | 5,041,126 | |
Series I: | | | | |
Net asset value per share | | $ | 12.89 | |
Series II: | | | | |
Net asset value per share | | $ | 12.83 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $1,233) | | $ | 2,336,700 | |
Dividends from affiliates | | | 3,790 | |
Total investment income | | | 2,340,490 | |
| |
Expenses: | | | | |
Advisory fees | | | 121,942 | |
Administrative services fees | | | 155,574 | |
Custodian fees | | | 27,281 | |
Distribution fees — Series II | | | 169,023 | |
Transfer agent fees | | | 2,801 | |
Trustees’ and officers’ fees and benefits | | | 25,432 | |
Professional services fees | | | 33,606 | |
Other | | | 32,105 | |
Total expenses | | | 567,764 | |
Less: Fees waived | | | (61,298 | ) |
Net expenses | | | 506,466 | |
Net investment income | | | 1,834,024 | |
| |
Realized and unrealized gain from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 5,685,717 | |
Futures contracts | | | 199,679 | |
| | | | 5,885,396 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 7,093,848 | |
Futures contracts | | | (6,645 | ) |
| | | | 7,087,203 | |
Net realized and unrealized gain | | | 12,972,599 | |
Net increase in net assets resulting from operations | | $ | 14,806,623 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | |
Net investment income | | $ | 1,834,024 | | | $ | 1,886,550 | |
Net realized gain | | | 5,885,396 | | | | 5,411,297 | |
Change in net unrealized appreciation (depreciation) | | | 7,087,203 | | | | (5,214,410 | ) |
Net increase in net assets resulting from operations | | | 14,806,623 | | | | 2,083,437 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (676,218 | ) | | | (682,191 | ) |
Series ll | | | (1,184,153 | ) | | | (1,324,615 | ) |
Total distributions from net investment income | | | (1,860,371 | ) | | | (2,006,806 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (4,542,914 | ) | | | (4,815,112 | ) |
Series ll | | | (11,378,357 | ) | | | (21,052,946 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (15,921,271 | ) | | | (25,868,058 | ) |
Net increase (decrease) in net assets | | | (2,975,019 | ) | | | (25,791,427 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 100,266,458 | | | | 126,057,885 | |
End of year (includes undistributed net investment income of $1,847,064 and $1,876,324, respectively) | | $ | 97,291,439 | | | $ | 100,266,458 | |
Notes to Financial Statements
December 31, 2012
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-five 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.
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. S&P 500 Index Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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. S&P 500 Index 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 the 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 designated 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. (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 July 1, 2012, the Adviser has 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2012, 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 waivers and/or 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $61,298.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $105,574 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 year ended December 31, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
Invesco V.I. S&P 500 Index 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 97,054,247 | | | $ | — | | | $ | — | | | $ | 97,054,247 | |
Futures* | | | (6,199 | ) | | | — | | | | — | | | | (6,199 | ) |
Total Investments | | $ | 97,048,048 | | | $ | — | | | $ | — | | | $ | 97,048,048 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Investments in Affiliates
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 year ended December 31, 2012.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Value 12/31/11 | | | Purchases
at Cost | | | Proceeds
from Sales | | | Change in
Unrealized
Appreciation | | | Realized
Gain (Loss) | | | Value 12/31/12 | | | Dividend
Income | |
Invesco Ltd. | | $ | 81,023 | | | $ | 2,247 | | | $ | (18,056) | | | $ | 24,341 | | | $ | (2,049) | | | $ | 87,506 | | | $ | 2,290 | |
NOTE 5—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Equity risk | | | | | | | | |
Futures contracts(a) | | $ | — | | | $ | (6,199 | ) |
| (a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Invesco V.I. S&P 500 Index Fund
Effect of Derivative Instruments for the year ended December 31, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
| | | | |
| | | Location of Gain on
Statement of Operations | |
| | | Futures * | |
Realized Gain | | | | |
Equity risk | | $ | 199,679 | |
Change in Unrealized Appreciation (Depreciation) | | | | |
Equity risk | | | (6,645 | ) |
Total | | $ | 193,034 | |
| * | The average notional value of futures outstanding during the period was $1,266,623. |
| | | | | | | | | | | | | | | | |
| Open Futures Contracts | |
| Long Contracts | | Number of
Contracts | | | Expiration
Month | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
E-Mini S&P 500 Index | | | 13 | | | | March-2013 | | | $ | 923,065 | | | $ | (6,199) | |
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 1,860,371 | | | $ | 2,006,806 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 1,844,177 | |
Net unrealized appreciation — investments | | | 38,188,613 | |
Temporary book/tax differences | | | (21,543 | ) |
Capital loss carryforward | | | (8,563,801 | ) |
Shares of beneficial interest | | | 65,843,993 | |
Total net assets | | $ | 97,291,439 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and Real Estate Investment Trust adjustments.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Invesco V.I. S&P 500 Index 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 Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $6,251,731 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2013 | | $ | 1,732,952 | | | $ | — | | | $ | 1,732,952 | |
December 31, 2014 | | | 5,449,556 | | | | — | | | | 5,449,556 | |
December 31, 2017 | | | 1,381,293 | | | | — | | | | 1,381,293 | |
| | | $ | 8,563,801 | | | $ | — | | | $ | 8,563,801 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $4,003,027 and $21,236,999, 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 | | $ | 40,988,793 | |
Aggregate unrealized (depreciation) of investment securities | | | (2,800,180 | ) |
Net unrealized appreciation of investment securities | | $ | 38,188,613 | |
Cost of investments for tax purposes is $58,865,634.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair funds settlements and Real Estate Investment Trust distributions, on December 31, 2012, undistributed net investment income was decreased by $2,913 and undistributed net realized gain (loss) was increased by $2,913. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 105,935 | | | $ | 1,307,486 | | | | 95,570 | | | $ | 1,079,344 | |
Series II | | | 276,994 | | | | 3,486,131 | | | | 170,970 | | | | 1,951,516 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 51,977 | | | | 676,218 | | | | 66,816 | | | | 682,191 | |
Series II | | | 91,440 | | | | 1,184,153 | | | | 130,376 | | | | 1,324,615 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (520,544) | | | | (6,526,618) | | | | (566,020) | | | | (6,576,647) | |
Series II | | | (1,288,365) | | | | (16,048,641) | | | | (2,129,902) | | | | (24,329,077) | |
Net increase (decrease) in share activity | | | (1,282,563) | | | $ | (15,921,271) | | | | (2,232,190) | | | $ | (25,868,058) | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 92% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 Fund has no knowledge as to whether all or a portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. S&P 500 Index Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 11.36 | | | $ | 0.25 | | | $ | 1.54 | | | $ | 1.79 | | | $ | (0.26 | ) | | $ | 12.89 | | | | 15.77 | % | | $ | 32,634 | | | | 0.33 | %(d) | | | 0.39 | %(d) | | | 1.97 | %(d) | | | 4 | % |
Year ended 12/31/11 | | | 11.42 | | | | 0.21 | | | | (0.04 | ) | | | 0.17 | | | | (0.23 | ) | | | 11.36 | | | | 1.76 | | | | 32,889 | | | | 0.28 | | | | 0.31 | | | | 1.81 | | | | 4 | |
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 | (e) | | | 0.28 | (e) | | | 2.09 | (e) | | | 5 | |
Year ended 12/31/08 | | | 13.46 | | | | 0.23 | | | | (5.14 | ) | | | (4.91 | ) | | | (0.28 | ) | | | 8.27 | | | | (37.07 | ) | | | 33,801 | | | | 0.30 | (e) | | | 0.30 | (e) | | | 2.01 | (e) | | | 14 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 11.30 | | | | 0.22 | | | | 1.54 | | | | 1.76 | | | | (0.23 | ) | | | 12.83 | | | | 15.52 | | | | 64,657 | | | | 0.58 | (d) | | | 0.64 | (d) | | | 1.72 | (d) | | | 4 | |
Year ended 12/31/11 | | | 11.35 | | | | 0.18 | | | | (0.03 | ) | | | 0.15 | | | | (0.20 | ) | | | 11.30 | | | | 1.53 | | | | 67,378 | | | | 0.53 | | | | 0.56 | | | | 1.56 | | | | 4 | |
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 | (e) | | | 0.53 | (e) | | | 1.84 | (e) | | | 5 | |
Year ended 12/31/08 | | | 13.36 | | | | 0.20 | | | | (5.11 | ) | | | (4.91 | ) | | | (0.24 | ) | | | 8.21 | | | | (37.27 | ) | | | 80,115 | | | | 0.55 | (e) | | | 0.55 | (e) | | | 1.76 | (e) | | | 14 | |
| (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 the periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $34,009 and $67,609 for Series I and Series II shares, respectively. |
| (e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is less than 0.005%. |
Invesco V.I. S&P 500 Index Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. S&P 500 Index Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. S&P 500 Index Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 26, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,058.00 | | | $ | 2.02 | | | $ | 1,023.18 | | | $ | 1.98 | | | | 0.39 | % |
Series II | | | 1,000.00 | | | | 1,056.90 | | | | 3.31 | | | | 1,021.92 | | | | 3.25 | | | | 0.64 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. S&P 500 Index Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. S&P Index 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. S&P Index 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. S&P Index 500 Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. S&P Index 500 Fund
Invesco V.I. Small Cap Equity Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Small Cap Equity Fund had positive returns but underperformed its style-specific benchmark, the Russell 2000 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 13.89 | % |
| Series II Shares | | | | 13.66 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 2000 Index¡ (Style-Specific Index) | | | | 16.35 | |
| Lipper VUF Small-Cap Core Funds Index¿ (Peer Group Index) | | | | 15.27 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; ¡Invesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
How we invest
Our investment process seeks to identify attractively valued small-cap companies with high growth potential, demonstrated by consistent and accelerating revenue and earnings growth.
We begin with a quantitative model that ranks companies based on a set of fundamental, valuation and timeliness factors. This proprietary model provides an objective approach to identifying new investment opportunities, as the highest ranked stocks become the primary focus of our research efforts.
Our stock selection process is based on a rigorous three-step process that includes fundamental, valuation and timeliness analysis.
| 1. | Fundamental analysis. Building financial models and conducting in-depth interviews with company management. |
| 2. | Valuation analysis. Identifying attractively valued stocks given their growth potential over a one- to two-year horizon. |
| 3. | Timeliness analysis. Identifying the timeliness of a stock purchase. We review trading volume characteristics |
| | and trend analysis to make sure there are no signs of the stock deteriorating. This also serves as a risk management measure that helps us confirm our high conviction candidates. |
Portfolio construction plays an important role in risk management. We align the Fund with the S&P SmallCap 600 Index, the benchmark we believe represents the small-cap core asset class. We seek to manage risk by keeping the Fund’s sector weightings in line with the benchmark by staying fully diversified in all those sectors. We also seek to limit stock-specific risk by investing in typically 120 to 130 holdings.
We consider selling a stock when it no longer meets our investment criteria, based on:
| n | | Our original investment thesis is not valid because the fundamentals are no longer intact. |
| n | | The price target set at purchase is exceeded. |
| n | | The company’s timeliness profile deteriorates. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Financials | | | | 19.6 | % |
| Industrials | | | | 19.5 | |
| Information Technology | | | | 15.2 | |
| Consumer Discretionary | | | | 13.9 | |
| Health Care | | | | 10.4 | |
| Materials | | | | 8.7 | |
| Energy | | | | 5.5 | |
| Consumer Staples | | | | 2.8 | |
| Utilities | | | | 1.9 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 2.5 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| |
| 1. Cymer, Inc. | | | | 1.6 | % |
| 2. PolyOne Corp. | | | | 1.4 | |
| 3. Valmont Industries, Inc. | | | | 1.3 | |
| 4. TriMas Corp. | | | | 1.3 | |
| 5. Team, Inc. | | | | 1.3 | |
| 6. Interface, Inc. | | | | 1.3 | |
| 7. Beacon Roofing Supply, Inc. | | | | 1.2 | |
| 8. Graphic Packaging Holding Co. | | | | 1.2 | |
| 9. Belden Inc. | | | | 1.2 | |
| 10. ValueClick, Inc. | | | | 1.2 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| |
| 1. Regional Banks | | | | 8.4 | % |
| 2. Industrial Machinery | | | | 5.5 | |
| 3. Oil and Gas Equipment and Services | | | | 4.7 | |
| 4. Application Software | | | | 4.1 | |
| 5. Environmental and Facilities Services | | | | 3.2 | |
| | | | | |
| Total Net Assets | | | | $288.7 million | |
| |
| Total Number of Holdings* | | | | 106 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Small Cap Equity Fund
The Fund had strong positive returns but underperformed the Russell 2000 Index, it’s style-specific index, due primarily to stock selection in the financials and health care sectors where performance was also hindered by underweight allocations to the strong performing real estate and biotechnology industries. A modest cash position also detracted from relative performance since the small cap market was up significantly during the year. The Fund actually outperformed its style-specific benchmark in most sectors, including materials, consumer staples, utilities, information technology (IT) and energy.
The Fund underperformed by the widest margin in the financials sector due primarily to stock selection. Two holdings that detracted from performance in this sector were northeastern regional banks Webster and FNB. In addition, underperformance stemmed somewhat from a moderate underweight position in real estate investment trusts (REITs), which saw very strong performance due to the market’s appetite for higher yielding, dividend paying securities. Most REITs struggle to grow their business organically. Because they must distribute the majority of their income to shareholders, they often don’t represent attractive long-term growth investments.
The Fund also was challenged in the health care sector due both to stock selection and an underweight position in this relatively strong market sector. One significant detractor was Auxilium. The stock was hurt when the company missed third quarter revenue expectations for an older product; however, its newest product enjoyed substantial sales growth that may be sustainable as the product may potentially be approved for treatment of additional diseases.
For much of the year, biotechnology stocks outperformed other health care stocks. Their prospects were less subject to the uncertainty resulting from the US Supreme Court’s decision on health care reform, therefore relative performance of the Fund’s biotechnology stocks versus the Russell 2000 Index was hampered by our slight underweight allocation to the industry.
The Fund outperformed by the widest margin in the materials sector. Eagle Materials is a producer of cement and wallboard products that benefited from a rebound in the housing market as well as from industry regulations that enhanced the firm’s pricing power. Our position in the stock returned more than 100% during the reporting period and
was the strongest contributor to Fund performance. Another contributor in this sector was specialty polymer materials and color company Polyone which benefited from successfully integrating an acquired company. The acquisition broadened its product line with faster growing and more profitable products.
IT was another contributing sector for the Fund, driven by strong stock selection. The leading contributor in this sector and one of the top Fund contributors during the reporting period was Cymer. A leading producer of lasers for semiconductor manufacturing, Cymer’s stock was up strongly late in the year when the company agreed in principle to be acquired for a substantial premium, although the stock was still a holding at the end of the year. Ariba was a leading software provider which was acquired during the year. We sold the stock on the acquisition news, locking in gains for shareholders and benefiting Fund performance.
Throughout the year the Fund maintained its “barbell” strategy in positioning that provided exposure to cyclical growth opportunities as well as more defensive areas of the market. Changes during the reporting period were moderate within this framework; however the most significant changes included reductions in the health care and information technology sectors. Exposure to the financials, industrials and materials sectors increased.
As we’ve discussed, the stock market experienced significant volatility during the fiscal year. We would like to caution investors against making investment decisions based on short-term performance. We thank you for your commitment to Invesco V.I. Small Cap Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Juliet Ellis Chartered Financial Analyst, portfolio manager and chief investment officer of Invesco’s domestic |
| growth investments team, is lead manager of Invesco V.I. Small Cap Equity Fund. She joined Invesco in 2004. Ms. Ellis earned a BA in economics and political science from Indiana University. |
| |
 | | Juan Hartsfield Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Small Cap Equity Fund. He joined |
Invesco in 2004. Mr. Hartsfield earned a BS in petroleum engineering from The University of Texas at Austin and an MBA from the University of Michigan. |
Invesco V.I. Small Cap Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es) since Inception
Fund data from 8/29/03; index data from 8/31/03
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns | | | | | |
| As of 12/31/12 | | | | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (8/29/03) | | | | 7.79 | % |
| 5 Years | | | | 3.90 | |
| 1 Year | | | | 13.89 | |
| |
| Series II Shares | | | | | |
| Inception (8/29/03) | | | | 7.55 | % |
| 5 Years | | | | 3.66 | |
| 1 Year | | | | 13.66 | |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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
Invesco V.I. Small Cap Equity Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Initial public offerings (IPO) risk. The prices of IPO securities fluctuate more than prices of equity securities of companies with longer trading histories. In addition, companies offering securities in IPOs may have less experienced management or limited operating histories. There can be no assurance that the Fund will have favorable IPO investment opportunities.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small and mid-capitalization risk. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper.
The S&P SmallCap 600® Index is a market-value weighted index that consists of 600 small-cap US stocks chosen for market size, liquidity and industry group representation.
The Fund is not managed to track the performance of any particular index, including the 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–97.46% | |
Advertising–1.02% | |
Interpublic Group of Cos., Inc. (The) | | | 268,452 | | | $ | 2,958,341 | |
|
Aerospace & Defense–1.71% | |
Aerovironment Inc.(b) | | | 89,123 | | | | 1,937,534 | |
Triumph Group, Inc. | | | 45,709 | | | | 2,984,798 | |
| | | | | | | | 4,922,332 | |
|
Agricultural Products–1.15% | |
Ingredion Inc. | | | 51,701 | | | | 3,331,095 | |
|
Air Freight & Logistics–0.60% | |
UTi Worldwide, Inc. | | | 128,627 | | | | 1,723,602 | |
|
Apparel Retail–1.09% | |
bebe stores, inc. | | | 299,626 | | | | 1,195,508 | |
Genesco Inc.(b) | | | 35,338 | | | | 1,943,590 | |
| | | | | | | | 3,139,098 | |
|
Apparel, Accessories & Luxury Goods–1.12% | |
PVH Corp. | | | 29,093 | | | | 3,229,614 | |
|
Application Software–4.09% | |
Actuate Corp.(b) | | | 201,690 | | | | 1,129,464 | |
Cadence Design Systems, Inc.(b) | | | 249,791 | | | | 3,374,676 | |
MicroStrategy Inc.-Class A(b) | | | 21,309 | | | | 1,989,834 | |
Parametric Technology Corp.(b) | | | 109,602 | | | | 2,467,141 | |
SS&C Technologies Holdings, Inc.(b) | | | 123,180 | | | | 2,847,922 | |
| | | | | | | | 11,809,037 | |
|
Asset Management & Custody Banks–0.96% | |
Affiliated Managers Group, Inc.(b) | | | 21,231 | | | | 2,763,215 | |
|
Auto Parts & Equipment–1.87% | |
Dana Holding Corp. | | | 163,215 | | | | 2,547,786 | |
TRW Automotive Holdings Corp.(b) | | | 53,377 | | | | 2,861,541 | |
| | | | | | | | 5,409,327 | |
|
Automobile Manufacturers–1.08% | |
Thor Industries, Inc. | | | 83,503 | | | | 3,125,517 | |
|
Automotive Retail–1.04% | |
Penske Automotive Group, Inc. | | | 100,008 | | | | 3,009,241 | |
|
Biotechnology–0.89% | |
Cubist Pharmaceuticals, Inc.(b) | | | 61,028 | | | | 2,566,838 | |
|
Building Products–1.10% | |
Trex Co., Inc.(b) | | | 85,552 | | | | 3,185,101 | |
|
Casinos & Gaming–0.74% | |
Bally Technologies Inc.(b) | | | 47,674 | | | | 2,131,505 | |
|
Communications Equipment–2.04% | |
Arris Group Inc.(b) | | | 199,366 | | | | 2,978,528 | |
JDS Uniphase Corp.(b) | | | 214,594 | | | | 2,905,603 | |
| | | | | | | | 5,884,131 | |
| | | | | | | | |
| | | Shares | | | Value | |
Construction & Farm Machinery & Heavy Trucks–0.97% | |
Titan International, Inc.(c) | | | 128,384 | | | $ | 2,788,500 | |
|
Construction Materials–1.05% | |
Eagle Materials Inc. | | | 51,768 | | | | 3,028,428 | |
|
Data Processing & Outsourced Services–1.04% | |
Jack Henry & Associates, Inc. | | | 76,125 | | | | 2,988,668 | |
|
Diversified Chemicals–1.09% | |
FMC Corp. | | | 53,577 | | | | 3,135,326 | |
|
Diversified Metals & Mining–0.72% | |
Compass Minerals International, Inc. | | | 27,798 | | | | 2,076,789 | |
|
Diversified REIT’s–0.24% | |
Lexington Realty Trust | | | 67,585 | | | | 706,263 | |
|
Electrical Components & Equipment–2.01% | |
Belden Inc. | | | 78,685 | | | | 3,540,038 | |
EnerSys(b) | | | 59,798 | | | | 2,250,199 | |
| | | | | | | | 5,790,237 | |
|
Electronic Equipment & Instruments–0.60% | |
Electro Scientific Industries, Inc. | | | 174,455 | | | | 1,735,827 | |
|
Electronic Manufacturing Services–0.98% | |
Sanmina Corp.(b) | | | 256,085 | | | | 2,834,861 | |
|
Environmental & Facilities Services–3.16% | |
ABM Industries Inc. | | | 109,365 | | | | 2,181,832 | |
Team, Inc.(b) | | | 96,780 | | | | 3,681,511 | |
Waste Connections, Inc. | | | 96,345 | | | | 3,255,498 | |
| | | | | | | | 9,118,841 | |
|
Food Distributors–0.92% | |
United Natural Foods, Inc.(b) | | | 49,542 | | | | 2,654,956 | |
|
Gas Utilities–1.11% | |
UGI Corp. | | | 98,176 | | | | 3,211,337 | |
|
Gold–0.42% | |
Allied Nevada Gold Corp.(b) | | | 20,816 | | | | 627,186 | |
Detour Gold Corp. (Canada)(b) | | | 23,190 | | | | 581,444 | |
| | | | | | | | 1,208,630 | |
|
Health Care Equipment–2.38% | |
Orthofix International N.V.(b) | | | 32,677 | | | | 1,285,186 | |
Teleflex Inc. | | | 36,953 | | | | 2,635,119 | |
Wright Medical Group, Inc.(b) | | | 141,227 | | | | 2,964,355 | |
| | | | | | | | 6,884,660 | |
|
Health Care Facilities–2.19% | |
Amsurg Corp.(b) | | | 102,109 | | | | 3,064,291 | |
Universal Health Services, Inc.-Class B | | | 67,188 | | | | 3,248,540 | |
| | | | | | | | 6,312,831 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
| | | | | | | | |
| | | Shares | | | Value | |
Health Care Services–0.80% | |
IPC The Hospitalist Co.(b) | | | 58,469 | | | $ | 2,321,804 | |
|
Health Care Supplies–1.05% | |
Haemonetics Corp.(b) | | | 74,202 | | | | 3,030,410 | |
|
Home Furnishings–0.88% | |
La-Z-Boy Inc. | | | 179,293 | | | | 2,536,996 | |
|
Homebuilding–1.05% | |
Meritage Homes Corp.(b) | | | 81,134 | | | | 3,030,355 | |
|
Homefurnishing Retail–1.01% | |
Pier 1 Imports, Inc. | | | 145,981 | | | | 2,919,620 | |
|
Industrial Machinery–5.47% | |
Gardner Denver Inc. | | | 31,754 | | | | 2,175,149 | |
IDEX Corp. | | | 62,537 | | | | 2,909,846 | |
TriMas Corp.(b) | | | 132,609 | | | | 3,707,748 | |
Valmont Industries, Inc. | | | 28,115 | | | | 3,839,103 | |
Watts Water Technologies, Inc.-Class A | | | 73,508 | | | | 3,160,109 | |
| | | | | | | | 15,791,955 | |
|
Industrial REIT’s–1.15% | |
DCT Industrial Trust Inc. | | | 509,400 | | | | 3,306,006 | |
|
Insurance Brokers–1.04% | |
Arthur J. Gallagher & Co. | | | 86,977 | | | | 3,013,753 | |
|
Internet Software & Services–1.20% | |
ValueClick, Inc.(b) | | | 178,313 | | | | 3,461,055 | |
|
Investment Banking & Brokerage–0.84% | |
Evercore Partners Inc.-Class A | | | 80,292 | | | | 2,424,015 | |
|
IT Consulting & Other Services–0.98% | |
MAXIMUS, Inc. | | | 44,805 | | | | 2,832,572 | |
|
Life Sciences Tools & Services–1.75% | |
Bio-Rad Laboratories, Inc.-Class A(b) | | | 23,914 | | | | 2,512,165 | |
Charles River Laboratories International, Inc.(b) | | | 67,725 | | | | 2,537,656 | |
| | | | | | | | 5,049,821 | |
|
Multi-Line Insurance–1.00% | |
American Financial Group, Inc. | | | 72,961 | | | | 2,883,419 | |
|
Office REIT’s–0.97% | |
Douglas Emmett, Inc. | | | 120,700 | | | | 2,812,310 | |
|
Office Services & Supplies–1.25% | |
Interface, Inc. | | | 224,079 | | | | 3,603,190 | |
|
Oil & Gas Equipment & Services–4.65% | |
Dresser-Rand Group, Inc.(b) | | | 50,365 | | | | 2,827,491 | |
Helix Energy Solutions Group Inc.(b) | | | 152,099 | | | | 3,139,324 | |
Lufkin Industries, Inc. | | | 30,793 | | | | 1,789,997 | |
Oceaneering International, Inc. | | | 56,273 | | | | 3,026,925 | |
Oil States International, Inc.(b) | | | 36,845 | | | | 2,635,891 | |
| | | | | | | | 13,419,628 | |
| | | | | | | | |
| | | Shares | | | Value | |
Oil & Gas Exploration & Production–1.68% | |
Energen Corp. | | | 50,031 | | | $ | 2,255,898 | |
Rosetta Resources, Inc.(b) | | | 57,207 | | | | 2,594,909 | |
| | | | | | | | 4,850,807 | |
|
Packaged Foods & Meats–0.75% | |
TreeHouse Foods, Inc.(b) | | | 41,564 | | | | 2,166,731 | |
|
Paper Packaging–1.23% | |
Graphic Packaging Holding Co.(b) | | | 550,715 | | | | 3,557,619 | |
|
Paper Products–1.09% | |
Schweitzer-Mauduit International, Inc. | | | 80,733 | | | | 3,151,009 | |
|
Pharmaceuticals–1.33% | |
Auxilium Pharmaceuticals Inc.(b) | | | 100,678 | | | | 1,865,563 | |
Endo Health Solutions Inc.(b) | | | 74,889 | | | | 1,967,334 | |
| | | | | | | | 3,832,897 | |
|
Property & Casualty Insurance–1.89% | |
Markel Corp.(b) | | | 5,969 | | | | 2,587,084 | |
W. R. Berkley Corp. | | | 75,792 | | | | 2,860,390 | |
| | | | | | | | 5,447,474 | |
|
Real Estate Services–1.04% | |
Jones Lang LaSalle Inc. | | | 35,920 | | | | 3,015,125 | |
|
Regional Banks–8.36% | |
Boston Private Financial Holdings, Inc. | | | 275,829 | | | | 2,485,219 | |
Commerce Bancshares, Inc. | | | 14,272 | | | | 500,361 | |
CVB Financial Corp. | | | 261,847 | | | | 2,723,209 | |
East West Bancorp, Inc. | | | 120,172 | | | | 2,582,496 | |
F.N.B. Corp. | | | 225,407 | | | | 2,393,822 | |
Susquehanna Bancshares, Inc. | | | 299,583 | | | | 3,139,630 | |
Texas Capital Bancshares, Inc.(b) | | | 61,243 | | | | 2,744,911 | |
Webster Financial Corp. | | | 122,061 | | | | 2,508,353 | |
Wintrust Financial Corp. | | | 82,511 | | | | 3,028,154 | |
Zions Bancorp. | | | 94,757 | | | | 2,027,800 | |
| | | | | | | | 24,133,955 | |
|
Residential REIT’s–1.06% | |
Education Realty Trust, Inc. | | | 150,093 | | | | 1,596,990 | |
Mid-America Apartment Communities, Inc. | | | 22,600 | | | | 1,463,350 | |
| | | | | | | | 3,060,340 | |
|
Restaurants–2.10% | |
DineEquity, Inc.(b) | | | 48,823 | | | | 3,271,141 | |
Papa John’s International, Inc.(b) | | | 50,878 | | | | 2,795,237 | |
| | | | | | | | 6,066,378 | |
|
Semiconductor Equipment–2.46% | |
Cymer, Inc.(b) | | | 52,422 | | | | 4,740,521 | |
Veeco Instruments Inc.(b)(c) | | | 80,373 | | | | 2,372,611 | |
| | | | | | | | 7,113,132 | |
|
Semiconductors–1.78% | |
Lattice Semiconductor Corp.(b) | | | 441,673 | | | | 1,762,275 | |
Semtech Corp.(b) | | | 116,764 | | | | 3,380,318 | |
| | | | | | | | 5,142,593 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
| | | | | | | | |
| | | Shares | | | Value | |
Specialized REIT’s–1.02% | |
LaSalle Hotel Properties | | | 115,888 | | | $ | 2,942,396 | |
|
Specialty Chemicals–2.28% | |
Innophos Holdings, Inc. | | | 57,488 | | | | 2,673,192 | |
PolyOne Corp. | | | 190,951 | | | | 3,899,219 | |
| | | | | | | | 6,572,411 | |
|
Specialty Stores–0.85% | |
GNC Holdings, Inc.-Class A | | | 73,482 | | | | 2,445,481 | |
|
Steel–0.86% | |
Haynes International, Inc. | | | 47,670 | | | | 2,472,643 | |
|
Trading Companies & Distributors–1.24% | |
Beacon Roofing Supply, Inc.(b) | | | 107,615 | | | | 3,581,427 | |
|
Trucking–1.97% | |
Landstar System, Inc. | | | 46,243 | | | | 2,425,908 | |
Old Dominion Freight Line, Inc.(b) | | | 95,057 | | | | 3,258,554 | |
| | | | | | | | 5,684,462 | |
Total Common Stocks & Other Equity Interests
(Cost $222,046,737) | | | | 281,337,937 | |
| | | | | | | | |
| | | Shares | | | Value | |
Money Market Funds–2.51% | |
Liquid Assets Portfolio–Institutional Class(d) | | | 3,622,675 | | | $ | 3,622,675 | |
Premier Portfolio–Institutional Class (d) | | | 3,622,675 | | | | 3,622,675 | |
Total Money Market Funds
(Cost $7,245,350) | | | | 7,245,350 | |
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.97% (Cost $229,292,087) | | | | 288,583,287 | |
| |
Investments Purchased with Cash Collateral from Securities on Loan | | | | | |
Money Market Funds–1.32% | |
Liquid Assets Portfolio-Institutional Class (Cost $3,812,540)(d)(e) | | | 3,812,540 | | | | 3,812,540 | |
TOTAL INVESTMENTS–101.29% (Cost $233,104,627) | | | | | | | 292,395,827 | |
OTHER ASSETS LESS LIABILITIES–(1.29)% | | | | | | | (3,734,687 | ) |
NET ASSETS–100.00% | | | | | | $ | 288,661,140 | |
Investment Abbreviations:
| | |
| REIT | | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | All or a portion of this security was out on loan at December 31, 2012. |
| (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 1K. |
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
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $222,046,737)* | | $ | 281,337,937 | |
Investments in affiliated money market funds, at value and cost | | | 11,057,890 | |
Total investments, at value (Cost $233,104,627) | | | 292,395,827 | |
Receivable for: | | | | |
Investments sold | | | 1,139,675 | |
Fund shares sold | | | 263,450 | |
Dividends | | | 154,316 | |
Investment for trustee deferred compensation and retirement plans | | | 33,661 | |
Total assets | | | 293,986,929 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 940,682 | |
Fund shares reacquired | | | 253,740 | |
Collateral upon return of securities loaned | | | 3,812,540 | |
Accrued fees to affiliates | | | 222,364 | |
Accrued other operating expenses | | | 38,041 | |
Trustee deferred compensation and retirement plans | | | 58,422 | |
Total liabilities | | | 5,325,789 | |
Net assets applicable to shares outstanding | | $ | 288,661,140 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 226,993,474 | |
Undistributed net investment income (loss) | | | (42,415 | ) |
Undistributed net realized gain | | | 2,418,881 | |
Unrealized appreciation | | | 59,291,200 | |
| | | $ | 288,661,140 | |
|
Net Assets: | |
Series I | | $ | 205,565,540 | |
Series II | | $ | 83,095,600 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 10,996,994 | |
Series II | | | 4,538,780 | |
Series I: | | | | |
Net asset value per share | | $ | 18.69 | |
Series II: | | | | |
Net asset value per share | | $ | 18.31 | |
| * | At December 31, 2012, securities with an aggregate value of $3,858,864 were on loan to brokers. |
| | | | |
Investment income: | |
Dividends | | $ | 3,099,494 | |
Dividends from affiliated money market funds (includes securities lending income of $60,515) | | | 63,749 | |
Total investment income | | | 3,163,243 | |
| |
Expenses: | | | | |
Advisory fees | | | 2,108,767 | |
Administrative services fees | | | 752,790 | |
Custodian fees | | | 18,222 | |
Distribution fees — Series II | | | 174,863 | |
Transfer agent fees | | | 29,696 | |
Trustees’ and officers’ fees and benefits | | | 31,740 | |
Other | | | 58,364 | |
Total expenses | | | 3,174,442 | |
Less: Fees waived and expense offset arrangement(s) | | | (6,849 | ) |
Net expenses | | | 3,167,593 | |
Net investment income (loss) | | | (4,350 | ) |
| |
Realized and unrealized gain from: | | | | |
Net realized gain from: | | | | |
Investment securities (includes net gains (losses) from securities sold to affiliates of $(1,822,918)) | | | 23,944,248 | |
Foreign currencies | | | 24 | |
| | | | 23,944,272 | |
Change in net unrealized appreciation of investment securities | | | 11,974,353 | |
Net realized and unrealized gain | | | 35,918,625 | |
Net increase in net assets resulting from operations | | $ | 35,914,275 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | |
Net investment income (loss) | | $ | (4,350 | ) | | $ | (924,084 | ) |
Net realized gain | | | 23,944,272 | | | | 16,595,731 | |
Change in net unrealized appreciation (depreciation) | | | 11,974,353 | | | | (20,800,587 | ) |
Net increase (decrease) in net assets resulting from operations | | | 35,914,275 | | | | (5,128,940 | ) |
|
Share transactions-net: | |
Series I | | | (39,139,088 | ) | | | 225,192 | |
Series II | | | 19,908,002 | | | | 22,286,320 | |
Net increase (decrease) in net assets resulting from share transactions | | | (19,231,086 | ) | | | 22,511,512 | |
Net increase in net assets | | | 16,683,189 | | | | 17,382,572 | |
|
Net assets: | |
Beginning of year | | | 271,977,951 | | | | 254,595,379 | |
End of year (includes undistributed net investment income (loss) of $(42,415) and $(42,206), respectively) | | $ | 288,661,140 | | | $ | 271,977,951 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely
Invesco V.I. Small Cap Equity Fund
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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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. |
Invesco V.I. Small Cap Equity Fund
| 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. | 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 affiliated money market funds 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 | .73% | | | | |
Next $500 million | | | 0 | .715 | | | % | |
Next $1.5 billion | | | 0 | .70% | | | | |
Next $2.5 billion | | | 0 | .685 | | | % | |
Next $2.5 billion | | | 0 | .67% | | | | |
Next $2.5 billion | | | 0 | .655 | | | % | |
Over $10 billion | | | 0 | .64% | | | | |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada 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. Small Cap Equity Fund
The Adviser has contractually agreed, through April 30, 2013, 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $3,921.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $72,746 for accounting and fund administrative services and reimbursed $680,044 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 292,395,827 | | | $ | — | | | $ | — | | | $ | 292,395,827 | |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $488,538 and securities sales of $2,389,338, which resulted in net realized gains (losses) of $(1,822,918).
Invesco V.I. Small Cap Equity Fund
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 year ended December 31, 2012, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $2,928.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
There were no ordinary income or long-term capital gain distributions paid during the years ended December 31, 2012 and 2011.
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 11,991 | |
Undistributed long-term gain | | | 3,403,089 | |
Net unrealized appreciation — investments | | | 58,306,992 | |
Temporary book/tax differences | | | (54,406 | ) |
Shares of beneficial interest | | | 226,993,474 | |
Total net assets | | $ | 288,661,140 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $19,734,963 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward at period-end.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $100,375,660 and $119,831,636, 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 | | $ | 69,543,649 | |
Aggregate unrealized (depreciation) of investment securities | | | (11,236,657 | ) |
Net unrealized appreciation of investment securities | | $ | 58,306,992 | |
Cost of investments for tax purposes is $234,088,835.
Invesco V.I. Small Cap Equity Fund
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair funds settlement on December 31, 2012, undistributed net investment income (loss) was increased by $4,141 and undistributed net realized gain was decreased by $4,141. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,730,024 | | | $ | 30,750,303 | | | | 5,397,940 | | | $ | 93,914,705 | |
Series II | | | 1,905,358 | | | | 33,006,752 | | | | 2,436,175 | | | | 41,035,453 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (3,973,525 | ) | | | (69,889,391 | ) | | | (5,523,283 | ) | | | (93,689,513 | ) |
Series II | | | (760,691 | ) | | | (13,098,750 | ) | | | (1,111,430 | ) | | | (18,749,133 | ) |
Net increase (decrease) in share activity | | | (1,098,834 | ) | | $ | (19,231,086 | ) | | | 1,199,402 | | | $ | 22,511,512 | |
| (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 Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income (loss)
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 16.41 | | | $ | 0.01 | | | $ | 2.27 | | | $ | 2.28 | | | $ | — | | | $ | — | | | $ | — | | | $ | 18.69 | | | | 13.89 | % | | $ | 205,566 | | | | 1.06 | %(d) | | | 1.06 | %(d) | | | 0.05 | %(d) | | | 36 | % |
Year ended 12/31/11 | | | 16.53 | | | | (0.05 | ) | | | (0.07 | ) | | | (0.12 | ) | | | — | | | | — | | | | — | | | | 16.41 | | | | (0.73 | ) | | | 217,287 | | | | 1.06 | | | | 1.06 | | | | (0.27 | ) | | | 61 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 16.11 | | | | (0.03 | ) | | | 2.23 | | | | 2.20 | | | | — | | | | — | | | | — | | | | 18.31 | | | | 13.66 | | | | 83,096 | | | | 1.31 | (d) | | | 1.31 | (d) | | | (0.20 | )(d) | | | 36 | |
Year ended 12/31/11 | | | 16.27 | | | | (0.09 | ) | | | (0.07 | ) | | | (0.16 | ) | | | — | | | | — | | | | — | | | | 16.11 | | | | (0.98 | ) | | | 54,691 | | | | 1.31 | | | | 1.31 | | | | (0.52 | ) | | | 61 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $213,790 and $69,945 for Series I and Series II shares, respectively. |
Invesco V.I. Small Cap Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Small Cap Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,089.20 | | | $ | 5.57 | | | $ | 1,019.81 | | | $ | 5.38 | | | | 1.06 | % |
Series II | | | 1,000.00 | | | | 1,087.90 | | | | 6.88 | | | | 1,018.55 | | | | 6.65 | | | | 1.31 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Small Cap Equity Fund
Invesco V.I. Technology Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
Amid significant volatility and uncertainty, information technology (IT) stocks delivered significant gains, yet lagged the broad market during the year ended December 31, 2012. Invesco V.I. Technology Fund outperformed its style-specific benchmark, the BofA Merrill Lynch 100 Technology Index, primarily as a result of the Fund’s security selection in the computers and peripherals industry and the IT services industry.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 11.28 | % |
| Series II Shares | | | | 11.04 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| BofA Merrill Lynch 100 Technology Index (price only)¡ (Style-Specific Index) | | | | 9.77 | |
| Lipper VUF Science & Technology Funds Classification Average¡ (Peer Group) | | | | 13.35 | |
Source(s): ‚Invesco, Invesco, S&P-Dow Jones via FactSet Research Systems Inc.;¡ Lipper Inc.
How we invest
We seek to grow capital by investing in companies we believe are capable of generating sustainable, superior earnings and cash flow growth that is not fully reflected in investor expectations or equity valuations. The Fund emphasizes companies we believe have a strategic advantage over their competition and that operate in industries we believe to be beneficiaries of secular trends.
The Fund invests in industries such as hardware, software, telecommunications equipment and services, semiconductors and service-related companies in the IT sector. We use a research-oriented, bottom-up investment approach focusing on company fundamentals and growth prospects. We place great emphasis on companies exhibiting high returns on invested capital and generating free cash flow – metrics we believe are good indicators of financial health and growth potential. We seek companies with management teams that maintain high-quality balance sheets and manageable debt levels. Valuation also plays a critical role in stock selection.
Risk management is an integral part of our portfolio construction process as we attempt to limit volatility and downside risk. Only stocks that exhibit a proper balance of risk and reward are chosen for the portfolio. We seek to accomplish this goal by thoroughly understanding the key business drivers of companies in which we invest. The portfolio is constructed with the goal of holding a diversified portfolio of stocks we believe are best suited to capitalize on secular trends in the IT sector.
We may reduce or eliminate a holding when:
| n | | A stock’s price reaches its valuation target. |
| n | | A company’s fundamentals change or deteriorate. |
| n | | It no longer meets our investment criteria. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the
ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets. This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate over the summer. While corporate earnings remained solid until late in the year, financial markets were negatively influenced by headline economic data. Asian economies, which are mainly export-driven, were similarly affected with sharp corrections mid-year.
Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Asian governments continued to try to balance key aims of supporting growth while preventing asset bubbles. China announced a surprise interest rate cut in July and the Bank of Japan announced an expansion and extension of its asset purchase plan in September, following the US and European central banks’ monetary easing announcements.
Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the US presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of
| | | | | |
| Portfolio Composition |
| |
| By sector | | | | | |
| | | | | |
| |
| Information Technology | | | | 92.9 | % |
| Consumer Discretionary | | | | 2.5 | |
| Health Care | | | | 1.3 | |
| Industrials | | | | 0.6 | |
| Financials | | | | 0.4 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 2.3 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
1. Apple Inc. | | | | 10.1 | % |
2. QUALCOMM, Inc. | | | | 4.7 | |
3. Google Inc.-Class A | | | | 4.3 | |
4. Cognizant Technology Solutions Corp.-Class A | | | | 3.4 | |
5. Oracle Corp. | | | | 3.0 | |
6. Salesforce.com, Inc. | | | | 3.0 | |
7. Visa Inc.-Class A | | | | 2.7 | |
8. EMC Corp. | | | | 2.5 | |
9. Microsemi Corp. | | | | 2.3 | |
10. Broadcom Corp.-Class A | | | | 2.3 | |
| | | | | |
| Top Five Industries* |
| | | | | |
1. Semiconductors | | | | 17.1 | % |
2. Internet Software & Services | | | | 12.4 | |
3. Application Software | | | | 11.3 | |
4. Communications Equipment | | | | 10.9 | |
5. Computer Hardware | | | | 10.1 | |
| | | | | |
| Total Net Assets | | | | $97.5 million | |
| |
| Total Number of Holdings* | | | | 69 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Technology Fund
the S&P 500 Index had positive returns.1 Financials, consumer discretionary, telecommunication services and health care were the leading market sectors, while utilities, energy, consumer staples and IT were lagging sectors.
Security selection in the computers and peripherals industry and IT services industry benefited Fund performance on both an absolute and benchmark-relative basis during the year. The professional services industry was the only detractor from absolute Fund performance. Relative to the BofA Merrill Lynch Technology 100 Index, security selection and underweight exposure to semiconductors and Internet software and services stocks detracted from Fund performance.
Top individual contributors to the Fund’s absolute performance during the year included Apple and Visa. Apple introduced and received record sales on the iPhone 5 during the year. The iPhone 5 boasts a thinner aluminum body, a display with more pixels, greater battery life, a redesigned camera and over 200 new operating features versus the iPhone 4S. Visa’s stock rose because the company increased its dividend and announced a share repurchase plan during the year.
Top individual detractors from Fund performance included Marvell and MicroStrategy. While semiconductor company Marvell initiated a quarterly dividend in 2012, it also lowered revenue guidance throughout the year, often below analyst estimates. We sold Marvell during the year. MicroStrategy, a fairly new holding, is a global provider of enterprise software platforms aimed at helping businesses manage, analyze and increase accessibility of data. The stock experienced weakness toward the end of the year, despite securing several large contracts. At the close of the reporting period, we continued to hold MicroStrategy.
At the close of the reporting period, the Fund had overweight exposure (relative to its style-specific index) to the computers and peripherals, Internet and catalog retail, communications equipment and life sciences tools and services industries. Conversely, we were underweight the electronic equipment and instruments, IT services, semiconductors and Internet software and services industries. Additionally, the Fund did not have exposure to office electronics, an industry in which the style-specific index had minor exposure.
We remain confident about the medium-term outlook for IT stocks, primarily because of the potential for increased enterprise spending. Businesses have been reluctant to hire additional employees due to ancillary costs and, therefore, are using IT to boost productivity. Additionally, we believe emerging markets will continue to have increased technology needs. Going forward, we see possible improvements in credit markets, stabilization of demand patterns and other conditions conducive to continued secular growth.
Longer term, we anticipate positive trends in the IT sector because we believe three key secular themes, which are independent of short-term catalysts, continue to offer support: 1) globalization – desire for productivity gains support increased technology use in international markets; 2) consumerization – technology demand is consumer-driven; and 3) proliferation – technology continues to penetrate products ranging from automobiles and industrial controls to sporting gear and alternative energy.
As always, we thank you for your continued investment in Invesco V.I. Technology Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Warren Tennant Chartered Financial Analyst, portfolio manager, is lead manager of Invesco V.I. Technology Fund. |
| He joined Invesco in 2000. Mr. Tennant earned a BBA in finance and an MBA from The University of Texas at Austin. |
| | |
 | | Brian Nelson Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Technology Fund. |
| He joined Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara. |
Invesco V.I. Technology Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (5/20/97) | | | | 3.48 | % |
| 10 Years | | | | 7.54 | |
| 5 Years | | | | 2.28 | |
| 1 Year | | | | 11.28 | |
| |
| Series II Shares | | | | | |
| 10 Years | | | | 7.26 | % |
| 5 Years | | | | 2.01 | |
| 1 Year | | | | 11.04 | |
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. Technology Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through
insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Technology Fund
Invesco V.I. Technology Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Sector fund risk. The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile than non-concentrated funds.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The BofA Merrill Lynch 100 Technology Index (price only) is an unmanaged, 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 Classification Average represents an average of all variable insurance underlying funds in the Lipper Science & Technology Funds classification.
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Technology Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–97.70% | |
| Application Software–11.26% | |
Aspen Technology, Inc.(b) | | | 39,484 | | | $ | 1,091,338 | |
Autodesk, Inc.(b) | | | 18,194 | | | | 643,158 | |
Cadence Design Systems, Inc.(b) | | | 101,140 | | | | 1,366,401 | |
Citrix Systems, Inc.(b) | | | 29,458 | | | | 1,936,863 | |
Informatica Corp.(b) | | | 10,354 | | | | 313,933 | |
MicroStrategy Inc.–Class A(b) | | | 8,882 | | | | 829,401 | |
Nuance Communications, Inc.(b) | | | 27,802 | | | | 620,541 | |
Salesforce.com, Inc.(b) | | | 17,231 | | | | 2,896,531 | |
SS&C Techonologies Holdings, Inc.(b) | | | 37,166 | | | | 859,278 | |
TIBCO Software Inc.(b) | | | 19,063 | | | | 419,577 | |
| | | | | | | | 10,977,021 | |
|
| Communications Equipment–10.94% | |
Brocade Communications Systems, Inc.(b) | | | 119,592 | | | | 637,425 | |
Ciena Corp.(b) | | | 30,901 | | | | 485,146 | |
Cisco Systems, Inc. | | | 83,498 | | | | 1,640,736 | |
F5 Networks, Inc.(b) | | | 12,688 | | | | 1,232,639 | |
Finisar Corp.(b) | | | 34,062 | | | | 555,211 | |
JDS Uniphase Corp.(b) | | | 111,811 | | | | 1,513,921 | |
QUALCOMM, Inc. | | | 74,179 | | | | 4,600,581 | |
| | | | | | | | 10,665,659 | |
|
| Computer Hardware–10.14% | |
Apple Inc. | | | 18,556 | | | | 9,889,977 | |
|
| Computer Storage & Peripherals–2.49% | |
EMC Corp.(b) | | | 95,997 | | | | 2,428,724 | |
|
| Data Processing & Outsourced Services–7.97% | |
Alliance Data Systems Corp.(b) | | | 12,462 | | | | 1,803,999 | |
Genpact Ltd. | | | 68,965 | | | | 1,068,958 | |
MasterCard, Inc.–Class A | | | 4,531 | | | | 2,225,990 | |
Visa Inc.–Class A | | | 17,642 | | | | 2,674,174 | |
| | | | | | | | 7,773,121 | |
|
| Electronic Manufacturing Services–3.49% | |
Jabil Circuit, Inc. | | | 60,532 | | | | 1,167,662 | |
Molex Inc. | | | 35,020 | | | | 957,097 | |
Sanmina Corp.(b) | | | 114,990 | | | | 1,272,939 | |
| | | | | | | | 3,397,698 | |
|
| Internet Retail–2.46% | |
Amazon.com, Inc.(b) | | | 5,247 | | | | 1,318,414 | |
Priceline.com Inc.(b) | | | 1,743 | | | | 1,082,629 | |
| | | | | | | | 2,401,043 | |
|
| Internet Software & Services–12.35% | |
Akamai Technologies, Inc.(b) | | | 17,863 | | | | 730,775 | |
Baidu, Inc.–ADR (China)(b) | | | 3,656 | | | | 366,660 | |
eBay Inc.(b) | | | 21,731 | | | | 1,108,716 | |
Facebook Inc.–Class A(b) | | | 43,146 | | | | 1,148,978 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Internet Software & Services–(continued) | |
Google Inc.–Class A(b) | | | 5,877 | | | $ | 4,169,438 | |
LogMeIn, Inc.(b) | | | 39,757 | | | | 890,954 | |
ValueClick, Inc.(b) | | | 63,201 | | | | 1,226,732 | |
VeriSign, Inc.(b) | | | 32,965 | | | | 1,279,701 | |
Web.com Group Inc.(b) | | | 75,509 | | | | 1,117,533 | |
| | | | | | | | 12,039,487 | |
|
| IT Consulting & Other Services–7.36% | |
Accenture PLC–Class A | | | 29,448 | | | | 1,958,292 | |
Cognizant Technology Solutions Corp.–Class A(b) | | | 44,567 | | | | 3,300,187 | |
International Business Machines Corp. | | | 9,984 | | | | 1,912,435 | |
| | | | | | | | 7,170,914 | |
|
| Life Sciences Tools & Services–1.33% | |
Agilent Technologies, Inc. | | | 31,574 | | | | 1,292,640 | |
|
| Other Diversified Financial Services–0.35% | |
BlueStream Ventures L.P.
(Acquired 08/03/00–06/13/08;
Acquisition Cost $3,149,655)(b)(c)(d) | | | — | | | | 341,773 | |
|
| Research & Consulting Services–0.64% | |
Acacia Research(b) | | | 24,482 | | | | 627,963 | |
|
| Semiconductor Equipment–1.07% | |
Teradyne, Inc.(b) | | | 61,982 | | | | 1,046,876 | |
|
| Semiconductors–17.13% | |
ARM Holdings PLC–ADR (United Kingdom) | | | 8,918 | | | | 337,368 | |
Avago Technologies Ltd. | | | 33,610 | | | | 1,064,093 | |
Broadcom Corp.–Class A | | | 67,028 | | | | 2,226,000 | |
Cirrus Logic, Inc.(b) | | | 20,788 | | | | 602,228 | |
Cypress Semiconductor Corp. | | | 74,900 | | | | 811,916 | |
Diodes Inc.(b) | | | 50,846 | | | | 882,178 | |
Fairchild Semiconductor International, Inc.(b) | | | 65,501 | | | | 943,214 | |
Intermolecular Inc.(b) | | | 67,306 | | | | 599,023 | |
Lattice Semiconductor Corp.(b) | | | 246,253 | | | | 982,549 | |
MA-COM Technology Solutions Holdings Inc.(b) | | | 28,412 | | | | 425,328 | |
Maxim Integrated Products, Inc. | | | 27,465 | | | | 807,471 | |
Microsemi Corp.(b) | | | 106,963 | | | | 2,250,502 | |
ON Semiconductor Corp.(b) | | | 116,453 | | | | 820,994 | |
Semtech Corp.(b) | | | 54,789 | | | | 1,586,142 | |
Skyworks Solutions, Inc.(b) | | | 45,135 | | | | 916,240 | |
Texas Instruments Inc. | | | 25,070 | | | | 775,666 | |
Xilinx, Inc. | | | 18,595 | | | | 667,560 | |
| | | | | | | | 16,698,472 | |
| | |
| Systems Software–8.72% | | | | | | | | |
Check Point Software Technologies Ltd. (Israel)(b) | | | 23,472 | | | | 1,118,206 | |
CommVault Systems, Inc.(b) | | | 11,879 | | | | 828,085 | |
Fortinet Inc.(b) | | | 60,273 | | | | 1,269,952 | |
Infoblox, Inc.(b) | | | 13,588 | | | | 244,177 | |
Oracle Corp. | | | 88,151 | | | | 2,937,191 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Systems Software–(continued) | |
Red Hat, Inc.(b) | | | 14,168 | | | $ | 750,337 | |
Rovi Corp.(b) | | | 19,606 | | | | 302,521 | |
Symantec Corp.(b) | | | 55,589 | | | | 1,045,629 | |
| | | | | | | | 8,496,098 | |
Total Common Stocks & Other Equity Interests
(Cost $78,729,107) | | | | 95,247,466 | |
|
Money Market Funds–1.65% | |
Liquid Assets Portfolio–Institutional Class(e) | | | 802,314 | | | | 802,314 | |
Premier Portfolio–Institutional Class(e) | | | 802,314 | | | | 802,314 | |
Total Money Market Funds
(Cost $1,604,628) | | | | | | | 1,604,628 | |
TOTAL INVESTMENTS–99.35%
(Cost $80,333,735) | | | | 96,852,094 | |
OTHER ASSETS LESS LIABILITIES–0.65% | | | | 636,741 | |
NET ASSETS–100.00% | | | $ | 97,488,835 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at December 31, 2012 represented less than 1% 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. |
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
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $78,729,107) | | $ | 95,247,466 | |
Investments in affiliated money market funds, at value and cost | | | 1,604,628 | |
Total investments, at value (Cost $80,333,735) | | | 96,852,094 | |
Cash | | | 795,135 | |
Receivable for: | | | | |
Fund shares sold | | | 56,334 | |
Dividends | | | 11,579 | |
Investment for trustee deferred compensation and retirement plans | | | 38,292 | |
Total assets | | | 97,753,434 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 102,431 | |
Accrued fees to affiliates | | | 64,740 | |
Accrued other operating expenses | | | 37,765 | |
Trustee deferred compensation and retirement plans | | | 59,663 | |
Total liabilities | | | 264,599 | |
Net assets applicable to shares outstanding | | $ | 97,488,835 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 70,920,323 | |
Undistributed net investment income | | | 2,076,625 | |
Undistributed net realized gain | | | 7,973,528 | |
Unrealized appreciation | | | 16,518,359 | |
| | | $ | 97,488,835 | |
| |
Net Assets: | | | | |
Series I | | $ | 95,370,902 | |
Series II | | $ | 2,117,933 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 5,651,714 | |
Series II | | | 128,343 | |
Series I: | | | | |
Net asset value per share | | $ | 16.87 | |
Series II: | | | | |
Net asset value per share | | $ | 16.50 | |
| | | | |
Investment income: | |
Dividends | | $ | 776,628 | |
Dividends from affiliated money market funds | | | 3,958 | |
Total investment income | | | 780,586 | |
| |
Expenses: | | | | |
Advisory fees | | | 794,695 | |
Administrative services fees | | | 308,497 | |
Custodian fees | | | 10,794 | |
Distribution fees — Series II | | | 5,030 | |
Transfer agent fees | | | 30,506 | |
Trustees’ and officers’ fees and benefits | | | 25,160 | |
Other | | | 60,617 | |
Total expenses | | | 1,235,299 | |
Less: Fees waived | | | (4,218 | ) |
Net expenses | | | 1,231,081 | |
Net investment income (loss) | | | (450,495 | ) |
| |
Realized and unrealized gain from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 9,554,276 | |
Change in net unrealized appreciation of: | | | | |
Investment securities | | | 2,176,313 | |
Net realized and unrealized gain | | | 11,730,589 | |
Net increase in net assets resulting from operations | | $ | 11,280,094 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income (loss) | | $ | (450,495 | ) | | $ | (756,527 | ) |
Net realized gain | | | 9,554,276 | | | | 11,675,866 | |
Change in net unrealized appreciation (depreciation) | | | 2,176,313 | | | | (16,912,981 | ) |
Net increase (decrease) in net assets resulting from operations | | | 11,280,094 | | | | (5,993,642 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | — | | | | (209,892 | ) |
Series ll | | | — | | | | (1,326 | ) |
Total distributions from net investment income | | | — | | | | (211,218 | ) |
| | |
Share transactions–net: | | | | | | | | |
Series l | | | (16,315,465 | ) | | | (21,625,874 | ) |
Series ll | | | 331,851 | | | | 520,728 | |
Net increase (decrease) in net assets resulting from share transactions | | | (15,983,614 | ) | | | (21,105,146 | ) |
Net increase (decrease) in net assets | | | (4,703,520 | ) | | | (27,310,006 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 102,192,355 | | | | 129,502,361 | |
End of year (includes undistributed net investment income of $2,076,625 and $1,881,365, respectively) | | $ | 97,488,835 | | | $ | 102,192,355 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Technology Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the performance of their duties to the Fund. Additionally, in the normal course of business, the |
Invesco V.I. Technology Fund
| | 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.
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. (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 April 30, 2013, 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $4,218.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $258,497 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $968 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
Invesco V.I. Technology 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 96,510,321 | | | $ | — | | | $ | 341,773 | | | $ | 96,852,094 | |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | — | | | $ | 211,218 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed long-term gain | | $ | 8,068,484 | |
Net unrealized appreciation — investments | | | 18,555,078 | |
Temporary book/tax differences | | | (55,050 | ) |
Shares of beneficial interest | | | 70,920,323 | |
Total net assets | | $ | 97,488,835 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and partnership interests.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Invesco V.I. Technology 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 Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $1,524,170 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward as of December 31, 2012.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $43,193,946 and $58,776,017, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| | | | |
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | |
Aggregate unrealized appreciation of investment securities | | $ | 25,475,540 | |
Aggregate unrealized (depreciation) of investment securities | | | (6,920,462 | ) |
Net unrealized appreciation of investment securities | | $ | 18,555,078 | |
Cost of investments for tax purposes is $78,297,016.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of partnership and net operating losses, on December 31, 2012, undistributed net investment income was increased by $645,755 , undistributed net realized gain was increased by $18,893 and shares of beneficial interest was decreased by $664,648. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 678,900 | | | $ | 11,607,559 | | | | 1,327,553 | | | $ | 22,172,590 | |
Series II | | | 65,426 | | | | 1,097,512 | | | | 56,016 | | | | 891,686 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 14,376 | | | | 209,892 | |
Series II | | | — | | | | — | | | | 93 | | | | 1,326 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (1,662,300 | ) | | | (27,923,024 | ) | | | (2,725,269 | ) | | | (44,008,356 | ) |
Series II | | | (45,637 | ) | | | (765,661 | ) | | | (23,813 | ) | | | (372,284 | ) |
Net increase (decrease) in share activity | | | (963,611 | ) | | $ | (15,983,614 | ) | | | (1,351,044 | ) | | $ | (21,105,146 | ) |
| (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 Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
(loss) to
average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 15.16 | | | $ | (0.07 | ) | | $ | 1.78 | | | $ | 1.71 | | | $ | — | | | $ | 16.87 | | | | 11.28 | % | | $ | 95,371 | | | | 1.16 | %(d) | | | 1.16 | %(d) | | | (0.42 | )%(d) | | | 42 | % |
Year ended 12/31/11 | | | 16.00 | | | | (0.10 | ) | | | (0.71 | ) | | | (0.81 | ) | | | (0.03 | ) | | | 15.16 | | | | (5.05 | ) | | | 100,579 | | | | 1.12 | | | | 1.12 | | | | (0.62 | ) | | | 41 | |
Year ended 12/31/10 | | | 13.19 | | | | 0.02 | | | | 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 | ) | | | 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 | | | | (6.73 | ) | | | (6.72 | ) | | | — | | | | 8.38 | | | | (44.50 | ) | | | 71,546 | | | | 1.15 | | | | 1.16 | | | | 0.05 | | | | 81 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 14.86 | | | | (0.11 | ) | | | 1.75 | | | | 1.64 | | | | — | | | | 16.50 | | | | 11.04 | | | | 2,118 | | | | 1.41 | (d) | | | 1.41 | (d) | | | (0.67 | )(d) | | | 42 | |
Year ended 12/31/11 | | | 15.71 | | | | (0.14 | ) | | | (0.70 | ) | | | (0.84 | ) | | | (0.01 | ) | | | 14.86 | | | | (5.32 | ) | | | 1,613 | | | | 1.37 | | | | 1.37 | | | | (0.87 | ) | | | 41 | |
Year ended 12/31/10 | | | 12.98 | | | | (0.01 | ) | | | 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 | ) | | | 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 | ) | | | (6.67 | ) | | | (6.69 | ) | | | — | | | | 8.26 | | | | (44.75 | ) | | | 115 | | | | 1.40 | | | | 1.41 | | | | (0.20 | ) | | | 81 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $103,947 and $2,012 for Series I and Series II, respectively. |
Invesco V.I. Technology Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Technology Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,020.60 | | | $ | 5.99 | | | $ | 1,019.20 | | | $ | 5.99 | | | | 1.18 | % |
| Series II | | | 1,000.00 | | | | 1,019.20 | | | | 7.26 | | | | 1,017.95 | | | | 7.25 | | | | 1.43 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Technology Fund
Invesco V.I. Utilities Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco V.I. Utilities Fund posted positive returns. The Fund’s results outpaced its style-specific benchmark, the S&P 500 Utilities Sector Total Return Index, but lagged the broad market, as measured by the S&P 500 Index. Performance drivers were primarily stock-specific as the electric utilities and multi-utilities industries contained a number of the Fund’s top contributors to Fund performance, as well as top detractors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 3.61 | % |
| Series II Shares | | | | 3.34 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| S&P 500 Utilities Sector Total Return Index‚ (Style-Specific Index) | | | | 1.29 | |
| Lipper VUF Utility Funds Classification Average¡ (Peer Group) | | | | 10.07 | |
| Source(s): | ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; ¡Lipper Inc. |
How we invest
In selecting investments, we focus on companies in the electric utilities, natural gas, water and telecommunication services industries. We emphasize companies with solid balance sheets and operational cash flows that support sustained or increasing dividends. Fundamental research and financial statement analysis are the backbone of our bottom-up investment process. Using a variety of valuation techniques, we estimate the potential return of holdings over a two-year investment period. We construct the portfolio to provide what we believe to be the best combination of price appreciation potential, dividend income and risk profile, and the Fund typically maintains full sector exposure. We strive to manage risk by maintaining an average of 30 to 50 positions, low portfolio turnover, and a rigorous sell discipline.
Market conditions and your Fund
The year began with improving economic data in the US and a rally in the equity markets. However, the ongoing European debt crisis intensified in April and May, dominating headlines and creating significant volatility in equity markets across the globe. With pressure from overseas, US economic data began to decelerate and indicators for manufacturing, employment and consumer spending weakened over the summer. Despite these headwinds, corporate earnings were resilient, and the financial markets delivered strong results for the year. All sectors in the S&P 500 Index posted gains.1 Financials were the leading performers, while utilities lagged the overall market.
A number of holdings in the multi-utilities industry were among the top contributors to the Fund’s results, including National Grid and Sempra Energy.
However, the Fund’s investments in Exelon and Entergy detracted from returns.
National Grid was the top contributor to Fund performance during the year. National Grid is a UK-based distributor of both electricity and gas. The company is regulated in Great Britain by the Office of Gas and Electricity Markets (Ofgem). Ofgem established new and significant price controls that regulate National Grid’s business for the next several years. The market reacted positively as the outcome of these regulations continues to support management’s long-term investment and growth programs.
Sempra Energy, a regulated gas and electric utility, was among the largest contributors to performance. The company’s new chief executive officer began successfully implementing a strategy to focus growth on higher-profit, regulated assets while divesting lower-profit, non-regulated assets. As part of this strategy, the company also increased its dividend by 25%.2 The stock further benefited from expectations that Sempra will build liquefied natural gas export facilities if the US Department of Energy issues additional permits.
Exelon was the largest detractor from Fund performance during the year. Faced with continued weak power and commodity markets, Exelon cut and deferred $2.0B3 of long-term capital investment projects in order to improve its balance sheet. Management discussed additional balance sheet actions that may be necessary, if commodity prices remain below long-term trends.
| | | | | |
| Portfolio Composition |
| |
| By sector | | | | | |
| | | | | |
| Utilities | | | | 89.9 | % |
| Telecommunication Services | | | | 4.7 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 5.4 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
1. American Electric Power Co., Inc. | | | | 5.6 | % |
2. Portland General Electric Co. | | | | 5.3 | |
3. Pepco Holdings, Inc. | | | | 5.1 | |
4. National Grid PLC | | | | 5.0 | |
5. Exelon Corp. | | | | 4.9 | |
6. Xcel Energy, Inc. | | | | 4.6 | |
7. Southern Co. (The) | | | | 4.5 | |
8. Dominion Resources, Inc. | | | | 4.2 | |
9. Sempra Energy | | | | 4.1 | |
10. Duke Energy Corp. | | | | 3.9 | |
| | | | | |
| Total Net Assets | | | | $65.8 million | |
| |
| Total Number of Holdings* | | | | 32 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Utilities Fund
Entergy was a detractor from Fund performance during the reporting period. Providing power to 2.8 million customers4 in four states in the Southeast, the company is regulated by multiple jurisdictions. The company announced a potential divestiture of its transmission assets which continued to face regulatory challenges. In addition, the company’s 5,000 megawatt (MW) fleet of non-regulated nuclear plants located primarily in the Northeast continued to face weak commodity prices and suffer from reduced customer demand.
There were no major positioning changes in the Fund during the reporting period. We continued to emphasize regulated over non-regulated companies. At the end of the reporting period, the Fund’s largest industry allocations were in the electric utilities and multi-utilities industries.
As always, we reiterate our commitment to providing investors strategic exposure to a traditionally defensive and income-oriented asset class. Thank you for your continued investment in Invesco V.I. Utilities Fund.
| 2 | Source: FactSet Research Systems, Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Meggan Walsh Chartered Financial Analyst, portfolio manager, is lead manager of Invesco V.I. Utilities Fund. She |
| joined Invesco in 1991. Ms. Walsh earned a BS in finance from the University of Maryland and an MBA from Loyola University Maryland. |
| | |
 | | Robert Botard Chartered Financial Analyst, portfolio manager, is manager of Invesco V.I. Utilities Fund. He joined Invesco |
| in 1993. Mr. Botard earned a BBA in finance and a BBA in international business from The University of Texas at Austin. He also earned a Master of International Management degree from the Thunderbird School of Global Management. |
Invesco V.I. Utilities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (12/30/94) | | | | 6.84 | % |
| 10 Years | | | | 9.85 | |
| 5 Years | | | | -0.06 | |
| 1 Year | | | | 3.61 | |
| |
| Series II Shares | | | | | |
| 10 Years | | | | 9.58 | % |
| 5 Years | | | | -0.32 | |
| 1 Year | | | | 3.34 | |
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 1.04% 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.
Invesco V.I. Utilities Fund
Invesco V.I. Utilities Fund’s investment objective is long-term growth of capital and, secondarily, current income.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Sector fund risk. The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile than non-concentrated funds.
Small- and mid-capitalization risks. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments in the above factors and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic Securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
Utilities sector risk. 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.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500 Utilities Sector Total Return Index is an unmanaged index considered representative of the utilities market.
The Lipper VUF Utility Funds Classification Average represents an average of all 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Utilities Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks–94.63% | |
| Electric Utilities–51.47% | |
American Electric Power Co., Inc. | | | 85,860 | | | $ | 3,664,505 | |
Duke Energy Corp. | | | 40,639 | | | | 2,592,768 | |
Edison International | | | 51,883 | | | | 2,344,593 | |
Entergy Corp. | | | 38,288 | | | | 2,440,860 | |
Exelon Corp. | | | 108,475 | | | | 3,226,046 | |
FirstEnergy Corp. | | | 27,553 | | | | 1,150,613 | |
NextEra Energy, Inc. | | | 9,968 | | | | 689,686 | |
Northeast Utilities | | | 54,720 | | | | 2,138,458 | |
Pepco Holdings, Inc. | | | 172,078 | | | | 3,374,450 | |
Pinnacle West Capital Corp. | | | 23,157 | | | | 1,180,544 | |
Portland General Electric Co. | | | 126,344 | | | | 3,456,772 | |
PPL Corp. | | | 56,219 | | | | 1,609,550 | |
Southern Co. (The) | | | 69,713 | | | | 2,984,413 | |
Xcel Energy, Inc. | | | 112,784 | | | | 3,012,461 | |
| | | | | | | | 33,865,719 | |
|
| Gas Utilities–6.39% | |
AGL Resources Inc. | | | 47,987 | | | | 1,918,040 | |
Atmos Energy Corp. | | | 20,530 | | | | 721,014 | |
UGI Corp. | | | 47,738 | | | | 1,561,510 | |
| | | | | | | | 4,200,564 | |
|
| Independent Power Producers & Energy Traders–6.11% | |
Calpine Corp.(b) | | | 106,319 | | | | 1,927,563 | |
NRG Energy, Inc. | | | 91,128 | | | | 2,095,033 | |
| | | | | | | | 4,022,596 | |
|
| Integrated Telecommunication Services–4.76% | |
AT&T Inc. | | | 25,451 | | | | 857,953 | |
CenturyLink Inc. | | | 25,623 | | | | 1,002,372 | |
Verizon Communications Inc. | | | 29,364 | | | | 1,270,580 | |
| | | | | | | | 3,130,905 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Multi-Utilities–25.90% | |
CMS Energy Corp. | | | 31,778 | | | $ | 774,748 | |
Consolidated Edison, Inc. | | | 9,005 | | | | 500,138 | |
Dominion Resources, Inc. | | | 53,921 | | | | 2,793,108 | |
DTE Energy Co. | | | 24,056 | | | | 1,444,563 | |
National Grid PLC (United Kingdom) | | | 285,184 | | | | 3,267,525 | |
NiSource Inc. | | | 27,525 | | | | 685,097 | |
PG&E Corp. | | | 39,953 | | | | 1,605,311 | |
Public Service Enterprise Group Inc. | | | 36,466 | | | | 1,115,860 | |
Sempra Energy | | | 37,558 | | | | 2,664,364 | |
TECO Energy, Inc. | | | 130,673 | | | | 2,190,079 | |
| | | | | | | | 17,040,793 | |
Total Common Stocks
(Cost $49,967,251) | | | | 62,260,577 | |
| | |
Money Market Funds–4.85% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(c) | | | 1,594,911 | | | | 1,594,911 | |
Premier Portfolio–Institutional Class(c) | | | 1,594,912 | | | | 1,594,912 | |
Total Money Market Funds
(Cost $3,189,823) | | | | 3,189,823 | |
TOTAL INVESTMENTS–99.48%
(Cost $53,157,074) | | | | | | | 65,450,400 | |
OTHER ASSETS LESS LIABILITIES–0.52% | | | | | | | 344,407 | |
NET ASSETS–100.00% | | | | | | $ | 65,794,807 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Utilities 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. |
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $49,967,251) | | $ | 62,260,577 | |
Investments in affiliated money market funds, at value and cost | | | 3,189,823 | |
Total investments, at value (Cost $53,157,074) | | | 65,450,400 | |
Receivable for: | | | | |
Investments sold | | | 203,105 | |
Fund shares sold | | | 120,566 | |
Dividends | | | 312,415 | |
Investment for trustee deferred compensation and retirement plans | | | 50,273 | |
Total assets | | | 66,136,759 | |
|
Liabilities: | |
Payable for: | | | | |
Fund shares reacquired | | | 204,882 | |
Accrued fees to affiliates | | | 39,943 | |
Accrued other operating expenses | | | 30,800 | |
Trustee deferred compensation and retirement plans | | | 66,327 | |
Total liabilities | | | 341,952 | |
Net assets applicable to shares outstanding | | $ | 65,794,807 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 50,130,615 | |
Undistributed net investment income | | | 2,116,917 | |
Undistributed net realized gain | | | 1,251,575 | |
Unrealized appreciation | | | 12,295,700 | |
| | | $ | 65,794,807 | |
|
Net Assets: | |
Series I | | $ | 64,158,267 | |
Series II | | $ | 1,636,540 | |
|
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | |
Series I | | | 3,960,193 | |
Series II | | | 101,697 | |
Series I: | | | | |
Net asset value per share | | $ | 16.20 | |
Series II: | | | | |
Net asset value per share | | $ | 16.09 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $10,525) | | $ | 2,847,301 | |
Dividends from affiliated money market funds | | | 5,116 | |
Total investment income | | | 2,852,417 | |
| |
Expenses: | | | | |
Advisory fees | | | 418,656 | |
Administrative services fees | | | 205,116 | |
Custodian fees | | | 5,723 | |
Distribution fees — Series II | | | 4,521 | |
Transfer agent fees | | | 20,587 | |
Trustees’ and officers’ fees and benefits | | | 23,422 | |
Other | | | 46,806 | |
Total expenses | | | 724,831 | |
Less: Fees waived | | | (24,972 | ) |
Net expenses | | | 699,859 | |
Net investment income | | | 2,152,558 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities | | | 1,530,241 | |
Foreign currencies | | | (268 | ) |
| | | | 1,529,973 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | (1,259,618 | ) |
Foreign currencies | | | 2,594 | |
| | | | (1,257,024 | ) |
Net realized and unrealized gain | | | 272,949 | |
Net increase in net assets resulting from operations | | $ | 2,425,507 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 2,152,558 | | | $ | 2,155,650 | |
Net realized gain | | | 1,529,973 | | | | 3,889,415 | |
Change in net unrealized appreciation (depreciation) | | | (1,257,024 | ) | | | 4,252,499 | |
Net increase in net assets resulting from operations | | | 2,425,507 | | | | 10,297,564 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (2,101,069 | ) | | | (2,123,528 | ) |
Series II | | | (47,190 | ) | | | (57,674 | ) |
Total distributions from net investment income | | | (2,148,259 | ) | | | (2,181,202 | ) |
| | |
Distributions to shareholders from net realized gains: | | | | | | | | |
Series I | | | (2,398,617 | ) | | | — | |
Series II | | | (59,040 | ) | | | — | |
Total distributions from net realized gains | | | (2,457,657 | ) | | | — | |
| | |
Share transactions-net: | | | | | | | | |
Series I | | | (4,662,802 | ) | | | (898,765 | ) |
Series II | | | (195,495 | ) | | | (34,322 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (4,858,297 | ) | | | (933,087 | ) |
Net increase (decrease) in net assets | | | (7,038,706 | ) | | | 7,183,275 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 72,833,513 | | | | 65,650,238 | |
End of year (includes undistributed net investment income of $2,116,917 and $2,091,940, respectively) | | $ | 65,794,807 | | | $ | 72,833,513 | |
Notes to Financial Statements
December 31, 2012
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-five 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.
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
Invesco V.I. Utilities Fund
appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 |
Invesco V.I. Utilities Fund
| | 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 the 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. | 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.
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. (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 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2012, the Adviser had contractually agreed, through April 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waivers 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $24,972.
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
Invesco V.I. Utilities Fund
the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $155,116 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. 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 year ended December 31, 2012, there were transfers from Level 1 to Level 2 of $3,267,525 due to foreign fair value adjustments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 62,182,875 | | | $ | 3,267,525 | | | $ | — | | | $ | 65,450,400 | |
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Utilities Fund
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 2,148,259 | | | $ | 2,181,202 | |
Long-Term Capital Gain | | | 2,457,657 | | | | — | |
Total | | $ | 4,605,916 | | | $ | 2,181,202 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 2,182,444 | |
Undistributed long-term gain | | | 1,495,855 | |
Net unrealized appreciation — investments | | | 12,043,852 | |
Net unrealized appreciation — other investments | | | 2,374 | |
Temporary book/tax differences | | | (60,333 | ) |
Shares of beneficial interest | | | 50,130,615 | |
Total net assets | | $ | 65,794,807 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Trust to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 does not have a capital loss carryforward at period-end.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $1,707,286 and $7,369,281, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| | | | |
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | |
Aggregate unrealized appreciation of investment securities | | $ | 13,678,845 | |
Aggregate unrealized (depreciation) of investment securities | | | (1,634,993 | ) |
Net unrealized appreciation of investment securities | | $ | 12,043,852 | |
Cost of investments for tax purposes is $53,406,548.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair funds settlement, on December 31, 2012, undistributed net investment income was increased by $20,678 and undistributed net realized gain was decreased by $20,678. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Utilities Fund
NOTE 9—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 613,174 | | | $ | 10,279,764 | | | | 951,541 | | | $ | 15,210,526 | |
Series II | | | 23,507 | | | | 400,727 | | | | 16,357 | | | | 261,142 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 273,870 | | | | 4,499,686 | | | | 136,473 | | | | 2,123,528 | |
Series II | | | 6,506 | | | | 106,230 | | | | 3,727 | | | | 57,674 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (1,166,463 | ) | | | (19,442,252 | ) | | | (1,149,620 | ) | | | (18,232,819 | ) |
Series II | | | (41,247 | ) | | | (702,452 | ) | | | (22,568 | ) | | | (353,138 | ) |
Net increase (decrease) in share activity | | | (290,653 | ) | | $ | (4,858,297 | ) | | | (64,090 | ) | | $ | (933,087 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 52% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | |
Year ended 12/31/12 | | $ | 16.74 | | | $ | 0.52 | | | $ | 0.10 | | | $ | 0.62 | | | $ | (0.54 | ) | | $ | (0.62 | ) | | $ | (1.16 | ) | | $ | 16.20 | | | | 3.61 | % | | $ | 64,158 | | | | 0.99 | %(d) | | | 1.03 | %(d) | | | 3.10 | %(d) | | | 3 | % |
Year ended 12/31/11 | | | 14.87 | | | | 0.51 | | | | 1.90 | | | | 2.41 | | | | (0.54 | ) | | | – | | | | (0.54 | ) | | | 16.74 | | | | 16.45 | | | | 70,956 | | | | 0.92 | | | | 1.04 | | | | 3.23 | | | | 14 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 16.63 | | | | 0.47 | | | | 0.10 | | | | 0.57 | | | | (0.49 | ) | | | (0.62 | ) | | | (1.11 | ) | | | 16.09 | | | | 3.34 | | | | 1,637 | | | | 1.24 | (d) | | | 1.28 | (d) | | | 2.85 | (d) | | | 3 | |
Year ended 12/31/11 | | | 14.78 | | | | 0.47 | | | | 1.88 | | | | 2.35 | | | | (0.50 | ) | | | – | | | | (0.50 | ) | | | 16.63 | | | | 16.15 | | | | 1,878 | | | | 1.17 | | | | 1.29 | | | | 2.98 | | | | 14 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $67,968 and $1,808 for Series I and Series II shares, respectively. |
Invesco V.I. Utilities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Utilities Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 997.90 | | | $ | 5.21 | | | $ | 1,019.92 | | | $ | 5.27 | | | | 1.04 | % |
Series II | | | 1,000.00 | | | | 996.30 | | | | 6.46 | | | | 1,018.66 | | | | 6.54 | | | | 1.29 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco V.I. Utilities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
| Long-Term Capital Gain Dividends | | $ | 2,457,657 | |
| Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Utilities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco V.I. Utilities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco V.I. Utilities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco V.I. Utilities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco V.I. Utilities Fund
Invesco Van Kampen V.I. American Franchise Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-VIAMFR-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. American Franchise Fund had positive returns but underperformed the Fund’s style-specific benchmark, the Russell 1000 Growth Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 13.73 | % |
| Series II Shares | | | | 13.40 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 1000 Growth Index¡ (Style-Specific Index) | | | | 15.26 | |
| Lipper VUF Large-Cap Growth Funds Index¨ (Peer Group Index) | | | | 16.39 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; ¡Invesco, Russell via FactSet Research Systems Inc.; ¨Lipper Inc.
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process emphasizes rigorous bottom-up analysis of individual companies. We seek to invest in companies with strong or improving fundamentals, attractive valuation relative to growth prospects and earnings expectations that appear fair to conservative.
To narrow our investment universe, we utilize a holistic approach that emphasizes fundamental research and, to a lesser extent, includes quantitative analysis. At the end of this distillation process, we have a set of stocks to analyze in greater depth.
Our fundamental analysis focuses on identifying companies with strong drivers of growth. To accomplish this goal, we conduct comprehensive bottom-up analysis in order to develop higher conviction in each company’s prospects for growth. Through our analysis, we develop a mosaic of each company through detailed discussions with company management teams, competitors, distribu-
tors, suppliers, Wall Street analysts and customers. We also utilize a variety of valuation techniques based on the company in question, the industry in which the company operates, the stage of the business cycle and other factors that best reflect a company’s value.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to maximize the relationship between risk and return. We seek to accomplish this goal by investing in companies with attractive fundamental prospects for growth, and we divide the portfolio between stable growth stocks and catalyst-driven stocks.
We consider selling a stock for any of the following reasons:
| n | | The price target set at purchase has been reached. |
| n | | There is deterioration in a company’s fundamentals. |
| n | | The catalysts for growth are no longer present or are reflected in the stock price. |
| n | | There is a more attractive investment opportunity. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
| | | | | |
| Portfolio Composition |
| |
| By sector | | | | | |
| | | | | |
| Information Technology | | | | 31.4 | % |
| Consumer Discretionary | | | | 21.1 | |
| Industrials | | | | 13.0 | |
| Health Care | | | | 12.1 | |
| Financials | | | | 8.5 | |
| Energy | | | | 6.0 | |
| Telecommunication Services | | | | 2.2 | |
| Materials | | | | 2.1 | |
| Consumer Staples | | | | 1.7 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 1.9 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
1. Apple Inc. | | | | 7.2 | % |
2. Google Inc.-Class A | | | | 3.7 | |
3. QUALCOMM, Inc. | | | | 3.6 | |
4. DISH Network Corp.-Class A | | | | 3.0 | |
5. General Electric Co. | | | | 2.5 | |
6. Goldman Sachs Group, Inc. (The) | | | | 2.5 | |
7. DIRECTV | | | | 2.3 | |
8. Sprint Nextel Corp. | | | | 2.2 | |
9. Pfizer Inc. | | | | 2.2 | |
10. Weatherford International Ltd. | | | | 2.2 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| | | | | |
1. Computer Hardware | | | | 7.2 | % |
2. Internet Software and Services | | | | 7.1 | |
3. Cable and Satellite | | | | 6.4 | |
4. Pharmaceuticals | | | | 5.8 | |
5. Oil and Gas Equipment and Services | | | | 4.7 | |
| | | | | |
| Total Net Assets | | | | $720.7 million | |
| |
| Total Number of Holdings* | | | | 73 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco Van Kampen V.I. American Franchise Fund
In this environment, the Fund posted solid positive returns but underperformed the Russell 1000 Growth Index, its style-specific benchmark, during the reporting period. The Fund underperformed by the widest margin in the energy sector driven by stock selection. The largest detractor was Weatherford International, an oil-field services firm with a strong position in artificial lift, which enables hydraulic fracturing (fracking) wells to produce more oil after their initial output falls off. The stock was pressured during the year due to issues with filing audited financial reports and the uncertain macroeconomic environment. National Oilwell Varco and Occidental Petroleum were also detractors in the sector.
The Fund also underperformed the style-specific index in the health care sector. The largest detractor was Allscripts, which provides clinical, financial, connectivity and information solutions to hospitals and physicians. Allscripts announced dramatically lower business fundamentals and earnings during the reporting period, and a power struggle in the boardroom led to the departure of a number of board members. Amid these events, the stock price was hit dramatically. We sold our position during the reporting period.
Given the strong performance from equity markets and the style-specific index during the reporting period, the Fund’s modest cash position detracted from relative performance. Certain stocks in the materials and information technology sectors led the Fund to underperform the index in those sectors as well.
In contrast, the Fund outperformed the Russell 1000 Growth Index in a number of sectors, including consumer discretionary, telecommunication services, industrials and financials. Strong stock selection in the consumer discretionary sector included Amazon, Gap and Italian fashion company Prada. The portfolio also benefited from several satellite and cable providers, who were rewarded by investors for their consistent recurring revenues during a very uncertain economic period. Comcast, DIRECTV and DISH Network were all solid contributors in the consumer discretionary sector.
Likewise, the Fund outperformed its style-specific benchmark in the telecommunication services sector due to strong stock selection. The largest contributor in this sector was Sprint Nextel, which was up strongly during the year as management deftly executed several innovative business strategies. The struggles of several lower-end competitors also recently contributed to success for Sprint. The Fund also benefited from positive stock selection in the industrials and financials sectors and from an underweight allocation to the relatively poor performing consumer staples sector.
As we’ve discussed, the stock market experienced heavy volatility during the last 12 months. We would like to caution investors against making investment decisions based on short-term performance. We thank you for your commitment to Invesco Van Kampen V.I. American Franchise Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Erik Voss Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen V.I. |
| American Franchise Fund. He joined Invesco in 2010. Mr. Voss earned a BS in mathematics and an MS in finance from the University of Wisconsin. |
| | |
 | | Ido Cohen Portfolio manager, is manager of Invesco Van Kampen V.I. American Franchise Fund. He joined |
| Invesco in 2010. Mr. Cohen earned a BS in economics from the Wharton School of the University of Pennsylvania. |
Invesco Van Kampen V.I. American Franchise Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (7/3/95) | | | | 7.74 | % |
| 10 Years | | | | 6.73 | |
| 5 Years | | | | 1.61 | |
| 1 Year | | | | 13.73 | |
| |
| Series II Shares | | | | | |
| Inception (9/18/00) | | | | -3.24 | % |
| 10 Years | | | | 6.46 | |
| 5 Years | | | | 1.36 | |
| 1 Year | | | | 13.40 | |
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 (renamed Invesco Van Kampen V.I. American Franchise Fund on April 30, 2012). 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 0.90% and 1.15%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.95% and 1.20%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. American Franchise 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, 2014. See current prospectus for more information. |
Invesco Van Kampen V.I. American Franchise Fund
Invesco Van Kampen V.I. American Franchise Fund’s investment objective is to seek capital growth.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. The Fund engages in frequent trading of portfolio securities. Active trading results in added expenses and may result in a lower return and increased tax liability.
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. Different types of stocks tend to shift in and out of favor depending on market and economic conditions. Thus, the value of the Fund’s investments will vary and at times may be lower or higher than that of other types of investments.
Growth investing risk. The Fund emphasizes a growth style of investing. Investments in growth-oriented equity securities may have above-average volatility of price movement. The returns on growth securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets.
Foreign risks. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in securities regulation and trading, and foreign taxation issues.
Real estate investment trusts (REITs) risk. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and certain other expenses. In addition, REITs depend upon specialized management skills, may be less diversified, may have lower trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets. REITs must comply with certain requirements of the federal income tax law to maintain their federal income tax status.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. American Franchise Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–98.11% | |
| Aerospace & Defense–2.68% | |
Boeing Co. (The) | | | 154,375 | | | $ | 11,633,700 | |
United Technologies Corp. | | | 93,499 | | | | 7,667,853 | |
| | | | | | | | 19,301,553 | |
|
| Air Freight & Logistics–1.12% | |
Expeditors International of Washington, Inc. | | | 203,569 | | | | 8,051,154 | |
|
| Apparel Retail–0.98% | |
Gap, Inc. (The) | | | 226,982 | | | | 7,045,521 | |
|
| Apparel, Accessories & Luxury Goods–2.15% | |
Coach, Inc. | | | 125,301 | | | | 6,955,458 | |
Prada S.p.A. (Italy) | | | 881,000 | | | | 8,517,669 | |
| | | | | | | | 15,473,127 | |
|
| Application Software–3.88% | |
Autodesk, Inc.(b) | | | 97,705 | | | | 3,453,872 | |
Citrix Systems, Inc.(b) | | | 172,668 | | | | 11,352,921 | |
Salesforce.com, Inc.(b) | | | 78,316 | | | | 13,164,919 | |
| | | | | | | | 27,971,712 | |
|
| Automobile Manufacturers–1.60% | |
General Motors Co.(b) | | | 400,282 | | | | 11,540,130 | |
|
| Biotechnology–4.25% | |
Amgen Inc. | | | 91,917 | | | | 7,934,275 | |
Biogen Idec Inc.(b) | | | 34,494 | | | | 5,059,235 | |
Celgene Corp.(b) | | | 96,658 | | | | 7,607,951 | |
Gilead Sciences, Inc.(b) | | | 136,173 | | | | 10,001,907 | |
| | | | | | | | 30,603,368 | |
|
| Broadcasting–1.02% | |
CBS Corp.–Class B | | | 192,590 | | | | 7,328,050 | |
|
| Cable & Satellite–6.42% | |
Comcast Corp.–Class A | | | 219,558 | | | | 8,207,078 | |
DIRECTV(b) | | | 323,416 | | | | 16,222,547 | |
DISH Network Corp.–Class A | | | 599,403 | | | | 21,818,269 | |
| | | | | | | | 46,247,894 | |
|
| Casinos & Gaming–0.84% | |
Las Vegas Sands Corp. | | | 131,724 | | | | 6,080,380 | |
|
| Communications Equipment–3.86% | |
F5 Networks, Inc.(b) | | | 20,899 | | | | 2,030,338 | |
QUALCOMM, Inc. | | | 415,647 | | | | 25,778,427 | |
| | | | | | | | 27,808,765 | |
|
| Computer Hardware–7.18% | |
Apple Inc. | | | 97,052 | | | | 51,726,775 | |
|
| Computer Storage & Peripherals–2.01% | |
EMC Corp.(b) | | | 571,542 | | | | 14,460,013 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Construction & Engineering–0.82% | |
Foster Wheeler AG (Switzerland)(b) | | | 242,988 | | | $ | 5,909,468 | |
|
| Construction & Farm Machinery & Heavy Trucks–1.89% | |
Cummins Inc. | | | 125,969 | | | | 13,648,741 | |
|
| Consumer Finance–1.79% | |
Capital One Financial Corp. | | | 222,381 | | | | 12,882,531 | |
|
| Data Processing & Outsourced Services–1.84% | |
Visa Inc.–Class A | | | 87,436 | | | | 13,253,549 | |
|
| Department Stores–0.45% | |
Macy’s, Inc. | | | 84,173 | | | | 3,284,430 | |
|
| Diversified Banks–1.36% | |
Wells Fargo & Co. | | | 286,180 | | | | 9,781,632 | |
|
| Fertilizers & Agricultural Chemicals–2.05% | |
Monsanto Co. | | | 109,140 | | | | 10,330,101 | |
Mosaic Co. (The) | | | 78,232 | | | | 4,430,278 | |
| | | | | | | | 14,760,379 | |
|
| General Merchandise Stores–0.82% | |
Dollar General Corp.(b) | | | 134,048 | | | | 5,910,176 | |
|
| Health Care Equipment–0.27% | |
Intuitive Surgical, Inc.(b) | | | 3,939 | | | | 1,931,567 | |
|
| Health Care Services–1.34% | |
Express Scripts Holding Co.(b) | | | 179,336 | | | | 9,684,144 | |
|
| Health Care Technology–0.37% | |
Cerner Corp.(b) | | | 34,226 | | | | 2,657,307 | |
|
| Home Improvement Retail–1.58% | |
Home Depot, Inc. (The) | | | 94,775 | | | | 5,861,834 | |
Lowe’s Cos., Inc. | | | 156,585 | | | | 5,561,899 | |
| | | | | | | | 11,423,733 | |
|
| Hypermarkets & Super Centers–1.35% | |
Wal-Mart Stores, Inc. | | | 142,354 | | | | 9,712,813 | |
|
| Industrial Conglomerates–3.62% | |
Danaher Corp. | | | 144,600 | | | | 8,083,140 | |
General Electric Co. | | | 856,504 | | | | 17,978,019 | |
| | | | | | | | 26,061,159 | |
|
| Industrial Machinery–0.94% | |
Ingersoll–Rand PLC | | | 141,636 | | | | 6,792,863 | |
|
| Integrated Oil & Gas–0.18% | |
Occidental Petroleum Corp. | | | 16,582 | | | | 1,270,347 | |
|
| Internet Retail–3.17% | |
Amazon.com, Inc.(b) | | | 36,920 | | | | 9,276,889 | |
Priceline.com Inc.(b) | | | 21,848 | | | | 13,570,448 | |
| | | | | | | | 22,847,337 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Internet Software & Services–7.14% | |
Baidu, Inc.–ADR (China)(b) | | | 46,520 | | | $ | 4,665,491 | |
eBay Inc.(b) | | | 211,644 | | | | 10,798,077 | |
Facebook Inc.–Class A(b) | | | 347,918 | | | | 9,265,056 | |
Google Inc.–Class A(b) | | | 37,673 | | | | 26,727,110 | |
| | | | | | | | 51,455,734 | |
|
| Investment Banking & Brokerage–2.48% | |
Goldman Sachs Group, Inc. (The) | | | 140,292 | | | | 17,895,648 | |
|
| IT Consulting & Other Services–1.76% | |
Cognizant Technology Solutions Corp.–Class A(b) | | | 171,654 | | | | 12,710,979 | |
|
| Movies & Entertainment–0.77% | |
Walt Disney Co. (The) | | | 111,765 | | | | 5,564,779 | |
|
| Oil & Gas Equipment & Services–4.71% | |
Cameron International Corp.(b) | | | 93,825 | | | | 5,297,359 | |
National Oilwell Varco Inc. | | | 53,208 | | | | 3,636,767 | |
Schlumberger Ltd. | | | 135,481 | | | | 9,387,478 | |
Weatherford International Ltd.(b) | | | 1,398,408 | | | | 15,648,186 | |
| | | | | | | | 33,969,790 | |
|
| Oil & Gas Exploration & Production–0.84% | |
Anadarko Petroleum Corp. | | | 81,074 | | | | 6,024,609 | |
|
| Oil & Gas Refining & Marketing–0.31% | |
Marathon Petroleum Corp. | | | 35,990 | | | | 2,267,370 | |
|
| Packaged Foods & Meats–0.35% | |
Mondelez International Inc.–Class A | | | 98,756 | | | | 2,515,315 | |
|
| Pharmaceuticals–5.81% | |
Abbott Laboratories | | | 139,924 | | | | 9,165,022 | |
Allergan, Inc. | | | 73,923 | | | | 6,780,957 | |
Johnson & Johnson | | | 144,358 | | | | 10,119,496 | |
Pfizer Inc. | | | 631,642 | | | | 15,841,581 | |
| | | | | | | | 41,907,056 | |
|
| Property & Casualty Insurance–0.91% | |
ACE Ltd. | | | 81,932 | | | | 6,538,174 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Railroads–0.98% | |
Union Pacific Corp. | | | 56,416 | | | $ | 7,092,620 | |
|
| Restaurants–1.27% | |
Chipotle Mexican Grill, Inc.(b) | | | 10,964 | | | | 3,261,352 | |
Starbucks Corp. | | | 110,286 | | | | 5,913,535 | |
| | | | | | | | 9,174,887 | |
|
| Semiconductors–1.95% | |
Broadcom Corp.–Class A | | | 217,576 | | | | 7,225,699 | |
Maxim Integrated Products, Inc. | | | 233,419 | | | | 6,862,519 | |
| | | | | | | | 14,088,218 | |
|
| Specialized REIT’s–2.00% | |
American Tower Corp. | | | 186,831 | | | | 14,436,431 | |
|
| Systems Software–1.79% | |
Check Point Software Technologies Ltd. (Israel)(b) | | | 89,033 | | | | 4,241,532 | |
Oracle Corp. | | | 259,627 | | | | 8,650,772 | |
| | | | | | | | 12,892,304 | |
|
| Trucking–0.98% | |
J.B. Hunt Transport Services, Inc. | | | 118,155 | | | | 7,055,035 | |
|
| Wireless Telecommunication Services–2.23% | |
Sprint Nextel Corp.(b) | | | 2,830,906 | | | | 16,051,237 | |
Total Common Stocks & Other Equity Interests
(Cost $560,082,990) | | | | 707,090,804 | |
| | |
Money Market Funds–1.87% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(c) | | | 6,730,221 | | | | 6,730,221 | |
Premier Portfolio–Institutional Class(c) | | | 6,730,221 | | | | 6,730,221 | |
Total Money Market Funds
(Cost $13,460,442) | | | | | | | 13,460,442 | |
TOTAL INVESTMENTS–99.98%
(Cost $573,543,432) | | | | 720,551,246 | |
OTHER ASSETS LESS LIABILITIES–0.02% | | | | 123,620 | |
NET ASSETS–100.00% | | | $ | 720,674,866 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
| REIT | | – Real Estate Investment Trust |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | 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. American Franchise Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $560,082,990) | | $ | 707,090,804 | |
Investments in affiliated money market funds, at value and cost | | | 13,460,442 | |
Total investments, at value (Cost $573,543,432) | | | 720,551,246 | |
Foreign currencies, at value (Cost $927) | | | 851 | |
Receivable for: | | | | |
Investments sold | | | 1,061,845 | |
Fund shares sold | | | 309,732 | |
Dividends | | | 371,418 | |
Fund expenses absorbed | | | 15,800 | |
Investment for trustee deferred compensation and retirement plans | | | 213,782 | |
Other assets | | | 387 | |
Total assets | | | 722,525,061 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 795,764 | |
Accrued fees to affiliates | | | 598,667 | |
Accrued other operating expenses | | | 49,174 | |
Trustee deferred compensation and retirement plans | | | 406,590 | |
Total liabilities | | | 1,850,195 | |
Net assets applicable to shares outstanding | | $ | 720,674,866 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 798,888,685 | |
Undistributed net investment income | | | 2,413,124 | |
Undistributed net realized gain (loss) | | | (227,636,140 | ) |
Unrealized appreciation | | | 147,009,197 | |
| | | $ | 720,674,866 | |
| |
Net Assets: | | | | |
Series I | | $ | 496,340,818 | |
Series II | | $ | 224,334,048 | |
|
Shares outstanding, $0.01 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 13,681,672 | |
Series II | | | 6,310,576 | |
Series I: | | | | |
Net asset value per share | | $ | 36.28 | |
Series II: | | | | |
Net asset value per share | | $ | 35.55 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $12,557) | | $ | 8,038,365 | |
Dividends from affiliated money market funds (includes securities lending income of $624) | | | 10,863 | |
Total investment income | | | 8,049,228 | |
| |
Expenses: | | | | |
Advisory fees | | | 3,887,163 | |
Administrative services fees | | | 1,460,129 | |
Custodian fees | | | 33,069 | |
Distribution fees — Series II | | | 464,701 | |
Transfer agent fees | | | 72,851 | |
Trustees’ and officers’ fees and benefits | | | 42,401 | |
Other | | | 124,438 | |
Total expenses | | | 6,084,752 | |
Less: Fees waived | | | (583,776 | ) |
Net expenses | | | 5,500,976 | |
Net investment income | | | 2,548,252 | |
|
Realized and unrealized gain (loss) from: | |
Net realized gain from: | | | | |
Investment securities (includes net gains (losses) from securities sold to affiliates of $(479,714)) | | | 15,713,066 | |
Foreign currencies | | | 1,424 | |
| | | | 15,714,490 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | (8,897,809 | ) |
Foreign currencies | | | (522 | ) |
| | | | (8,898,331 | ) |
Net realized and unrealized gain | | | 6,816,159 | |
Net increase in net assets resulting from operations | | $ | 9,364,411 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | | | | |
Net investment income (loss) | | $ | 2,548,252 | | | $ | (583,465 | ) |
Net realized gain | | | 15,714,490 | | | | 13,210,743 | |
Change in net unrealized appreciation (depreciation) | | | (8,898,331 | ) | | | (34,132,830 | ) |
Net increase (decrease) in net assets resulting from operations | | | 9,364,411 | | | | (21,505,552 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | 370,787,226 | | | | 64,098,694 | |
Series ll | | | 131,813,205 | | | | (18,673,081 | ) |
Net increase in net assets resulting from share transactions | | | 502,600,431 | | | | 45,425,613 | |
Net increase in net assets | | | 511,964,842 | | | | 23,920,061 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 208,710,024 | | | | 184,789,963 | |
End of year (includes undistributed net investment income (loss) of $2,413,124 and $(55,300), respectively) | | $ | 720,674,866 | | | $ | 208,710,024 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. American Franchise Fund, formerly 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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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
Invesco Van Kampen V.I. American Franchise Fund
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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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 |
Invesco Van Kampen V.I. American Franchise Fund
| | 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 affiliated money market funds 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 | .695% | | |
Next $250 million | | | 0 | .67% | | |
Next $500 million | | | 0 | .645% | | |
Next $550 million | | | 0 | .62% | | |
Next $3.45 billion | | | 0 | .60% | | |
Next $250 million | | | 0 | .595% | | |
Next $2.25 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. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the
Invesco Van Kampen V.I. American Franchise Fund
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).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2014, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 0.90% and Series II shares to 1.15% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (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 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $583,776.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $139,412 for accounting and fund administrative services and reimbursed $1,320,717 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $7,767 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 712,033,577 | | | $ | 8,517,669 | | | $ | — | | | $ | 720,551,246 | |
Invesco Van Kampen V.I. American Franchise 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 year ended December 31, 2012, the Fund engaged in securities purchases of $2,233,441 and securities sales of $1,346,851, which resulted in net realized gains (losses) of $(479,714).
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
There were no ordinary income or long-term capital gain distributions paid during the years ended December 31, 2012 and 2011.
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 2,829,665 | |
Net unrealized appreciation — investments | | | 144,105,590 | |
Net unrealized appreciation — other investments | | | 1,383 | |
Temporary book/tax differences | | | (381,118 | ) |
Capital loss carryforward | | | (224,769,339 | ) |
Shares of beneficial interest | | | 798,888,685 | |
Total net assets | | $ | 720,674,866 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales, straddle loss deferral and partnership adjustments.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 Van Kampen V.I. American Franchise Fund
The Fund utilized $15,160,733 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 205,588,670 | | | $ | — | | | $ | 205,588,670 | |
December 31, 2017 | | | 5,236,281 | | | | — | | | | 5,236,281 | |
December 31, 2018 | | | 13,944,388 | | | | — | | | | 13,944,388 | |
Total capital loss carryforward | | $ | 224,769,339 | | | $ | — | | | $ | 224,769,339 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitation, if any, to the extent required by the Internal Revenue Service. To the extent that unrealized gains as of May 2, 2011, the date of the reorganization of Invesco V.I. Large Cap Growth Fund and April 30, 2012, the date of the reorganizations of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund into the Fund are realized on securities held in each fund at such date of reorganizations, the capital loss carryforward may be further limited for up to five years from the date of the reorganizations. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $997,558,036 and $629,829,098, 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 | | $ | 156,748,867 | |
Aggregate unrealized (depreciation) of investment securities | | | (12,643,277 | ) |
Net unrealized appreciation of investment securities | | $ | 144,105,590 | |
Cost of investments for tax purposes is $576,445,656.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of fair funds settlements, on December 31, 2012, undistributed net investment income was increased by $266,252 and undistributed net realized gain was decreased by $266,252. Further, as a result of tax deferrals and capital loss carryforward acquired in the reorganizations of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund into the Fund, undistributed net investment income was decreased by $346,080, undistributed net realized gain was decreased by $214,838,695 and shares of beneficial interest was increased by $215,184,775. These reclassifications had no effect on the net assets of the Fund.
Invesco Van Kampen V.I. American Franchise Fund
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 789,397 | | | $ | 28,721,163 | | | | 148,444 | | | $ | 4,995,733 | |
Series II | | | 320,230 | | | | 11,081,001 | | | | 311,666 | | | | 10,470,974 | |
| | | | |
Issued in connection with acquisitions:(b)(c) | | | | | | | | | | | | | | | | |
Series I | | | 11,970,981 | | | | 445,461,917 | | | | 2,764,202 | | | | 102,182,035 | |
Series II | | | 4,415,803 | | | | 161,335,668 | | | | 17,638 | | | | 641,933 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,934,105 | ) | | | (103,395,854 | ) | | | (1,259,447 | ) | | | (43,079,074 | ) |
Series II | | | (1,160,262 | ) | | | (40,603,464 | ) | | | (876,910 | ) | | | (29,785,988 | ) |
Net increase in share activity | | | 13,402,044 | | | $ | 502,600,431 | | | | 1,105,593 | | | $ | 45,425,613 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 20% 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 Fund 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 April 30, 2012, the Fund acquired all the net assets of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund (the “Target Funds”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 30, 2011 and by the shareholders of the Target Funds on April 2, 2012. The acquisition was accomplished by a tax-free exchange of 16,386,784 shares of the Fund for 23,847,677 shares outstanding of Invesco V.I. Capital Appreciation Fund and 2,145,577 shares outstanding of Invesco V.I. Leisure Fund as of the close of business on April 27, 2012. Each class of the Target Funds were exchanged for the like class of shares of the Fund, based on the relative net asset value of the Target Funds to the net asset value of the Fund on the close of business, April 27, 2012. Invesco V.I. Capital Appreciation Fund’s net assets as of the close of business on April 27, 2012 of $586,894,436, including $120,477,190 of unrealized appreciation and Invesco V.I. Leisure Fund’s net assets as of the close of business on April 27, 2012 of $19,903,149, including $5,495,250 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $226,713,532. The net assets immediately after the acquisition were $833,511,117. |
| | The pro forma results of operations for the year ended December 31, 2012 assuming the reorganization had been completed on January 1, 2012, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 2,254,431 | |
Net realized/unrealized gains | | | 92,187,134 | |
Change in net assets resulting from operations | | $ | 94,441,565 | |
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| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Funds that have been included in the Fund’s Statement of Operations since April 30, 2012. |
| (c) | 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 (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target Fund’s net assets at that date of $102,823,968, including $19,535,310 of unrealized appreciation, were 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 after the acquisition were $291,425,185. |
| | The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income (loss) | | $ | (731,640 | ) |
Net realized/unrealized gains (loss) | | | (13,447,533 | ) |
Change in net assets resulting from operations | | $ | (14,179,173 | ) |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. American Franchise Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Return of
capital
distributions | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return | | | Net assets,
end of
period
(000’s
omitted) | | | Ratio of
expenses
to average
net assets
with fee
waivers
and/or
expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee
waivers
and/or
expenses
absorbed | | | Ratio of net
investment
income
(loss) to
average
net assets | | | Portfolio
turnover(b) | |
Series I(c) | |
Year ended 12/31/12 | | $ | 31.90 | | | $ | 0.19 | | | $ | 4.19 | | | $ | 4.38 | | | $ | — | | | $ | — | | | $ | — | | | $ | 36.28 | | | | 13.73 | %(d) | | $ | 496,341 | | | | 0.88 | %(e) | | | 0.98 | %(e) | | | 0.52 | %(e) | | | 190 | % |
Year ended 12/31/11 | | | 34.00 | | | | (0.05 | ) | | | (2.05 | ) | | | (2.10 | ) | | | — | | | | — | | | | — | | | | 31.90 | | | | (6.18 | )(d) | | | 122,986 | | | | 0.84 | | | | 0.99 | | | | (0.15 | ) | | | 126 | |
Year ended 12/31/10 | | | 28.37 | | | | 0.03 | | | | 5.60 | | | | 5.63 | | | | — | | | | — | | | | — | | | | 34.00 | | | | 19.84 | (d) | | | 74,870 | | | | 0.79 | | | | 0.90 | | | | 0.12 | | | | 158 | |
Year ended 12/31/09 | | | 17.10 | | | | 0.04 | | | | 11.26 | | | | 11.30 | | | | (0.03 | ) | | | (0.00 | )(f) | | | (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 | ) | | | – | | | | (0.14 | ) | | | 17.10 | | | | (48.99 | ) | | | 48,599 | | | | 0.85 | | | | 0.87 | | | | (0.04 | ) | | | 42 | |
Series II(c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 31.35 | | | | 0.10 | | | | 4.10 | | | | 4.20 | | | | — | | | | — | | | | — | | | | 35.55 | | | | 13.40 | (d) | | | 224,334 | | | | 1.13 | (e) | | | 1.23 | (e) | | | 0.27 | (e) | | | 190 | |
Year ended 12/31/11 | | | 33.49 | | | | (0.14 | ) | | | (2.00 | ) | | | (2.14 | ) | | | — | | | | — | | | | — | | | | 31.35 | | | | (6.39 | )(d) | | | 85,724 | | | | 1.09 | | | | 1.24 | | | | (0.40 | ) | | | 126 | |
Year ended 12/31/10 | | | 28.01 | | | | (0.05 | ) | | | 5.53 | | | | 5.48 | | | | — | | | | — | | | | — | | | | 33.49 | | | | 19.56 | (d) | | | 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 | ) | | | — | | | | (0.05 | ) | | | 16.91 | | | | (49.11 | )(g) | | | 69,198 | | | | 1.10 | | | | 1.12 | | | | (0.29 | ) | | | 42 | |
| (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 year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $14,357,093 and sold of $15,173,740 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund into the Fund. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $81,993,574 and sold of $49,870,241 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 predecessor Fund’s former Class I and Class II shares were reorganized into Series I and Series II shares. |
| (d) | 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. |
| (e) | Ratios are based on average daily net assets (000’s) of $387,711 and $185,880 for Series I and Series II, respectively. |
| (f) | Amount is less than $0.01 per share. |
| (g) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
NOTE 12—Subsequent Event
Effective May 1, 2013, the Fund will change its name to Invesco V.I. American Franchise Fund.
Invesco Van Kampen V.I. American Franchise Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. American Franchise Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. American Franchise Fund, (formerly known as Invesco Van Kampen V.I. Capital Growth Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco Van Kampen V.I. American Franchise Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,047.70 | | | $ | 4.63 | | | $ | 1,020.61 | | | $ | 4.57 | | | | 0.90 | % |
| Series II | | | 1,000.00 | | | | 1,046.20 | | | | 5.91 | | | | 1,019.36 | | | | 5.84 | | | | 1.15 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. American Franchise Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 0 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. American Franchise Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. American Franchise Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. American Franchise Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. American Franchise Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
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Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. American Franchise Fund
Invesco Van Kampen V.I. American Value Fund
Annual Report to Shareholders n December 31, 2012
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, 2012, 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 US 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-VIAMVA-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. American Value Fund underperformed the Russell Midcap Value Index, the Fund’s style-specific benchmark. Although the Fund uses a bottom-up stock selection approach and stock selection was a positive contributor, a higher-than-normal cash position offset the positive effects on relative performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 17.31 | % |
| Series II Shares | | | | 17.08 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell Midcap Value Indexn (Style-Specific Index) | | | | 18.51 | |
| Lipper VUF Mid-Cap Value Funds Index¿ (Peer Group Index) | | | | 17.90 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
How we invest
We call our investment philosophy “value with a catalyst.” We believe undervalued companies that are experiencing positive changes (i.e., “catalysts”) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the undervaluation. Typical examples of catalysts include improved operational efficiency, changing industry dynamics and a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value-to-sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its
competitive position and stability, and meetings with its executives. During the research process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This is also where we typically identify the positive catalyst, a prerequisite for potential investment. Finally, we generally set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our goal is to capitalize on negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets. This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
All sectors of the Russell Midcap Value Index posted positive returns for the period, with all sectors posting double-digit returns, except for utilities.1
The largest contributor to relative Fund performance versus the Russell Midcap Value Index was the health care sector.
| | | | | |
| Portfolio Composition | | |
| By sector | | | | | |
| | | | | |
| Financials | | | | 19.2 | % |
| Consumer Discretionary | | | | 13.0 | |
| Information Technology | | | | 12.2 | |
| Industrials | | | | 9.6 | |
| Health Care | | | | 8.9 | |
| Materials | | | | 7.1 | |
| Energy | | | | 6.2 | |
| Consumer Staples | | | | 5.7 | |
| Utilities | | | | 5.5 | |
| Telecommunication Services | | | | 2.7 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 9.9 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| | | | | |
1. Newell Rubbermaid Inc. | | | | 3.9 | % |
2. Snap-on Inc. | | | | 3.4 | |
3. Edison International | | | | 3.3 | |
4. Sealed Air Corp. | | | | 3.0 | |
5. ConAgra Foods, Inc. | | | | 2.9 | |
6. Fidelity National Information Services, Inc. | | | | 2.9 | |
7. Marsh & McLennan Cos., Inc. | | | | 2.7 | |
8. ACE Ltd. | | | | 2.7 | |
9. tw telecom inc. | | | | 2.7 | |
10. Zebra Technologies Corp.-Class A | | | | 2.6 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| | | | | |
1. Health Care Facilities | | | | 7.1 | % |
2. Industrial Machinery | | | | 5.1 | |
3. Paper Packaging | | | | 5.0 | |
4. Insurance Brokers | | | | 4.5 | |
5. Regional Banks | | | | 4.3 | |
| | | | | |
| Total Net Assets | | | | $351.9 million | |
| |
Total Number of Holdings* | | | | 50 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* Excluding money market fund holdings.
Invesco Van Kampen V.I. American Value Fund
Brookdale Senior Living was one of the larger contributors to both relative and absolute performance versus the benchmark as the company returned more than 40% for the reporting period. The senior assisted living company had a strong year as its occupancy rate grew and its margins expanded, due to a greater proportion of its income coming in the form of payments from private individuals rather than government subsidies.
A material underweight position in utilities also enhanced relative performance as utilities was the weakest sector of the Russell Midcap Value Index.
Strong stock selection within industrials also helped relative performance of the Fund. Snap-on was a contributor within this sector on an absolute and relative basis as the company posted strong returns for the reporting period. The auto repair tool supplier saw sales increase as consumers kept cars longer and, therefore, needed more maintenance and repairs on their vehicles.
Stock selection within information technology (IT) was another positive driver of relative performance. Fidelity National Information Services experienced strong performance during the reporting period as investors cheered improved profits compared with the prior year.
Select holdings in the materials sector also contributed to relative Fund performance. The Fund had overweight exposure to this sector, and stock selection helped drive returns. Cyclical stocks performed well in the materials sector as the economy showed signs of strengthening. W. R. Grace, a chemical supplier for refineries, was a top performer due to positive earnings revisions. Valspar (no longer a Fund holding), a paint and coatings manufacturer, was also a top contributor within this sector as the stock performed well.
An overweight position in the telecommunication services sector also contributed to relative performance. One telecommunications holding that performed especially well was tw telecom, which focuses on providing commercial phone service to small and mid-sized businesses. The company benefited because many larger commercial phone service providers ignore this segment of the market.
With stocks generally posting modest returns for the reporting period, our allocation to cash was the largest detractor from relative performance. As we focus on bottom-up stock selection, this allocation to cash was the direct result of stocks being acquired or selling stocks due to valuations reaching target levels. We continued to seek attractive risk versus reward opportunities for the portfolio to invest the excess cash.
Stock selection and an overweight position in consumer staples stocks were detractors from relative performance. Avon was one of the largest detractors within the Fund. Investors were disappointed that Avon rejected an acquisition offer and had a change in chief executive officer early 2012, which investors interpreted as a sign of instability. Safeway was another detractor as expectations for same store sales continued to decline.
Weak stock selection within financials also dampened performance. Willis Group, an insurance company, was one of the larger detractors within the sector, posting negative returns for the reporting period as the company experienced difficult economic conditions, poor underwriting results and the largest claims in the company’s history.
Relative performance was hampered by an underweight position and stock selection in the energy sector, namely Newfield Exploration, which was a large detractor within this sector. Relative Fund performance was also hurt by not owning select companies such as Marathon Petroleum and Valero Energy, which posted strong returns for the reporting period.
Equity markets experienced continued market volatility during the reporting period. Toward the end of the fiscal year, we increased our exposure in industrials, financials and health care. We initiated positions in Express, Stifel Financial, Health Care REIT, Universal Health Services, Foster Wheeler and Carefusion, attempting to put the larger-than-usual cash position to work for investors. We trimmed select positions in the telecommunication services and IT sectors based on valuations and eliminated positions in Charles Schwab and WPX Energy. Thank you for investing in Invesco Van Kampen V.I. American Value Fund.
| 1 | Source: Invesco, Russell via FactSet Research Systems Inc. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Thomas Copper Chartered Financial Analyst, portfolio manager, is co-lead manager of Invesco Van Kampen V.I. |
| American Value Fund. He joined Invesco in 2010. Mr. Copper earned a BA in economics and political science from Tulane University and an MBA from Baylor University. |
| | |
 | | John Mazanec Portfolio manager, is co-lead manager of Invesco Van Kampen V.I. American Value Fund. He joined Invesco in |
| 2010. Mr. Mazanec earned a BS from DePauw University and an MBA from Harvard University. |
| | |
 | | Sergio Marcheli Portfolio manager, is manager of Invesco Van Kampen V.I. American Value Fund. He joined Invesco in 2010. |
| Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. |
Invesco Van Kampen V.I. American Value Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (1/2/97) | | | | 9.46 | % |
| 10 Years | | | | 10.86 | |
| 5 Years | | | | 3.42 | |
| 1 Year | | | | 17.31 | |
| |
| Series II Shares | | | | | |
| Inception (5/5/03) | | | | 10.40 | % |
| 5 Years | | | | 3.29 | |
| 1 Year | | | | 17.08 | |
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 (renamed Invesco Van Kampen V.I. American Value Fund on July 15, 2012.). 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 0.97% and 1.22%, 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. American Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies
issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. American Value Fund
Invesco Van Kampen V.I. American Value Fund’s investment objective is to provide above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. Convertible securities have risks associated with both common stocks and debt securities. Investments in debt securities generally are affected by changes in interest rates and the creditworthiness of the issuer. The prices of such securities tend to fall as interest rates rise, and such declines tend to be greater among securities with longer maturities. The value of a convertible security tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying equity security.
Medium capitalization companies risk. Investing in securities of medium capitalization companies may involve greater risk than is customarily associated with investing in more established companies. Often, medium capitalization companies and the industries in which they are focused are still evolving. Medium-sized companies often have less predictable earnings and more limited product lines, markets, distribution channels or financial resources. The market movements of equity securities of medium-sized companies may be more abrupt and volatile than the market movements of equity securities of larger, more established companies or the stock market in general.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on “value” equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
Foreign securities risk. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in securities regulation and trading, and foreign taxation issues.
Investing in real estate investment trusts (REITs) risk. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives. Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Synthetic securities risk. Fluctuations in the values of synthetic securities may not correlate perfectly with the instruments they are designed to replicate. Synthetic securities may be subject to interest rate changes, market price fluctuations, counterparty risk and liquidity risk.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. American Value Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–87.18% | |
| Alternative Carriers–2.70% | |
tw telecom Inc.(b) | | | 373,513 | | | $ | 9,513,376 | |
| | |
| Apparel Retail–0.97% | | | | | | | | |
Express, Inc.(b) | | | 227,273 | | | | 3,429,550 | |
|
| Asset Management & Custody Banks–2.33% | |
Northern Trust Corp. | | | 163,587 | | | | 8,205,524 | |
|
| Automotive Retail–2.10% | |
Advance Auto Parts, Inc. | | | 101,927 | | | | 7,374,418 | |
|
| Communications Equipment–1.59% | |
Juniper Networks, Inc.(b) | | | 284,264 | | | | 5,591,473 | |
|
| Computer Hardware–1.72% | |
Diebold, Inc. | | | 198,086 | | | | 6,063,412 | |
|
| Construction & Engineering–1.11% | |
Foster Wheeler AG (Switzerland)(b) | | | 160,752 | | | | 3,909,489 | |
|
| Data Processing & Outsourced Services–2.88% | |
Fidelity National Information Services, Inc. | | | 291,593 | | | | 10,150,352 | |
|
| Diversified Banks–2.07% | |
Comerica Inc. | | | 239,826 | | | | 7,276,321 | |
|
| Electric Utilities–3.26% | |
Edison International | | | 254,276 | | | | 11,490,732 | |
|
| Electronic Manufacturing Services–1.97% | |
Flextronics International Ltd.
(Singapore)(b) | | | 1,115,506 | | | | 6,927,292 | |
|
| Food Distributors–1.19% | |
Sysco Corp. | | | 131,807 | | | | 4,173,010 | |
|
| Food Retail–0.75% | |
Safeway Inc. | | | 146,731 | | | | 2,654,364 | |
|
| Health Care Equipment–0.76% | |
CareFusion Corp.(b) | | | 93,118 | | | | 2,661,312 | |
|
| Health Care Facilities–5.10% | |
Brookdale Senior Living Inc.(b) | | | 280,285 | | | | 7,096,816 | |
HealthSouth Corp.(b) | | | 373,452 | | | | 7,883,572 | |
Universal Health Services, Inc.–Class B | | | 61,737 | | | | 2,984,984 | |
| | | | | | | | 17,965,372 | |
|
| Heavy Electrical Equipment–2.32% | |
Babcock & Wilcox Co. (The) | | | 311,342 | | | | 8,157,160 | |
|
| Home Furnishings–2.20% | |
Mohawk Industries, Inc.(b) | | | 85,685 | | | | 7,751,922 | |
|
| Housewares & Specialties–3.93% | |
Newell Rubbermaid Inc. | | | 621,347 | | | | 13,837,398 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Industrial Machinery–5.09% | |
Ingersoll-Rand PLC | | | 121,465 | | | $ | 5,825,461 | |
Snap-on Inc. | | | 152,851 | | | | 12,073,701 | |
| | | | | | | | 17,899,162 | |
|
| Insurance Brokers–4.47% | |
Marsh & McLennan Cos., Inc. | | | 278,023 | | | | 9,583,453 | |
Willis Group Holdings PLC | | | 183,821 | | | | 6,163,518 | |
| | | | | | | | 15,746,971 | |
|
| Integrated Oil & Gas–1.10% | |
Murphy Oil Corp. | | | 64,860 | | | | 3,862,413 | |
|
| Investment Banking & Brokerage–0.74% | |
Stifel Financial Corp.(b) | | | 81,405 | | | | 2,602,518 | |
|
| Life Sciences Tools & Services–1.05% | |
PerkinElmer, Inc. | | | 116,709 | | | | 3,704,344 | |
|
| Motorcycle Manufacturers–1.09% | |
Harley-Davidson, Inc. | | | 78,365 | | | | 3,827,347 | |
|
| Multi-Utilities–2.20% | |
CenterPoint Energy, Inc. | | | 286,936 | | | | 5,523,518 | |
Wisconsin Energy Corp. | | | 59,798 | | | | 2,203,556 | |
| | | | | | | | 7,727,074 | |
|
| Office Electronics–2.63% | |
Zebra Technologies Corp.–Class A(b) | | | 236,012 | | | | 9,270,551 | |
|
| Oil & Gas Exploration & Production–3.03% | |
Newfield Exploration Co.(b) | | | 179,385 | | | | 4,803,930 | |
Pioneer Natural Resources Co. | | | 55,043 | | | | 5,867,034 | |
| | | | | | | | 10,670,964 | |
|
| Oil & Gas Storage & Transportation–2.12% | |
Williams Cos., Inc. (The) | | | 227,800 | | | | 7,458,172 | |
|
| Packaged Foods & Meats–2.91% | |
ConAgra Foods, Inc. | | | 347,403 | | | | 10,248,388 | |
|
| Paper Packaging–5.00% | |
Sealed Air Corp. | | | 607,762 | | | | 10,641,912 | |
Sonoco Products Co. | | | 233,864 | | | | 6,952,777 | |
| | | | | | | | 17,594,689 | |
|
| Personal Products–0.82% | |
Avon Products, Inc. | | | 201,941 | | | | 2,899,873 | |
|
| Property & Casualty Insurance–2.71% | |
ACE Ltd. | | | 119,301 | | | | 9,520,220 | |
|
| Regional Banks–4.31% | |
BB&T Corp. | | | 253,123 | | | | 7,368,411 | |
Wintrust Financial Corp. | | | 212,760 | | | | 7,808,292 | |
| | | | | | | | 15,176,703 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Value Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Restaurants–0.84% | |
Darden Restaurants, Inc. | | | 65,846 | | | $ | 2,967,679 | |
|
| Retail REIT’s–1.64% | |
Weingarten Realty Investors | | | 215,000 | | | | 5,755,550 | |
|
| Specialty Chemicals–2.11% | |
W.R. Grace & Co.(b) | | | 110,276 | | | | 7,413,855 | |
|
| Specialty Stores–1.84% | |
Staples, Inc. | | | 567,477 | | | | 6,469,238 | |
|
| Systems Software–1.45% | |
BMC Software, Inc.(b) | | | 128,392 | | | | 5,092,027 | |
|
| Trucking–1.08% | |
Swift Transportation Co.(b) | | | 416,657 | | | | 3,799,912 | |
Total Common Stocks & Other Equity Interests
(Cost $262,808,368) | | | | 306,840,127 | |
| | |
| | | Principal Amount | | | | |
Bonds and Notes–1.16% | |
| Health Care Facilities–1.16% | |
Brookdale Senior Living Inc. Sr. Unsec. Conv. Notes 2.75% 06/15/18
(Cost $3,258,327) | | $ | 3,530,000 | | | | 4,074,944 | |
| | | | | | | | |
| | | Shares | | | Value | |
Preferred Stocks–1.79% | |
| Health Care Facilities–0.84% | |
HealthSouth Corp. Series A, $65.00 Conv. Pfd. | | | 2,851 | | | $ | 2,958,625 | |
|
| Specialized REIT’s–0.95% | |
Health Care REIT, Inc. Series I, $3.25 Conv. Pfd. | | | 58,187 | | | | 3,327,715 | |
Total Preferred Stocks
(Cost $5,586,138) | | | | | | | 6,286,340 | |
|
Money Market Funds–10.12% | |
Liquid Assets Portfolio–Institutional Class(c) | | | 17,814,968 | | | | 17,814,968 | |
Premier Portfolio–Institutional
Class(c) | | | 17,814,969 | | | | 17,814,969 | |
Total Money Market Funds
(Cost $35,629,937) | | | | 35,629,937 | |
TOTAL INVESTMENTS–100.25%
(Cost $307,282,770) | | | | 352,831,348 | |
OTHER ASSETS LESS LIABILITIES–(0.25)% | | | | (887,150 | ) |
NET ASSETS–100.00% | | | $ | 351,944,198 | |
Investment Abbreviations:
| | |
| Conv. | | – Convertible |
| Pfd. | | – Preferred |
| REIT | | – Real Estate Investment Trust |
| Sr. | | – Senior |
| Unsec. | | – Unsecured |
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 Van Kampen V.I. American Value Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $271,652,833) | | $ | 317,201,411 | |
Investments in affiliated money market funds, at value and cost | | | 35,629,937 | |
Total investments, at value (Cost $307,282,770) | | | 352,831,348 | |
Receivable for: | | | | |
Investments sold | | | 732,480 | |
Fund shares sold | | | 285,058 | |
Dividends and interest | | | 279,356 | |
Investment for trustee deferred compensation and retirement plans | | | 13,509 | |
Total assets | | | 354,141,751 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 1,436,235 | |
Fund shares reacquired | | | 372,752 | |
Accrued fees to affiliates | | | 321,990 | |
Accrued other operating expenses | | | 36,620 | |
Trustee deferred compensation and retirement plans | | | 29,956 | |
Total liabilities | | | 2,197,553 | |
Net assets applicable to shares outstanding | | $ | 351,944,198 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 315,290,511 | |
Undistributed net investment income | | | 2,489,827 | |
Undistributed net realized gain (loss) | | | (11,384,718 | ) |
Unrealized appreciation | | | 45,548,578 | |
| | | $ | 351,944,198 | |
| |
Net Assets: | | | | |
Series I | | $ | 131,233,009 | |
Series II | | $ | 220,711,189 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 8,800,478 | |
Series II | | | 14,901,255 | |
Series I: | | | | |
Net asset value per share | | $ | 14.91 | |
Series II: | | | | |
Net asset value per share | | $ | 14.81 | |
| | | | |
Investment income: | |
Dividends | | $ | 5,944,981 | |
Dividends from affiliated money market funds | | | 46,938 | |
Interest | | | 87,708 | |
Total investment income | | | 6,079,627 | |
| |
Expenses: | | | | |
Advisory fees | | | 2,363,363 | |
Administrative services fees | | | 785,394 | |
Custodian fees | | | 11,414 | |
Distribution fees — Series II | | | 485,855 | |
Transfer agent fees | | | 21,325 | |
Trustees’ and officers’ fees and benefits | | | 33,490 | |
Other | | | 55,033 | |
Total expenses | | | 3,755,874 | |
Less: Fees waived | | | (184,496 | ) |
Net expenses | | | 3,571,378 | |
Net investment income | | | 2,508,249 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain from: | | | | |
Investment securities | | | 23,851,046 | |
Option contracts written | | | 238,643 | |
| | | | 24,089,689 | |
Change in net unrealized appreciation of investment securities | | | 24,164,824 | |
Net realized and unrealized gain | | | 48,254,513 | |
Net increase in net assets resulting from operations | | $ | 50,762,762 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Value Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 2,508,249 | | | $ | 2,270,246 | |
Net realized gain | | | 24,089,689 | | | | 18,664,787 | |
Change in net unrealized appreciation (depreciation) | | | 24,164,824 | | | | (17,420,751 | ) |
Net increase in net assets resulting from operations | | | 50,762,762 | | | | 3,514,282 | |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (939,816 | ) | | | (979,194 | ) |
Series ll | | | (1,300,592 | ) | | | (992,806 | ) |
Total distributions from net investment income | | | (2,240,408 | ) | | | (1,972,000 | ) |
| | |
Share transactions–net: | | | | | | | | |
Series l | | | (18,810,976 | ) | | | (33,633,456 | ) |
Series ll | | | 29,381,427 | | | | 10,486,103 | |
Net increase (decrease) in net assets resulting from share transactions | | | 10,570,451 | | | | (23,147,353 | ) |
Net increase (decrease) in net assets | | | 59,092,805 | | | | (21,605,071 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 292,851,393 | | | | 314,456,464 | |
End of year (includes undistributed net investment income of $2,489,827 and $2,221,986, respectively) | | $ | 351,944,198 | | | $ | 292,851,393 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. American Value Fund, formerly 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-five 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 in common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco Van Kampen V.I. American Value Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the performance of their duties to the Fund. Additionally, in the normal course of business, the |
Invesco Van Kampen V.I. American Value Fund
| | 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. | 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 covered 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.
| J. | 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% | |
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. (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 July 01, 2012, the Adviser has 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 01, 2012, 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) to 1.18% and 1.28% of average daily net assets 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, including litigation expenses; 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, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $47,647.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $82,983 for accounting and fund administrative services and reimbursed $702,411 for services provided by insurance companies.
Invesco Van Kampen V.I. American Value 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 year ended December 31, 2012, 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 had contractually agreed to waive 0.15% of Rule 12b-1plan fees on Series II shares through June 30, 2012. 12b-1 fees before fee waivers incurred under the Plan are detailed in the Statement of Operations of Distribution fees. For the year ended December 31, 2012, 12b-1 fees incurred for Series II shares were $349,006 after fee waivers of $136,849.
For the year ended December 31, 2012, the Fund incurred $2,968 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 345,797,779 | | | $ | 2,958,625 | | | $ | — | | | $ | 348,756,404 | |
Corporate Debt Securities | | | — | | | | 4,074,944 | | | | — | | | | 4,074,944 | |
Total Investments | | $ | 345,797,779 | | | $ | 7,033,569 | | | $ | — | | | $ | 352,831,348 | |
NOTE 4—Derivative Investments
Effect of Derivative Instruments for the year ended December 31, 2012
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 | | $ | 238,643 | |
| * | The average notional value of options outstanding during the period was $104,317. |
| | | | | | | | |
| Transactions During the Period | |
| | | Call Option Contracts | |
| | | Number of
Contracts | | | Premiums
Received | |
Beginning of period | | | — | | | $ | — | |
Written | | | 2,425 | | | | 390,068 | |
Closed | | | (2,425 | ) | | | (390,068 | ) |
End of period | | | — | | | $ | — | |
Invesco Van Kampen V.I. American Value Fund
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 year ended December 31, 2012, the Fund engaged in securities purchases of $658,139.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 2,240,408 | | | $ | 1,972,000 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 2,518,174 | |
Net unrealized appreciation — investments | | | 44,610,408 | |
Temporary book/tax differences | | | (28,347 | ) |
Capital loss carryforward | | | (10,446,548 | ) |
Shares of beneficial interest | | | 315,290,511 | |
Total net assets | | $ | 351,944,198 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and straddle loss deferrals.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 Van Kampen V.I. American Value Fund
The Fund utilized $24,052,096 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2017 | | $ | 10,446,548 | | | $ | — | | | $ | 10,446,548 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $76,794,143 and $77,812,549, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
| | | | |
| Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | |
Aggregate unrealized appreciation of investment securities | | $ | 57,226,123 | |
Aggregate unrealized (depreciation) of investment securities | | | (12,615,715 | ) |
Net unrealized appreciation of investment securities | | $ | 44,610,408 | |
Cost of investments for tax purposes is $308,220,940.
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 862,272 | | | $ | 12,101,117 | | | | 487,789 | | | $ | 6,244,179 | |
Series II | | | 4,694,680 | | | | 66,155,232 | | | | 3,734,030 | | | | 47,368,062 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 64,460 | | | | 939,816 | | | | 89,752 | | | | 979,194 | |
Series II | | | 89,758 | | | | 1,300,592 | | | | 91,503 | | | | 992,806 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,248,757 | ) | | | (31,851,909 | ) | | | (3,155,419 | ) | | | (40,856,829 | ) |
Series II | | | (2,696,745 | ) | | | (38,074,397 | ) | | | (2,959,998 | ) | | | (37,874,765 | ) |
Net increase (decrease) in share activity | | | 765,668 | | | $ | 10,570,451 | | | | (1,712,343 | ) | | $ | (23,147,353 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 67% 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 Fund 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. American Value Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 12.81 | | | $ | 0.12 | | | $ | 2.08 | | | $ | 2.20 | | | $ | (0.10 | ) | | $ | — | | | $ | (0.10 | ) | | $ | 14.91 | | | | 17.21 | % | | $ | 131,233 | | | | 0.99 | %(d) | | | 1.00 | %(d) | | | 0.86 | %(d) | | | 26 | % |
Year ended 12/31/11 | | | 12.79 | | | | 0.10 | | | | 0.01 | | | | 0.11 | | | | (0.09 | ) | | | — | | | | (0.09 | ) | | | 12.81 | | | | 1.00 | | | | 129,658 | | | | 0.96 | | | | 0.97 | | | | 0.80 | | | | 30 | |
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 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 12.74 | | | | 0.10 | | | | 2.06 | | | | 2.16 | | | | (0.09 | ) | | | — | | | | (0.09 | ) | | | 14.81 | | | | 16.98 | | | | 220,711 | | | | 1.17 | (d) | | | 1.25 | (d) | | | 0.68 | (d) | | | 26 | |
Year ended 12/31/11 | | | 12.72 | | | | 0.09 | | | | 0.01 | | | | 0.10 | | | | (0.08 | ) | | | — | | | | (0.08 | ) | | | 12.74 | | | | 0.91 | | | | 163,194 | | | | 1.06 | | | | 1.22 | | | | 0.70 | | | | 30 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s omitted) of $133,903 and $194,342 for Series I and Series II shares, respectively. |
NOTE 12—Subsequent Event
Effective May 1, 2013, the Fund will change its name to Invesco V.I. American Value Fund.
Invesco Van Kampen V.I. American Value Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. American Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. American Value Fund, (formerly known as Invesco Van Kampen V.I. Mid Cap Value Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco Van Kampen V.I. American Value Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
| Series I | | $ | 1,000.00 | | | $ | 1,071.00 | | | $ | 5.15 | | | $ | 1,020.16 | | | $ | 5.03 | | | | 0.99 | % |
| Series II | | | 1,000.00 | | | | 1,069.10 | | | | 6.45 | | | | 1,018.90 | | | | 6.29 | | | | 1.24 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. American Value Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. American Value Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. American Value Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. American Value Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. American Value Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. American Value Fund
Invesco Van Kampen V.I. Comstock Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. Comstock Fund outperformed its style-specific benchmark, the Russell 1000 Value Index. Stock selection was the main driver of outperformance for the reporting period as portfolio construction is based solely on bottom-up stock selection.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 19.23 | % |
| Series II Shares | | | | 18.92 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 1000 Value Index¡ (Style-Specific Index) | | | | 17.51 | |
| Lipper VUF Large-Cap Value Funds Index¿ (Peer Group Index) | | | | 15.92 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.;
¡Invesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
How we invest
Our strategy aims to capitalize on market inefficiencies by investing in companies that appear undervalued relative to the market. Ultimately, we believe the market will recognize the value in these companies and we will sell them as the stock prices begin to reflect their intrinsic value. We feel that stock selection, as opposed to making sector bets, may provide a more consistent opportunity for success. In addition, investors may take advantage of pricing anomalies by purchasing undervalued stocks before a recognizable catalyst arises.
The Fund’s investable universe includes all large-cap US dollar-denominated equities. To distill these investments, we first filter for companies with sufficient liquidity. We filter the remaining securities on valuation metrics depending on the growth or cyclical nature of their business. The result of this filtering process is a pool of highly liquid securities that we believe are statistically inexpensive relative to the broader market. Companies identified in the filtering process are thoroughly analyzed to assess intrinsic value and their ability to achieve fair value.
We will initiate a purchase of a security only if we believe the potential for stock
price appreciation outweighs potential downside risk. To be eligible for inclusion in the Fund, a stock must meet the following criteria:
| n | | It is statistically cheap on the basis of its primary valuation criteria, which depends on the cyclical or growth nature of its business. |
| n | | Rigorous fundamental analysis shows that the company is undervalued and possesses potential financial strength and improved quality of management for potential future growth. |
Portfolio construction is bottom-up and stock-specific, concentrating on individual company fundamental analysis and valuations. Therefore, while we monitor and are aware of our positions relative to the Russell 1000 Value Index, it does not play a major role in the construction of the Fund.
We seek to manage risk with portfolio construction, mainly through diversification across most major sectors, and through the assistance of an independent quantitative risk control group. Risk management is continual. The Fund is regularly reviewed to ensure it is optimally constructed on a risk/reward basis.
Our sell discipline is just as important as the buy decision and is based on the same principles: relative value and fundamentals.
While no sale is automatic, a security is typically sold if it meets one or more of the following criteria:
| n | | We believe the target price has been realized, and we no longer consider the company undervalued. |
| n | | We determine that a better value opportunity can be found elsewhere. |
| n | | Our research shows that a company is experiencing deteriorating fundamentals beyond what we feel to be a tolerable level and the trend is likely to be a long-term issue. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets. This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and
| | | | | |
| Portfolio Composition | | |
| By Sector | | | | | |
| | | | | |
| Financials | | | | 23.9 | % |
| Consumer Discretionary | | | | 16.3 | |
| Health Care | | | | 14.4 | |
| Energy | | | | 13.8 | |
| Information Technology | | | | 10.0 | |
| Industrials | | | | 6.2 | |
| Consumer Staples | | | | 6.1 | |
| Materials | | | | 2.9 | |
| Telecommunication Services | | | | 2.3 | |
| Utilities | | | | 2.3 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 1.8 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| |
1. Citigroup Inc. | | | | 3.9 | % |
2. JPMorgan Chase & Co. | | | | 3.3 | |
3. Time Warner Cable Inc. | | | | 2.4 | |
4. Pfizer Inc. | | | | 2.4 | |
5. Comcast Corp.-Class A | | | | 2.4 | |
6. Allstate Corp. (The) | | | | 2.4 | |
7. Microsoft Corp. | | | | 2.3 | |
8. BP PLC-ADR | | | | 2.2 | |
9. Bank of New York Mellon Corp. (The) | | | | 2.2 | |
10. Wells Fargo & Co. | | | | 2.2 | |
| | | | | |
| Total Net Assets | | | | $1.9 billion | |
| |
| Total Number of Holdings* | | | | 73 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco Van Kampen V.I. Comstock Fund
Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
All sectors of the Russell 1000 Value Index were positive for the period, with many sectors providing double digit returns.1
On the positive side, a significant overweight position and strong stock selection in the consumer discretionary sector was one of the largest contributors to Fund performance. The Fund’s main consumer discretionary exposure was in the media industry with holdings such as Comcast, Time Warner Cable and News Corp. contributing the most within this industry. Comcast, a top cable provider that is well positioned to take advantage of secular changes in broadband and content delivery, exhibited significant free cash flow generation, enabling the company to return capital to investors through buying back company stock at attractive valuations. Strong stock selection in the financials sector contributed to performance. Allstate, Citigroup and Bank of New York Mellon were the top performers within this sector, posting strong returns for the reporting period. Citigroup traded at attractive valuations, despite strong performance over the reporting period and a strong capital and reserve position. Stock selection in the industrials sector enhanced performance as well. Textron was a clear contributor, posting a return of more than 30% for the reporting period. Having material underweight exposure to utilities also boosted relative performance for the reporting period, as this was the worst performing sector in the Russell 1000 Value Index for the reporting period. The Fund has long been underweight utilities, as valuations have not been attractive. This was due to investors’ desire for yield which drove up stock prices in this sector. Stock selection in the consumer staples sector also helped performance, as did strong stock selection in the materials sector. Notably, International Paper boosted performance on both an absolute and relative basis, as the company successfully implemented price increases and experienced continued revenue growth throughout the reporting period.
On the negative side, unfavorable stock selection in the energy sector detracted from performance. Select holdings such as Weatherford International, Royal Dutch Shell and Halliburton were large detractors within the sector. Weatherford International continued to deal with an unfavorable drilling and service environment, as well as worked through issues with internal accounting controls. Weak
stock selection in the health care sector, particularly in pharmaceuticals, also was a large detractor from relative performance for the year. Specifically, Bristol-Myers Squibb and GlaxoSmithKline were poor performers for the reporting period. Material overweight exposure to and stock selection in the information technology (IT) sector hampered performance as well. Hewlett-Packard and Microsoft were large detractors within this sector. Investors continued to be concerned with Hewlett-Packard’s changes in management and the resulting inconsistent strategic plans. Stock selection and an underweight position to the telecommunication services sector detracted from relative performance. Vodafone Group disappointed investors with a negative return for the year based on poor financials. Not owning Sprint Nextel hindered the Fund’s relative performance, as the stock returned more than 140% for the year.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the Fund. Derivatives were used primarily for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a slight negative impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
During the year, we trimmed select holdings in IT services, insurance, media and consumer staples based on valuations. Toward the end of the reporting period, we added select holdings in IT equipment and energy to the Fund on weakness and initiated positions in a food and beverage company, an oil and gas exploration and production company and a consumer durables company.
As value managers, we believe the very low earnings expectations that characterize most holdings in the portfolio, combined with historically attractive valuations, could potentially provide downside protection in a volatile equity market. Although recent market volatility has created challenges, it also has created investment opportunities as companies have become more attractively valued.
Thank you for your investment in Invesco Van Kampen V.I. Comstock Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular
security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Kevin Holt Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen V.I. |
| Comstock Fund. He joined Invesco in 2010. Mr. Holt earned a bachelor’s degree from the University of Iowa and an MBA from the University of Chicago Booth School of Business. |
| | |
 | | Devin Armstrong Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Comstock Fund. |
| He joined Invesco in 2010. Mr. Armstrong earned a BS in psychology and finance from the University of Illinois and an MBA in finance from Columbia University. |
| | |
 | | Jason Leder Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Comstock Fund. |
| He joined Invesco in 2010. Mr. Leder earned a bachelor’s degree from The University of Texas at Austin and an MBA from Columbia University. |
| | |
 | | Matthew Seinsheimer Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Comstock Fund. |
| He joined Invesco in 1998. Mr. Seinsheimer earned a BBA from Southern Methodist University and an MBA from The University of Texas at Austin. |
| | |
 | | James (Jay) Warwick Portfolio manager, is manager of Invesco Van Kampen V.I. Comstock Fund. He joined Invesco in 2010. |
| Mr. Warwick earned a BBA from Stephen F. Austin State University and an MBA from the University of Houston. |
Invesco Van Kampen V.I. Comstock Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| | | | | |
| Series I Shares | | | | | |
| Inception (4/30/99) | | | | 5.17 | % |
| 10 Years | | | | 7.51 | |
| 5 Years | | | | 2.37 | |
| 1 Year | | | | 19.23 | |
| |
| Series II Shares | | | | | |
| Inception (9/18/00) | | | | 5.11 | % |
| 10 Years | | | | 7.24 | |
| 5 Years | | | | 2.12 | |
| 1 Year | | | | 18.92 | |
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 0.72% and 0.97%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.80% and 1.05%, 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 April 30, 2013. See current prospectus for more information. |
Invesco Van Kampen V.I. Comstock Fund
Invesco Van Kampen V.I. Comstock 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.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Investments in equity securities generally are affected by changes in the stock markets which fluctuate substantially over time, sometimes suddenly and sharply. The ability of the Fund’s investment holdings to generate income depends on the earnings and the continuing declaration of dividends by the issuers of such securities. The value of a convertible security tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying equity security.
Small- and medium-sized companies risk. During an overall stock market decline, stock prices of small- or medium-sized companies often fluctuate more than stock prices of larger companies or the market averages in general. In addition, such companies typically are subject to a greater degree of change in earnings and business prospects than are larger companies and may be less liquid than larger-sized companies. In addition, small- and medium-sized companies may have more limited markets, financial resources and product lines, and may lack the depth of management of larger companies.
Value investing. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than the returns on other styles of investing or the overall stock markets.
Foreign risks. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in securities regulation and trading, and foreign taxation issues.
Investing in real estate investment trusts (REITs) risks. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in
general and may involve duplication of management fees and certain other expenses. In addition, REITs depend upon specialized management skills, may be less diversified, may have lower trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives. Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. Comstock Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–98.23% | |
| Aerospace & Defense–1.36% | |
Honeywell International Inc. | | | 217,464 | | | $ | 13,802,440 | |
Textron Inc. | | | 477,670 | | | | 11,841,439 | |
| | | | | | | | 25,643,879 | |
|
| Agricultural Products–0.67% | |
Archer-Daniels-Midland Co. | | | 461,326 | | | | 12,635,719 | |
|
| Aluminum–1.08% | |
Alcoa Inc. | | | 2,352,002 | | | | 20,415,377 | |
|
| Asset Management & Custody Banks–2.77% | |
Bank of New York Mellon Corp. (The) | | | 1,629,517 | | | | 41,878,587 | |
State Street Corp. | | | 224,160 | | | | 10,537,761 | |
| | | | | | | | 52,416,348 | |
|
| Automobile Manufacturers–2.04% | |
General Motors Co.(b) | | | 1,339,231 | | | | 38,610,030 | |
|
| Cable & Satellite–4.84% | |
Comcast Corp.–Class A | | | 1,219,541 | | | | 45,586,442 | |
Time Warner Cable Inc. | | | 473,640 | | | | 46,033,072 | |
| | | | | | | | 91,619,514 | |
|
| Communications Equipment–1.10% | |
Cisco Systems, Inc. | | | 1,056,399 | | | | 20,758,240 | |
|
| Computer Hardware–1.51% | |
Hewlett-Packard Co. | | | 1,999,643 | | | | 28,494,913 | |
|
| Department Stores–0.49% | |
Kohl’s Corp. | | | 216,386 | | | | 9,300,270 | |
|
| Diversified Banks–2.79% | |
U.S. Bancorp | | | 369,411 | | | | 11,798,987 | |
Wells Fargo & Co. | | | 1,200,992 | | | | 41,049,907 | |
| | | | | | | | 52,848,894 | |
|
| Drug Retail–1.65% | |
CVS Caremark Corp. | | | 646,003 | | | | 31,234,245 | |
|
| Electric Utilities–2.26% | |
FirstEnergy Corp. | | | 365,022 | | | | 15,243,318 | |
PPL Corp. | | | 963,971 | | | | 27,598,490 | |
| | | | | | | | 42,841,808 | |
|
| Electrical Components & Equipment–1.22% | |
Emerson Electric Co. | | | 435,901 | | | | 23,085,317 | |
|
| Electronic Components–1.25% | |
Corning Inc. | | | 1,874,608 | | | | 23,657,553 | |
|
| General Merchandise Stores–0.82% | |
Target Corp. | | | 263,649 | | | | 15,600,111 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Health Care Distributors–0.84% | |
Cardinal Health, Inc. | | | 385,779 | | | $ | 15,886,379 | |
|
| Home Improvement Retail–1.27% | |
Lowe’s Cos., Inc. | | | 674,512 | | | | 23,958,666 | |
|
| Hotels, Resorts & Cruise Lines–0.96% | |
Carnival Corp. | | | 494,534 | | | | 18,184,015 | |
|
| Household Products–0.35% | |
Procter & Gamble Co. (The) | | | 98,337 | | | | 6,676,099 | |
|
| Housewares & Specialties–0.47% | |
Newell Rubbermaid Inc. | | | 402,243 | | | | 8,957,952 | |
|
| Hypermarkets & Super Centers–0.29% | |
Wal-Mart Stores, Inc. | | | 81,501 | | | | 5,560,813 | |
|
| Industrial Conglomerates–2.08% | |
General Electric Co. | | | 1,876,144 | | | | 39,380,263 | |
|
| Industrial Machinery–1.50% | |
Ingersoll-Rand PLC | | | 590,087 | | | | 28,300,573 | |
|
| Integrated Oil & Gas–8.09% | |
BP PLC–ADR (United Kingdom) | | | 1,011,799 | | | | 42,131,310 | |
Chevron Corp. | | | 245,685 | | | | 26,568,376 | |
Murphy Oil Corp. | | | 524,732 | | | | 31,247,791 | |
Occidental Petroleum Corp. | | | 258,042 | | | | 19,768,598 | |
Royal Dutch Shell PLC–ADR (United Kingdom) | | | 482,848 | | | | 33,292,369 | |
| | | | | | | | 153,008,444 | |
|
| Integrated Telecommunication Services–1.49% | |
AT&T Inc. | | | 301,968 | | | | 10,179,342 | |
Verizon Communications Inc. | | | 415,201 | | | | 17,965,747 | |
| | | | | | | | 28,145,089 | |
|
| Internet Software & Services–3.32% | |
eBay Inc.(b) | | | 606,130 | | | | 30,924,753 | |
Yahoo! Inc.(b) | | | 1,597,508 | | | | 31,790,409 | |
| | | | | | | | 62,715,162 | |
|
| Investment Banking & Brokerage–2.08% | |
Goldman Sachs Group, Inc. (The) | | | 152,601 | | | | 19,465,783 | |
Morgan Stanley | | | 1,035,730 | | | | 19,803,158 | |
| | | | | | | | 39,268,941 | |
|
| Life & Health Insurance–1.50% | |
Aflac, Inc. | | | 150,020 | | | | 7,969,062 | |
MetLife, Inc. | | | 620,582 | | | | 20,441,971 | |
| | | | | | | | 28,411,033 | |
|
| Managed Health Care–2.91% | |
UnitedHealth Group Inc. | | | 654,201 | | | | 35,483,862 | |
WellPoint, Inc. | | | 321,776 | | | | 19,602,594 | |
| | | | | | | | 55,086,456 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Movies & Entertainment–4.80% | |
News Corp.–Class B | | | 1,209,019 | | | $ | 31,724,659 | |
Time Warner Inc. | | | 378,370 | | | | 18,097,437 | |
Viacom Inc.–Class B | | | 777,119 | | | | 40,985,256 | |
| | | | | | | | 90,807,352 | |
|
| Oil & Gas Drilling–0.51% | |
Noble Corp. | | | 277,590 | | | | 9,665,684 | |
|
| Oil & Gas Equipment & Services–3.97% | |
Halliburton Co. | | | 1,080,486 | | | | 37,482,059 | |
Weatherford International Ltd.(b) | | | 3,356,703 | | | | 37,561,507 | |
| | | | | | | | 75,043,566 | |
|
| Oil & Gas Exploration & Production–1.27% | |
QEP Resources Inc. | | | 790,728 | | | | 23,935,337 | |
|
| Other Diversified Financial Services–8.80% | |
Bank of America Corp. | | | 2,669,707 | | | | 30,968,601 | |
Citigroup Inc. | | | 1,857,531 | | | | 73,483,926 | |
JPMorgan Chase & Co. | | | 1,408,113 | | | | 61,914,729 | |
| | | | | | | | 166,367,256 | |
|
| Packaged Foods & Meats–3.12% | |
Kraft Foods Group, Inc. | | | 185,482 | | | | 8,433,867 | |
Mondelez International Inc.–Class A | | | 657,533 | | | | 16,747,365 | |
Tyson Foods, Inc.–Class A | | | 548,654 | | | | 10,643,888 | |
Unilever N.V.–New York Shares (Netherlands) | | | 605,054 | | | | 23,173,568 | |
| | | | | | | | 58,998,688 | |
|
| Paper Products–1.87% | |
International Paper Co. | | | 889,489 | | | | 35,437,242 | |
|
| Pharmaceuticals–10.61% | |
Bristol-Myers Squibb Co. | | | 1,037,607 | | | | 33,815,612 | |
GlaxoSmithKline PLC–ADR (United Kingdom) | | | 446,451 | | | | 19,407,225 | |
Merck & Co., Inc. | | | 928,011 | | | | 37,992,771 | |
Novartis AG (Switzerland) | | | 313,297 | | | | 19,816,891 | |
Pfizer Inc. | | | 1,822,196 | | | | 45,700,676 | |
Roche Holding AG–ADR (Switzerland) | | | 334,273 | | | | 16,798,555 | |
Sanofi–ADR (France) | | | 575,121 | | | | 27,249,233 | |
| | | | | | | | 200,780,963 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Property & Casualty Insurance–3.55% | |
Allstate Corp. (The) | | | 1,111,845 | | | $ | 44,662,814 | |
Travelers Cos., Inc. (The) | | | 312,406 | | | | 22,436,999 | |
| | | | | | | | 67,099,813 | |
|
| Regional Banks–2.47% | |
Fifth Third Bancorp | | | 1,293,411 | | | | 19,646,913 | |
PNC Financial Services Group, Inc. | | | 463,826 | | | | 27,045,694 | |
| | | | | | | | 46,692,607 | |
|
| Semiconductors–0.56% | |
Intel Corp. | | | 517,590 | | | | 10,677,882 | |
|
| Specialty Stores–0.60% | |
Staples, Inc. | | | 993,007 | | | | 11,320,280 | |
|
| Systems Software–2.26% | |
Microsoft Corp. | | | 1,600,395 | | | | 42,778,558 | |
|
| Wireless Telecommunication Services–0.84% | |
Vodafone Group PLC–ADR (United Kingdom) | | | 629,429 | | | | 15,855,317 | |
Total Common Stocks & Other Equity Interests (Cost $1,820,627,499) | | | | 1,858,162,648 | |
|
Money Market Funds–2.20% | |
Liquid Assets Portfolio–Institutional Class(c) | | | 20,825,017 | | | | 20,825,017 | |
Premier Portfolio–Institutional Class(c) | | | 20,825,017 | | | | 20,825,017 | |
Total Money Market Funds
(Cost $41,650,034) | | | | 41,650,034 | |
TOTAL INVESTMENTS–100.43% (Cost $1,862,277,533) | | | | 1,899,812,682 | |
OTHER ASSETS LESS LIABILITIES–(0.43)% | | | | (8,191,156 | ) |
NET ASSETS–100.00% | | | $ | 1,891,621,526 | |
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 Van Kampen V.I. Comstock Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $1,820,627,499) | | $ | 1,858,162,648 | |
Investments in affiliated money market funds, at value and cost | | | 41,650,034 | |
Total investments, at value (Cost $1,862,277,533) | | | 1,899,812,682 | |
Foreign currencies, at value (Cost $156) | | | 156 | |
Receivable for: | | | | |
Fund shares sold | | | 420,156 | |
Dividends | | | 2,813,207 | |
Fund expenses absorbed | | | 39,350 | |
Investment for trustee deferred compensation and retirement plans | | | 31,182 | |
Total assets | | | 1,903,116,733 | |
|
Liabilities: | |
Payable for: | | | | |
Investments purchased | | | 1,145,513 | |
Fund shares reacquired | | | 4,984,465 | |
Foreign currency contracts outstanding | | | 3,007,797 | |
Accrued fees to affiliates | | | 2,164,177 | |
Accrued other operating expenses | | | 64,313 | |
Trustee deferred compensation and retirement plans | | | 128,942 | |
Total liabilities | | | 11,495,207 | |
Net assets applicable to shares outstanding | | $ | 1,891,621,526 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 2,240,296,547 | |
Undistributed net investment income | | | 30,140,492 | |
Undistributed net realized gain (loss) | | | (413,342,865 | ) |
Unrealized appreciation | | | 34,527,352 | |
| | | $ | 1,891,621,526 | |
|
Net Assets: | |
Series I | | $ | 250,994,637 | |
Series II | | $ | 1,640,626,889 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 18,919,240 | |
Series II | | | 124,130,617 | |
Series I: | | | | |
Net asset value per share | | $ | 13.27 | |
Series II: | | | | |
Net asset value per share | | $ | 13.22 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $781,347) | | $ | 46,509,359 | |
Dividends from affiliated money market funds | | | 60,608 | |
Total investment income | | | 46,569,967 | |
| |
Expenses: | | | | |
Advisory fees | | | 10,590,418 | |
Administrative services fees | | | 4,904,498 | |
Custodian fees | | | 64,569 | |
Distribution fees — Series II | | | 4,051,194 | |
Transfer agent fees | | | 34,691 | |
Trustees’ and officers’ fees and benefits | | | 91,774 | |
Other | | | 223,431 | |
Total expenses | | | 19,960,575 | |
Less: Fees waived | | | (3,373,382 | ) |
Net expenses | | | 16,587,193 | |
Net investment income | | | 29,982,774 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $480,072) | | | 78,379,095 | |
Foreign currencies | | | 212,526 | |
Foreign currency contracts | | | (3,326,771 | ) |
| | | | 75,264,850 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 222,920,350 | |
Foreign currency contracts | | | (3,007,797 | ) |
| | | | 219,912,553 | |
Net realized and unrealized gain | | | 295,177,403 | |
Net increase in net assets resulting from operations | | $ | 325,160,177 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | |
Net investment income | | $ | 29,982,774 | | | $ | 28,501,215 | |
Net realized gain | | | 75,264,850 | | | | 77,412,661 | |
Change in net unrealized appreciation (depreciation) | | | 219,912,553 | | | | (142,304,555 | ) |
Net increase (decrease) in net assets resulting from operations | | | 325,160,177 | | | | (36,390,679 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (4,448,545 | ) | | | (4,436,682 | ) |
Series ll | | | (24,222,015 | ) | | | (21,508,918 | ) |
Total distributions from net investment income | | | (28,670,560 | ) | | | (25,945,600 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (53,247,968 | ) | | | 51,382,742 | |
Series ll | | | (142,005,504 | ) | | | (86,766,882 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (195,253,472 | ) | | | (35,384,140 | ) |
Net increase (decrease) in net assets | | | 101,236,145 | | | | (97,720,419 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,790,385,381 | | | | 1,888,105,800 | |
End of year (includes undistributed net investment income of $30,140,492 and $28,583,510, respectively) | | $ | 1,891,621,526 | | | $ | 1,790,385,381 | |
Notes to Financial Statements
December 31, 2012
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-five 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.
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco Van Kampen V.I. Comstock Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
| E. | 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. |
| 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. Comstock 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 the 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 $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. (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).
Effective July 1, 2012, the Adviser has contractually agreed, through April 30, 2013, 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 0.72% and Series II shares to 0.97% of average daily net assets. Prior to July 1, 2012, 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 waivers 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $3,373,382.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $401,896 for accounting and fund administrative services and reimbursed $4,502,602 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 1,863,197,236 | | | $ | 36,615,446 | | | $ | — | | | $ | 1,899,812,682 | |
Foreign Currency Contracts* | | | — | | | | (3,007,797 | ) | | | — | | | | (3,007,797 | ) |
Total Investments | | $ | 1,863,197,236 | | | $ | 33,607,649 | | | $ | — | | | $ | 1,896,804,885 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign Currency Contracts(a) | | $ | 254,735 | | | $ | (3,262,532 | ) |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign Currency Contracts outstanding. |
Effect of Derivative Instruments for the year ended December 31, 2012
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 | | $ | (3,326,771 | ) |
Change in Unrealized Appreciation (Depreciation) | | | | |
Currency risk | | | (3,007,797 | ) |
Total | | $ | (6,334,568 | ) |
| * | The average notional value of foreign currency contracts outstanding during the period was $62,734,719, respectively. |
Invesco Van Kampen V.I. Comstock Fund
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts at Period-End | |
Settlement
Date | | Counterparty | | Contract to | | | Notional
Value | | | Unrealized
Appreciation | |
| | | Deliver | | | Receive | | | |
1/15/13 | | State Street | | | USD | | | | 1,690,392 | | | | CHF | | | | 1,575,455 | | | $ | 1,721,334 | | | $ | 30,942 | |
1/15/13 | | Bank of New York | | | USD | | | | 6,715,384 | | | | EUR | | | | 5,204,514 | | | | 6,867,900 | | | | 152,516 | |
1/15/13 | | State Street | | | USD | | | | 4,387,630 | | | | GBP | | | | 2,744,272 | | | | 4,458,907 | | | | 71,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | $ | 254,735 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Settlement
Date | | Counterparty | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | | Deliver | | | Receive | | | |
1/15/13 | | Citibank Capital | | | CHF | | | | 8,742,462 | | | | USD | | | | 9,394,032 | | | $ | 9,551,967 | | | $ | (157,935 | ) |
1/15/13 | | Bank of New York | | | CHF | | | | 8,722,130 | | | | USD | | | | 9,372,185 | | | | 9,529,753 | | | | (157,568 | ) |
1/15/13 | | State Street | | | CHF | | | | 12,210,986 | | | | USD | | | | 13,121,133 | | | | 13,341,658 | | | | (220,525 | ) |
1/15/13 | | Bank of New York | | | EUR | | | | 12,064,530 | | | | USD | | | | 15,597,447 | | | | 15,920,408 | | | | (322,961 | ) |
1/15/13 | | State Street | | | EUR | | | | 17,685,728 | | | | USD | | | | 22,866,496 | | | | 23,338,165 | | | | (471,669 | ) |
1/15/13 | | Citibank Capital | | | EUR | | | | 16,843,543 | | | | USD | | | | 21,777,606 | | | | 22,226,815 | | | | (449,209 | ) |
1/15/13 | | CIBC World Markets | | | EUR | | | | 15,038,881 | | | | USD | | | | 19,441,378 | | | | 19,845,375 | | | | (403,997 | ) |
1/15/13 | | CIBC World Markets | | | GBP | | | | 16,073,670 | | | | USD | | | | 25,723,899 | | | | 26,116,579 | | | | (392,680 | ) |
1/15/13 | | Bank of New York | | | GBP | | | | 11,825,065 | | | | USD | | | | 18,925,721 | | | | 19,213,425 | | | | (287,704 | ) |
1/15/13 | | Citibank Capital | | | GBP | | | | 8,334,495 | | | | USD | | | | 13,340,168 | | | | 13,541,929 | | | | (201,761 | ) |
1/15/13 | | State Street | | | GBP | | | | 8,096,365 | | | | USD | | | | 12,958,491 | | | | 13,155,014 | | | | (196,523 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | $ | (3,262,532 | ) |
Total open foreign currency contracts | | | | | | | | | | | $ | (3,007,797 | ) |
Currency Abbreviations:
| | |
| CHF | | – Swiss Franc |
| GBP | | – British Pound Sterling |
| | |
| EUR | | – Euro |
| USD | | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2012, the Fund engaged in securities purchases of $417,255 and securities sales of $2,496,704, which resulted in net realized gains of $480,072.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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. Comstock Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 28,670,560 | | | $ | 25,945,600 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 30,229,073 | |
Net unrealized appreciation — investments | | | 34,914,105 | |
Temporary book/tax differences | | | (88,581 | ) |
Capital loss carryforward | | | (413,729,618 | ) |
Shares of beneficial interest | | | 2,240,296,547 | |
Total net assets | | $ | 1,891,621,526 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $69,383,788 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 72,631,788 | | | $ | — | | | $ | 72,631,788 | |
December 31, 2017 | | | 341,097,830 | | | | — | | | | 341,097,830 | |
| | | $ | 413,729,618 | | | $ | — | | | $ | 413,729,618 | |
| * | 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. Value Fund into the Fund, are 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 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $265,144,915 and $450,741,192, 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 | | $ | 237,533,475 | |
Aggregate unrealized (depreciation) of investment securities | | | (202,619,370 | ) |
Net unrealized appreciation of investment securities | | $ | 34,914,105 | |
Cost of investments for tax purposes is $1,864,898,577.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2012, undistributed net investment income was increased by $244,768 and undistributed net realized gain (loss) was decreased by $244,768. This reclassification had no effect on the net assets of the Fund.
Invesco Van Kampen V.I. Comstock Fund
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 402,978 | | | $ | 5,045,720 | | | | 6,303,011 | | | $ | 74,837,879 | |
Series II | | | 8,047,364 | | | | 99,973,148 | | | | 10,321,141 | | | | 116,328,044 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 342,459 | | | | 4,448,545 | | | | 363,662 | | | | 4,436,682 | |
Series II | | | 1,870,411 | | | | 24,221,820 | | | | 1,767,372 | | | | 21,508,918 | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 2,033,402 | | | | 25,661,404 | |
Series II | | | — | | | | — | | | | 1,023 | | | | 12,889 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (4,996,146 | ) | | | (62,742,233 | ) | | | (4,604,342 | ) | | | (53,553,223 | ) |
Series II | | | (21,242,957 | ) | | | (266,200,472 | ) | | | (19,330,648 | ) | | | (224,616,733 | ) |
Net increase (decrease) in share activity | | | (15,575,891 | ) | | $ | (195,253,472 | ) | | | (3,145,379 | ) | | $ | (35,384,140 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 67% 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 Fund 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. Value Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target 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 the Target Fund as of the close of business on April 29, 2011. Class I and Class II shares of the Target Fund were exchanged for Series I and Series II shares of the Fund, respectively, based on the relative net asset value of the Target Fund to the net asset value of the Fund at the close of business on April 29, 2011. The Target Fund’s net assets at that date of $25,674,293, including $4,451,624 of unrealized appreciation, were 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. |
| | The pro forma results of the operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
| | | | |
Net investment income | | $ | 28,597,812 | |
Net realized/unrealized gains (losses) | | | (62,664,518 | ) |
Change in net assets resulting from operations | | $ | (34,066,706 | ) |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. Comstock Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(b) | |
Series I(c) | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 11.32 | | | $ | 0.23 | | | $ | 1.94 | | | $ | 2.17 | | | $ | (0.22 | ) | | $ | — | | | $ | (0.22 | ) | | $ | 13.27 | | | | 19.23 | %(d) | | $ | 250,995 | | | | 0.67 | %(e) | | | 0.85 | %(e) | | | 1.81 | %(e) | | | 14 | % |
Year ended 12/31/11 | | | 11.71 | | | | 0.20 | | | | (0.40 | ) | | | (0.20 | ) | | | (0.19 | ) | | | — | | | | (0.19 | ) | | | 11.32 | | | | (1.84 | )(d) | | | 262,319 | | | | 0.62 | | | | 0.80 | | | | 1.75 | | | | 24 | |
Year ended 12/31/10 | | | 10.11 | | | | 0.17 | | | | 1.44 | | | | 1.61 | | | | (0.01 | ) | | | (0.00 | ) | | | (0.01 | ) | | | 11.71 | | | | 15.98 | (d) | | | 223,354 | | | | 0.61 | | | | 0.73 | | | | 1.58 | | | | 21 | |
Year ended 12/31/09 | | | 8.25 | | | | 0.16 | | | | 2.12 | | | | 2.28 | | | | (0.42 | ) | | | (0.00 | ) | | | (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 | |
Series II(c) | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 11.28 | | | | 0.19 | | | | 1.94 | | | | 2.13 | | | | (0.19 | ) | | | — | | | | (0.19 | ) | | | 13.22 | | | | 18.92 | (d) | | | 1,640,627 | | | | 0.92 | (e) | | | 1.10 | (e) | | | 1.56 | (e) | | | 14 | |
Year ended 12/31/11 | | | 11.67 | | | | 0.17 | | | | (0.40 | ) | | | (0.23 | ) | | | (0.16 | ) | | | — | | | | (0.16 | ) | | | 11.28 | | | | (2.11 | )(d) | | | 1,528,067 | | | | 0.87 | | | | 1.05 | | | | 1.50 | | | | 24 | |
Year ended 12/31/10 | | | 10.10 | | | | 0.14 | | | | 1.44 | | | | 1.58 | | | | (0.01 | ) | | | (0.00 | ) | | | (0.01 | ) | | | 11.67 | | | | 15.70 | (d) | | | 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 | ) | | | (0.00 | ) | | | (0.37 | ) | | | 10.10 | | | | 28.41 | (f) | | | 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 | )(f) | | | 2,268,812 | | | | 0.85 | | | | 0.85 | | | | 2.13 | | | | 38 | |
| (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 December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $21,084,025 and sold of $6,434,519 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) | 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. |
| (d) | 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. |
| (e) | Ratios are based on average daily net assets (000’s) of $259,598 and $1,620,478 for Series I and Series II shares, respectively. |
| (f) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
NOTE 13—Subsequent Event
Effective May 1, 2013, the Fund will change its name to “Invesco V.I. Comstock Fund”.
Invesco Van Kampen V.I. Comstock Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. Comstock Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. Comstock Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period 2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,096.40 | | | $ | 3.78 | | | $ | 1,021.53 | | | $ | 3.64 | | | | 0.72 | % |
Series II | | | 1,000.00 | | | | 1,095.10 | | | | 5.09 | | | | 1,020.28 | | | | 4.91 | | | | 0.97 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Comstock Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. Comstock Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. Comstock Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. Comstock Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. Comstock Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. Comstock Fund
Invesco Van Kampen V.I. Equity and Income Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. Equity and Income Fund underperformed the Russell 1000 Value Index. As the Fund uses a bottom-up stock selection approach, stock selection in various sectors was the primary reason the Fund underperformed the Russell 1000 Value Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 12.58 | % |
| Series II Shares | | | | 12.39 | |
| Russell 1000 Value Index‚ (Style-Specific Index) | | | | 17.51 | |
| Barclays U.S. Government/Credit Indexn (Style-Specific Index) | | | | 4.82 | |
Source(s): ‚Invesco, Russell via FactSet Research Systems Inc.; nLipper Inc.
How we invest
We call our investment philosophy “value with a catalyst.” We believe undervalued companies that are experiencing positive changes (i.e., “catalysts”) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the undervaluation. Typical examples of catalysts include improved operational efficiency, changing industry dynamics and/or a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value to sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its competitive position and stability and meetings with its executives. During the research process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This
is also where we typically identify the positive catalyst, a prerequisite for potential investment. Finally, we set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to capitalize on negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. Then negative news from the eurozone precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these
weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains and all sectors of the Russell 1000 Value Index posted positive returns.1
Strong stock selection within the industrials sector was the largest relative contributor to performance versus the Russell 1000 Value Index. Ingersoll-Rand and General Electric (GE) were two top contributors within the sector, ben-efiting from late-cycle business. GE’s order growth increased on the industrial side due to demand for infrastructure upgrades. Ingersoll-Rand purchased heating and air conditioning company Trane in late 2007, and heating, ventilation and air conditioning upgrades in commercial and residential real estate have been a big boost to the company’s earnings.
Also, strong stock selection and an overweight position within the consumer discretionary sector provided a boost to relative performance. Specifically,
Comcast and Time Warner Cable were top contributors within the media group, as effective capital deployment through stock buybacks and/or dividend increases
| | | | | |
Portfolio Composition |
| By security type |
|
| Common Stocks & Other Equity | |
| Interests | | | | 64.1 | % |
| Bonds and Notes | | | | 17.7 | |
| US Treasury Securities | | | | 10.8 | |
| Preferred Stocks | | | | 1.5 | |
| US Government Sponsored Agency Securities | | | | 0.7 | |
| Money Market Funds Plus Other Assets Less Liabilities | | | | 5.2 | |
| | | | | |
| Top 10 Equity Holdings* |
| |
| 1. JPMorgan Chase & Co. | | | | 3.5 | % |
| 2. General Electric Co. | | | | 2.3 | |
| 3. Citigroup Inc. | | | | 1.9 | |
| 4. Marsh & McLennan Cos., Inc. | | | | 1.6 | |
| 5. Viacom Inc.-Class B | | | | 1.5 | |
| 6. Time Warner Cable Inc. | | | | 1.5 | |
| 7. Comcast Corp.-Class A | | | | 1.4 | |
| 8. Avon Products, Inc. | | | | 1.4 | |
| 9. eBay Inc. | | | | 1.4 | |
| 10. Merck & Co., Inc. | | | | 1.4 | |
| | | | | |
| Top Five Industries* |
| |
| 1. Other Diversified Financial Services | | | | 6.1 | % |
| 2. Pharmaceuticals | | | | 5.8 | |
| 3. Cable & Satellite | | | | 3.3 | |
| 4. Investment Banking & Brokerage | | | | 3.2 | |
| 5. Regional Banks | | | | 3.2 | |
| | | | | |
| Total Net Assets | | $1.0 billion |
| |
| Total Number of Holdings* | | | | 373 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
| * | Excluding money market fund holdings. |
Invesco Van Kampen V.I. Equity and Income Fund
was reflected in improved financials toward the end of the reporting period.
A material underweight position in utilities also contributed to Fund performance, since it was the worst-performing sector within the Russell 1000 Value Index.
Strong stock selection in the materials sector was another driver of relative performance versus the Russell 1000 Value Index. Notably, paint and glass company PPG Industries was a top contributor in this sector, since this company has seen increased demand from residential home improvement and commercial real estate.
Stock selection within the information technology sector also contributed to Fund performance, with eBay being a top contributor, as its PayPal line of business helped profits.
On the negative side, the Fund’s relatively high cash position was a large detractor from performance in a market experiencing double-digit returns. We are trying to find attractive risk/reward opportunities for the portfolio and will continue to actively seek opportunities for investing the excess cash.
Stock selection in the consumer staples sector was the largest detractor from Fund performance during the reporting period. Avon was a clear detractor within this sector. The stock price experienced double-digit losses due to perceived instability in management, as Avon found a replacement chief executive officer and investors were disappointed that Avon rejected an acquisition offer from Coty (not a Fund holding). We continued to review Avon to ensure it met our fundamental and valuation criteria as a holding in the Fund.
An underweight position and weak stock selection in the financials sector also detracted from performance. More specifically, lack of exposure to Bank of America was a large detractor within this sector because the stock posted returns of more than 100%.
Stock selection and an underweight in telecommunication stocks versus the Rus-sell 1000 Value Index also hurt the Fund’s relative performance. Vodafone was the main driver of underperformance in this sector, as this stock is not held in the Rus-sell 1000 Value Index and experienced negative returns for the reporting period.
Stock selection in the energy sector also negatively affected the Fund’s relative performance. More specifically, holdings in the oil and gas exploration and production and oil and gas equipment and services industries were the largest detractors, due to the price of oil declining over the reporting period. Notably, Royal Dutch Shell, Hess, Anadarko Petroleum and Baker Hughes performed poorly during the
year, with their stocks declining. Royal Dutch Shell and Hess are no longer held in the Fund.
The Fund’s fixed income allocation is designed such that its distribution across investment grade corporate bonds, US government agency debentures and US Treasury notes and bonds closely tracks the Barclays U.S. Government/Credit Index, while maintaining price sensitivity to changes in interest rates (“duration”) approximately 20% lower than the index’s duration. This portfolio design was sustained throughout the reporting period, and performed in line with expectations, providing a valuable source of portfolio income while helping dampen overall portfolio volatility. The fixed income allocation provided an absolute total return of more than 3% for the reporting period, but still detracted from relative performance versus the Russell 1000 Value Index, as bonds generally underperformed equities during the reporting period.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the Fund. Derivatives were used primarily for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a slight negative impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
Equity markets experienced continued volatility during the reporting period. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
Thank you for your investment in Invesco Van Kampen V.I. Equity and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Thomas Bastian Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen V.I. Equity and |
| Income Fund. He joined Invesco in 2010. Mr. Bastian earned a BA in accounting from St. John’s University and an MBA in finance from University of Michigan. |
| | |
 | | Chuck Burge Portfolio manager, is manager of Invesco Van Kampen V.I. Equity and Income Fund. He joined Invesco in 2002. |
| Mr. Burge earned a BS in economics from Texas A&M University and an MBA in finance and accounting from Rice University. |
| | |
 | | Mark Laskin Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Equity and Income Fund. |
| He joined Invesco in 2010. Mr. Laskin earned a BA in history from Swarthmore College. He also earned an MBA from the Wharton School and an MA from the Joseph H. Lauder Institute of Management and International Studies, both of the University of Pennsylvania. |
| | |
 | | Mary Jayne Maly Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Equity and Income Fund. |
| She joined Invesco in 2010. Ms. Maly earned a BA from the University of Pittsburgh and an MBA from the Thunderbird School of Global Management. |
| | |
 | | Sergio Marcheli Portfolio manager, is manager of Invesco Van Kampen V.I. Equity and Income Fund. He joined |
| Invesco in 2010. Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. |
| | |
 | | James Roeder Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Equity and Income Fund. |
| He joined Invesco in 2010. Mr. Roeder earned a BS in accounting from Clemson University and an MBA in economics and finance from the University of Chicago Booth School of Business. |
Invesco Van Kampen V.I. Equity and Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es) since Inception
Fund and index data from 4/30/03
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | |
| |
| Series I Shares | | | | | |
| Inception | | | | 7.02 | % |
| 5 Years | | | | 3.37 | |
| 1 Year | | | | 12.58 | |
| |
| Series II Shares | | | | | |
| Inception (4/30/03) | | | | 6.99 | % |
| 5 Years | | | | 3.31 | |
| 1 Year | | | | 12.39 | |
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 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 0.67% and 0.92%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Equity and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco Van Kampen V.I. Equity and Income Fund
Invesco Van Kampen V.I. Equity and Income Fund’s investment objective are both capital appreciation and current income.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. The securities of small- and medium-sized companies are subject to more abrupt or erratic market movements and may have lower trading volumes or more erratic trading than securities of larger companies or the market averages in general. Investments in debt securities generally are affected by changes in interest rates and the creditworthiness of the issuer. The prices of such securities tend to fall as interest rates rise, and such declines tend to be greater among securities with longer maturities. The value of a convertible security tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying equity security.
Income risk. The ability of the Fund’s equity securities to generate income generally depends on the earnings and the continuing declaration of dividends by the issuers of such securities. The interest income on debt securities generally is affected by prevailing interest rates, which can vary widely over the short- and long-term. If dividends are reduced or discontinued or interest rates drop, distributions to shareholders from the Fund may drop as well.
Call risk. If interest rates fall, it is possible that issuers of callable securities held by the Fund will call or prepay their securities before their maturity dates. In this event, the proceeds from the called securities would most likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders and termination of any conversion option on convertible securities.
Credit risk. Credit risk refers to an issuer’s ability to make timely payments of interest and principal. Because the Fund generally invests only in investment grade-quality debt securities, it is subject to a lower level of credit risk than a fund investing in lower-quality securities.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse
political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign risks. The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in finan-cial reporting, differences in securities regulation and trading, and foreign taxation issues. The Fund may also invest in issuers in developing or emerging market countries, which are subject to greater risks than investments in securities of issuers in developed countries.
Investing in real estate investment trusts (REITs) risks. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may be involve duplication of management fees and certain other expenses. In addition, REITs depend upon specialized management skills, may be less diversified, may have lower trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives. Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve
or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report 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 U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publically issued US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. Equity and Income Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–64.05% | |
| Agricultural Products–0.81% | |
Archer-Daniels-Midland Co. | | | 301,450 | | | $ | 8,256,715 | |
|
| Application Software–0.68% | |
Adobe Systems Inc.(b) | | | 184,618 | | | | 6,956,406 | |
|
| Asset Management & Custody Banks–1.39% | |
Northern Trust Corp. | | | 137,140 | | | | 6,878,942 | |
State Street Corp. | | | 153,958 | | | | 7,237,566 | |
| | | | | | | | 14,116,508 | |
|
| Biotechnology–0.99% | |
Amgen Inc. | | | 116,607 | | | | 10,065,516 | |
|
| Cable & Satellite–2.88% | |
Comcast Corp.–Class A | | | 383,414 | | | | 14,332,015 | |
Time Warner Cable Inc. | | | 153,415 | | | | 14,910,404 | |
| | | | | | | | 29,242,419 | |
|
| Department Stores–0.47% | |
Kohl’s Corp. | | | 111,866 | | | | 4,808,001 | |
|
| Diversified Banks–1.85% | |
Comerica Inc. | | | 200,504 | | | | 6,083,291 | |
U.S. Bancorp | | | 114,940 | | | | 3,671,184 | |
Wells Fargo & Co. | | | 265,501 | | | | 9,074,824 | |
| | | | | | | | 18,829,299 | |
|
| Diversified Chemicals–0.85% | |
PPG Industries, Inc. | | | 63,940 | | | | 8,654,279 | |
|
| Diversified Support Services–0.39% | |
Cintas Corp. | | | 97,124 | | | | 3,972,372 | |
|
| Drug Retail–0.42% | |
Walgreen Co. | | | 114,699 | | | | 4,245,010 | |
|
| Electric Utilities–1.64% | |
Edison International | | | 109,357 | | | | 4,941,843 | |
FirstEnergy Corp. | | | 114,394 | | | | 4,777,093 | |
Pinnacle West Capital Corp. | | | 136,927 | | | | 6,980,539 | |
| | | | | | | | 16,699,475 | |
|
| Food Distributors–0.81% | |
Sysco Corp. | | | 259,732 | | | | 8,223,115 | |
|
| Health Care Equipment–1.30% | |
Medtronic, Inc. | | | 321,268 | | | | 13,178,413 | |
|
| Home Improvement Retail–0.73% | |
Home Depot, Inc. (The) | | | 120,719 | | | | 7,466,470 | |
|
| Hotels, Resorts & Cruise Lines–0.64% | |
Carnival Corp. | | | 177,549 | | | | 6,528,477 | |
|
| Household Products–1.45% | |
Energizer Holdings, Inc. | | | 19,682 | | | | 1,574,166 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Household Products–(continued) | |
Procter & Gamble Co. (The) | | | 193,265 | | | $ | 13,120,761 | |
| | | | | | | | 14,694,927 | |
|
| Industrial Conglomerates–2.28% | |
General Electric Co. | | | 1,104,533 | | | | 23,184,148 | |
|
| Industrial Machinery–0.81% | |
Ingersoll-Rand PLC | | | 170,915 | | | | 8,197,083 | |
|
| Insurance Brokers–2.58% | |
Aon PLC | | | 111,500 | | | | 6,199,400 | |
Marsh & McLennan Cos., Inc. | | | 464,121 | | | | 15,998,251 | |
Willis Group Holdings PLC | | | 119,666 | | | | 4,012,401 | |
| | | | | | | | 26,210,052 | |
|
| Integrated Oil & Gas–2.72% | |
Chevron Corp. | | | 119,744 | | | | 12,949,116 | |
Exxon Mobil Corp. | | | 106,095 | | | | 9,182,522 | |
Occidental Petroleum Corp. | | | 71,972 | | | | 5,513,775 | |
| | | | | | | | 27,645,413 | |
|
| Integrated Telecommunication Services–0.60% | |
Verizon Communications Inc. | | | 142,014 | | | | 6,144,946 | |
|
| Internet Software & Services–1.38% | |
eBay Inc.(b) | | | 274,052 | | | | 13,982,133 | |
|
| Investment Banking & Brokerage–2.37% | |
Charles Schwab Corp. (The) | | | 566,109 | | | | 8,129,325 | |
Goldman Sachs Group, Inc. (The) | | | 41,145 | | | | 5,248,456 | |
Morgan Stanley | | | 561,838 | | | | 10,742,343 | |
| | | | | | | | 24,120,124 | |
|
| IT Consulting & Other Services–0.70% | |
Amdocs Ltd. | | | 208,906 | | | | 7,100,715 | |
|
| Managed Health Care–2.24% | |
Cigna Corp. | | | 129,578 | | | | 6,927,240 | |
UnitedHealth Group Inc. | | | 159,543 | | | | 8,653,612 | |
WellPoint, Inc. | | | 118,569 | | | | 7,223,224 | |
| | | | | | | | 22,804,076 | |
|
| Movies & Entertainment–2.25% | |
Time Warner Inc. | | | 153,038 | | | | 7,319,808 | |
Viacom Inc.–Class B | | | 294,083 | | | | 15,509,937 | |
| | | | | | | | 22,829,745 | |
|
| Oil & Gas Equipment & Services–1.38% | |
Baker Hughes Inc. | | | 180,343 | | | | 7,365,208 | |
Halliburton Co. | | | 192,243 | | | | 6,668,910 | |
| | | | | | | | 14,034,118 | |
|
| Oil & Gas Exploration & Production–2.46% | |
Anadarko Petroleum Corp. | | | 182,454 | | | | 13,558,156 | |
Canadian Natural Resources Ltd. (Canada) | | | 61,503 | | | | 1,774,399 | |
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 | |
| Oil & Gas Exploration & Production–(continued) | |
ConocoPhillips | | | 91,226 | | | $ | 5,290,196 | |
Devon Energy Corp. | | | 84,601 | | | | 4,402,636 | |
| | | | | | | | 25,025,387 | |
|
| Oil & Gas Storage & Transportation–0.68% | |
Williams Cos., Inc. (The) | | | 211,813 | | | | 6,934,758 | |
|
| Other Diversified Financial Services–5.44% | |
Citigroup Inc. | | | 490,479 | | | | 19,403,349 | |
JPMorgan Chase & Co. | | | 817,828 | | | | 35,959,897 | |
| | | | | | | | 55,363,246 | |
|
| Packaged Foods & Meats–1.72% | |
Kraft Foods Group, Inc. | | | 117,772 | | | | 5,355,093 | |
Mondelez International Inc.–Class A | | | 200,876 | | | | 5,116,312 | |
Unilever N.V.–New York Shares (Netherlands) | | | 183,035 | | | | 7,010,240 | |
| | | | | | | | 17,481,645 | |
|
| Personal Products–1.40% | |
Avon Products, Inc. | | | 988,974 | | | | 14,201,667 | |
|
| Pharmaceuticals–5.31% | |
Bristol-Myers Squibb Co. | | | 263,467 | | | | 8,586,390 | |
Eli Lilly & Co. | | | 181,395 | | | | 8,946,401 | |
Hospira, Inc.(b) | | | 56,077 | | | | 1,751,845 | |
Merck & Co., Inc. | | | 340,918 | | | | 13,957,183 | |
Novartis AG (Switzerland) | | | 98,566 | | | | 6,234,569 | |
Novartis AG–ADR (Switzerland) | | | 11,820 | | | | 748,206 | |
Pfizer Inc. | | | 547,945 | | | | 13,742,461 | |
| | | | | | | | 53,967,055 | |
|
| Property & Casualty Insurance–0.55% | |
Chubb Corp. (The) | | | 74,378 | | | | 5,602,151 | |
|
| Regional Banks–2.70% | |
BB&T Corp. | | | 251,234 | | | | 7,313,422 | |
Fifth Third Bancorp | | | 415,756 | | | | 6,315,333 | |
PNC Financial Services Group, Inc. | | | 237,358 | | | | 13,840,345 | |
| | | | | | | | 27,469,100 | |
|
| Security & Alarm Services–1.73% | |
ADT Corp. (The) | | | 141,593 | | | | 6,582,659 | |
Tyco International Ltd. | | | 376,793 | | | | 11,021,195 | |
| | | | | | | | 17,603,854 | |
|
| Semiconductor Equipment–1.06% | |
Applied Materials, Inc. | | | 938,752 | | | | 10,739,323 | |
|
| Semiconductors–0.39% | |
Intel Corp. | | | 192,189 | | | | 3,964,859 | |
|
| Soft Drinks–1.50% | |
Coca-Cola Co. (The) | | | 135,653 | | | | 4,917,421 | |
PepsiCo, Inc. | | | 151,563 | | | | 10,371,456 | |
| | | | | | | | 15,288,877 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Systems Software–1.33% | |
Microsoft Corp. | | | 507,068 | | | $ | 13,553,928 | |
|
| Wireless Telecommunication Services–1.17% | |
Vodafone Group PLC–ADR (United Kingdom) | | | 474,180 | | | | 11,944,594 | |
Total Common Stocks & Other Equity Interests
(Cost $550,547,367) | | | | 651,330,399 | |
| | |
| | | Principal
Amount | | | | |
Bonds and Notes–17.73% | |
| Advertising–0.05% | |
Interpublic Group of Cos. Inc. (The), Sr. Unsec. Global Notes, 2.25%, 11/15/17 | | $ | 370,000 | | | | 366,281 | |
WPP Finance (United Kingdom), Sr. Unsec. Gtd. Global Notes, 8.00%, 09/15/14 | | | 100,000 | | | | 110,551 | |
| | | | | | | | 476,832 | |
|
| Aerospace & Defense–0.04% | |
Precision Castparts Corp., Sr. Unsec. Global Notes, 2.50%, 01/15/23 | | | 365,000 | | | | 369,060 | |
|
| Agricultural Products–0.03% | |
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | | | 255,000 | | | | 315,820 | |
|
| Air Freight & Logistics–0.03% | |
United Parcel Service Inc., Sr. Unsec. Global Notes, 2.45%, 10/01/22 | | | 295,000 | | | | 294,751 | |
|
| Airlines–0.11% | |
Continental Airlines Pass Through Trust, | | | | | | | | |
Series 2010-1, Class A, Sec. Pass Through Ctfs., 4.75%, 01/12/21 | | | 300,618 | | | | 329,929 | |
Series 2012-1, Class A, Sec. Pass Through Ctfs., 4.15%, 04/11/24 | | | 510,000 | | | | 540,281 | |
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sec. Pass Through Ctfs., 6.20%, 07/02/18 | | | 213,013 | | | | 240,971 | |
| | | | | | | | 1,111,181 | |
|
| Airport Services–0.05% | |
Heathrow Funding Ltd. (United Kingdom), Sr. Sec. Notes, 2.50%, 06/25/15(c) | | | 535,000 | | | | 552,265 | |
|
| Application Software–0.02% | |
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | | | 185,000 | | | | 207,403 | |
|
| Asset Management & Custody Banks–0.27% | |
Affiliated Managers Group, Inc., Sr. Unsec. Conv. Notes, 3.95%, 08/15/13(d) | | | 2,511,000 | | | | 2,793,488 | |
|
| Automobile Manufacturers–0.07% | |
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 09/15/14(c) | | | 700,000 | | | | 710,079 | |
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 | |
| Automotive Retail–0.13% | |
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | | $ | 585,000 | | | $ | 621,738 | |
AutoZone, Inc., Sr. Unsec. Global Notes, | | | | | | | | |
6.50%, 01/15/14 | | | 395,000 | | | | 416,974 | |
2.88%, 01/15/23 | | | 290,000 | | | | 283,299 | |
| | | | | | | | 1,322,011 | |
|
| Biotechnology–1.10% | |
Dendreon Corp., Sr. Unsec. Conv. Notes, 2.88%, 01/15/16 | | | 1,894,000 | | | | 1,439,440 | |
Gilead Sciences Inc., Series D, Sr. Unsec. Conv. Notes, 1.63%, 05/01/16 | | | 3,793,000 | | | | 6,403,077 | |
Vertex Pharmaceuticals Inc., Sr. Unsec. Sub. Conv. Notes, 3.35%, 10/01/15 | | | 2,987,000 | | | | 3,373,443 | |
| | | | | | | | 11,215,960 | |
|
| Brewers–0.11% | |
Anheuser-Busch InBev Worldwide, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
0.80%, 07/15/15 | | | 325,000 | | | | 325,816 | |
3.63%, 04/15/15 | | | 395,000 | | | | 421,002 | |
FBG Financial Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(c) | | | 325,000 | | | | 358,018 | |
| | | | | | | | 1,104,836 | |
|
| Broadcasting–0.15% | |
COX Communications Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | | | 142,000 | | | | 155,289 | |
Sr. Unsec. Notes, | | | | | | | | |
4.63%, 06/01/13 | | | 815,000 | | | | 828,972 | |
4.70%, 12/15/42(c) | | | 440,000 | | | | 452,983 | |
8.38%, 03/01/39(c) | | | 80,000 | | | | 123,842 | |
| | | | | | | | 1,561,086 | |
|
| Cable & Satellite–0.43% | |
Comcast Corp., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/18 | | | 445,000 | | | | 538,269 | |
Sr. Unsec. Gtd. Notes, 6.45%, 03/15/37 | | | 305,000 | | | | 391,641 | |
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
2.40%, 03/15/17 | | | 225,000 | | | | 230,470 | |
5.15%, 03/15/42 | | | 370,000 | | | | 376,225 | |
NBC Universal Media LLC, Sr. Unsec. Global Notes, | | | | | | | | |
2.10%, 04/01/14 | | | 230,000 | | | | 234,123 | |
5.15%, 04/30/20 | | | 175,000 | | | | 207,592 | |
5.95%, 04/01/41 | | | 215,000 | | | | 264,194 | |
Time Warner Cable, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/40 | | | 470,000 | | | | 548,052 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Cable & Satellite–(continued) | |
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | | $ | 1,470,000 | | | $ | 1,598,973 | |
| | | | | | | | 4,389,539 | |
|
| Casinos & Gaming–1.05% | |
International Game Technology, Sr. Unsec. Conv. Notes, 3.25%, 05/01/14 | | | 4,229,000 | | | | 4,432,521 | |
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | | | 5,867,000 | | | | 6,222,687 | |
| | | | | | | | 10,655,208 | |
|
| Communications Equipment–0.36% | |
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(c) | | | 3,177,000 | | | | 3,651,564 | |
|
| Computer Hardware–0.04% | |
Hewlett-Packard Co., Sr. Unsec. Global Notes, 2.63%, 12/09/14 | | | 420,000 | | | | 425,207 | |
|
| Computer Storage & Peripherals–1.33% | |
SanDisk Corp., Sr. Unsec. Conv. Notes, | | | | | | | | |
1.00%, 05/15/13 | | | 6,170,000 | | | | 6,123,725 | |
1.50%, 08/15/17 | | | 6,388,000 | | | | 7,442,020 | |
| | | | | | | | 13,565,745 | |
|
| Construction & Farm Machinery & Heavy Trucks–0.13% | |
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/22 | | | 1,275,000 | | | | 1,294,480 | |
|
| Construction Materials–0.57% | |
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | | | 5,300,000 | | | | 5,803,500 | |
|
| Consumer Finance–0.14% | |
American Express Credit Corp., Series C, Sr. Unsec. Medium-Term Global Notes, 7.30%, 08/20/13 | | | 35,000 | | | | 36,495 | |
Capital One Financial Corp., Sr. Unsec. Notes, 6.75%, 09/15/17 | | | 50,000 | | | | 60,893 | |
Ford Motor Credit Co. LLC., Sr. Unsec. Global Notes, 2.50%, 01/15/16 | | | 450,000 | | | | 458,098 | |
SLM Corp., Sr. Unsec. Medium-Term Notes, 3.88%, 09/10/15 | | | 920,000 | | | | 943,695 | |
| | | | | | | | 1,499,181 | |
|
| Distillers & Vintners–0.03% | |
Brown-Forman Corp., Sr. Unsec. Notes, 2.25%, 01/15/23 | | | 310,000 | | | | 306,480 | |
|
| Diversified Banks–0.99% | |
Abbey National Treasury Services PLC (United Kingdom), | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 2.88%, 04/25/14 | | | 155,000 | | | | 158,141 | |
Sr. Unsec. Gtd. Medium-Term Euro Notes, 3.88%, 11/10/14(c) | | | 675,000 | | | | 698,275 | |
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 | |
| Diversified Banks–(continued) | |
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | | $ | 395,000 | | | $ | 402,441 | |
Barclays Bank PLC (United Kingdom), | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
2.75%, 02/23/15 | | | 200,000 | | | | 206,171 | |
6.75%, 05/22/19 | | | 510,000 | | | | 624,497 | |
Unsec. Sub. Global Notes, 5.14%, 10/14/20 | | | 275,000 | | | | 287,442 | |
BPCE S.A. (France), Sr. Unsec. Notes, 2.38%, 10/04/13(c) | | | 390,000 | | | | 391,481 | |
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(c) | | | 565,000 | | | | 594,365 | |
HBOS PLC (United Kingdom), Series G, Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/18(c) | | | 325,000 | | | | 347,628 | |
HSBC Bank PLC (United Kingdom), Sr. Unsec. Notes, 4.13%, 08/12/20(c) | | | 565,000 | | | | 620,639 | |
ING Bank N.V. (Netherlands), Unsec. Notes, 3.75%, 03/07/17(c) | | | 755,000 | | | | 799,211 | |
Korea Development Bank (The) (South Korea), Sr. Unsec. Global Notes, 4.38%, 08/10/15 | | | 200,000 | | | | 215,540 | |
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(c) | | | 190,000 | | | | 201,317 | |
Nordea Bank AB (Sweden), Sr. Unsec. Notes, 4.88%, 01/27/20(c) | | | 245,000 | | | | 280,166 | |
Rabobank Nederland N.V. (Netherlands), Sr. Unsec. Medium-Term Global Notes, 4.75%, 01/15/20(c) | | | 490,000 | | | | 556,126 | |
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(c) | | | 200,000 | | | | 200,611 | |
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(c) | | | 705,000 | | | | 708,814 | |
Standard Chartered PLC (Hong Kong), Sr. Unsec. Notes, | | | | | | | | |
3.85%, 04/27/15(c) | | | 255,000 | | | | 268,472 | |
5.50%, 11/18/14(c) | | | 100,000 | | | | 108,390 | |
U.S. Bancorp., Sr. Unsec. Medium-Term Notes, 2.00%, 06/14/13 | | | 530,000 | | | | 533,769 | |
U.S. Bank N.A., Unsec. Sub. Notes, 3.78%, 04/29/20 | | | 450,000 | | | | 479,089 | |
Wells Fargo & Co., | | | | | | | | |
Sr. Unsec. Global Notes, 1.50%, 01/16/18 | | | 180,000 | | | | 179,988 | |
3.63%, 04/15/15 | | | 50,000 | | | | 53,108 | |
Sr. Unsec. Notes, 5.63%, 12/11/17 | | | 580,000 | | | | 691,241 | |
Westpac Banking Corp. (Australia), Sr. Unsec. Global Notes, 2.10%, 08/02/13 | | | 440,000 | | | | 444,435 | |
| | | | | | | | 10,051,357 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Diversified Capital Markets–0.05% | |
UBS AG (Switzerland), | | | | | | | | |
Sr. Unsec. Global Bank Notes, 5.88%, 12/20/17 | | $ | 250,000 | | | $ | 296,948 | |
Sr. Unsec. Medium-Term Global Bank Notes, 5.75%, 04/25/18 | | | 210,000 | | | | 248,870 | |
| | | | | | | | 545,818 | |
|
| Diversified Chemicals–0.04% | |
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 4.38%, 11/15/42 | | | 370,000 | | | | 370,971 | |
|
| Diversified Metals & Mining–0.26% | |
Anglo American Capital PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 9.38%, 04/08/19(c) | | | 200,000 | | | | 260,234 | |
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Global Notes, 1.40%, 02/13/15 | | | 455,000 | | | | 453,803 | |
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 9.00%, 05/01/19 | | | 295,000 | | | | 404,969 | |
Southern Copper Corp., Sr. Unsec. Global Notes, | | | | | | | | |
5.25%, 11/08/42 | | | 645,000 | | | | 646,258 | |
5.38%, 04/16/20 | | | 5,000 | | | | 5,735 | |
6.75%, 04/16/40 | | | 10,000 | | | | 11,854 | |
Xstrata Finance Canada Ltd. (Canada), Sr. Unsec. Gtd. Notes, | | | | | | | | |
1.80%, 10/23/15(c) | | | 420,000 | | | | 422,870 | |
2.45%, 10/25/17(c) | | | 420,000 | | | | 424,054 | |
| | | | | | | | 2,629,777 | |
|
| Diversified REIT’s–0.12% | |
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(c) | | | 1,155,000 | | | | 1,245,765 | |
|
| Diversified Support Services–0.04% | |
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | | | 380,000 | | | | 400,148 | |
|
| Drug Retail–0.09% | |
CVS Pass-Through Trust, Sec. Global Pass Through Ctfs., 6.04%, 12/10/28 | | | 778,143 | | | | 913,457 | |
|
| Electric Utilities–0.15% | |
Electricite de France S.A. (France), Sr. Unsec. Notes, 4.60%, 01/27/20(c) | | | 150,000 | | | | 168,681 | |
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, 5.13%, 10/07/19(c) | | | 425,000 | | | | 450,444 | |
Iberdrola Finance Ireland Ltd. (Spain), Sr. Unsec. Gtd. Notes, 3.80%, 09/11/14(c) | | | 200,000 | | | | 205,543 | |
Louisville Gas & Electric Co., Sec. First Mortgage Global Bonds, 1.63%, 11/15/15 | | | 405,000 | | | | 416,920 | |
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | | | 200,000 | | | | 242,886 | |
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 | |
| Electric Utilities–(continued) | |
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | | $ | 50,000 | | | $ | 68,133 | |
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | | | 15,000 | | | | 17,902 | |
| | | | | | | | 1,570,509 | |
|
| Environmental & Facilities Services–0.04% | |
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | | | 395,000 | | | | 415,176 | |
|
| Fertilizers & Agricultural Chemicals–0.04% | |
Monsanto Co., Sr. Unsec. Global Notes,, 3.60%, 07/15/42 | | | 365,000 | | | | 365,730 | |
|
| General Merchandise Stores–0.08% | |
Target Corp., Sr. Unsec. Global Notes, 2.90%, 01/15/22 | | | 760,000 | | | | 802,425 | |
|
| Gold–0.28% | |
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, | | | | | | | | |
2.90%, 05/30/16 | | | 425,000 | | | | 446,703 | |
3.85%, 04/01/22 | | | 285,000 | | | | 303,049 | |
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | | | 500,000 | | | | 570,303 | |
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(c) | | | 665,000 | | | | 649,905 | |
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | | | 855,000 | | | | 884,618 | |
| | | | | | | | 2,854,578 | |
|
| Health Care Equipment–0.52% | |
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | | | 1,104,000 | | | | 971,520 | |
Teleflex Inc., Sr. Unsec. Sub. Conv. Notes, 3.88%, 08/01/17 | | | 3,372,000 | | | | 4,337,235 | |
| | | | | | | | 5,308,755 | |
|
| Health Care Facilities–0.68% | |
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | | | 2,241,000 | | | | 2,586,954 | |
LifePoint Hospitals Inc., Sr. Unsec. Sub. Conv. Notes, 3.50%, 05/15/14 | | | 4,141,000 | | | | 4,278,171 | |
| | | | | | | | 6,865,125 | |
|
| Health Care Services–0.54% | |
Express Scripts Holding Co., | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | | | 570,000 | | | | 614,116 | |
Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | | | 300,000 | | | | 316,739 | |
Medco Health Solutions Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | | | 220,000 | | | | 230,040 | |
Omnicare Inc., | | | | | | | | |
Sr. Unsec. Gtd. Sub. Conv. Notes, 3.75%, 04/01/42 | | | 2,681,000 | | | | 2,742,998 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Health Care Services–(continued) | |
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(d) | | $ | 1,625,000 | | | $ | 1,629,062 | |
| | | | | | | | 5,532,955 | |
|
| Hotels, Resorts & Cruise Lines–0.07% | |
Wyndham Worldwide Corp., Sr. Unsec. Notes, | | | | | | | | |
5.63%, 03/01/21 | | | 580,000 | | | | 639,736 | |
7.38%, 03/01/20 | | | 20,000 | | | | 24,061 | |
| | | | | | | | 663,797 | |
|
| Housewares & Specialties–0.06% | |
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/21 | | | 605,000 | | | | 644,468 | |
|
| Hypermarkets & Super Centers–0.01% | |
Wal-Mart Stores, Inc., Sr. Unsec. Global Notes, 6.50%, 08/15/37 | | | 50,000 | | | | 70,409 | |
|
| Industrial Conglomerates–0.06% | |
General Electric Co., Sr. Unsec. Global Notes, 5.25%, 12/06/17 | | | 485,000 | | | | 572,352 | |
Koninklijke Philips Electronics N.V. (Netherlands), Sr. Unsec. Global Notes, 5.75%, 03/11/18 | | | 25,000 | | | | 30,405 | |
| | | | | | | | 602,757 | |
|
| Industrial Machinery–0.15% | |
Eaton Corp. PLC, Sr. Unsec. Gtd. Notes, 0.95%, 11/02/15(c) | | | 740,000 | | | | 741,090 | |
Pentair Finance S.A., Sr. Unsec. Gtd. Notes, 5.00%, 05/15/21(c) | | | 690,000 | | | | 787,337 | |
| | | | | | | | 1,528,427 | |
|
| Integrated Oil & Gas–0.21% | |
Hess Corp., Sr. Unsec. Global Notes, 5.60%, 02/15/41 | | | 195,000 | | | | 230,451 | |
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/22 | | | 300,000 | | | | 322,985 | |
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
5.50%, 01/21/21 | | | 665,000 | | | | 777,023 | |
4.88%, 01/24/22 | | | 570,000 | | | | 639,081 | |
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | | | 115,000 | | | | 122,011 | |
| | | | | | | | 2,091,551 | |
|
| Integrated Telecommunication Services–0.28% | |
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | | | 4,000 | | | | 6,070 | |
AT&T Inc., Sr. Unsec. Global Notes, | | | | | | | | |
1.60%, 02/15/17 | | | 455,000 | | | | 461,728 | |
2.50%, 08/15/15 | | | 20,000 | | | | 20,878 | |
3.00%, 02/15/22 | | | 555,000 | | | | 580,821 | |
5.35%, 09/01/40 | | | 101,000 | | | | 117,710 | |
6.15%, 09/15/34 | | | 140,000 | | | | 175,400 | |
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 | |
| Integrated Telecommunication Services–(continued) | |
Deutsche Telekom International Finance B.V. (Germany), Sr. Unsec. Gtd. Global Bonds, 8.75%, 06/15/30 | | $ | 155,000 | | | $ | 232,589 | |
Verizon Communications, Inc., Sr. Unsec. Global Notes, | | | | | | | | |
3.00%, 04/01/16 | | | 230,000 | | | | 245,775 | |
4.75%, 11/01/41 | | | 210,000 | | | | 238,790 | |
6.35%, 04/01/19 | | | 260,000 | | | | 329,754 | |
6.40%, 02/15/38 | | | 300,000 | | | | 408,189 | |
Windstream Georgia Communications Corp., Sr. Unsec. Notes, 6.50%, 11/15/13 | | | 20,000 | | | | 20,582 | |
| | | | | | | | 2,838,286 | |
|
| Investment Banking & Brokerage–0.86% | |
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | | | 510,000 | | | | 577,113 | |
Goldman Sachs Group, Inc. (The), | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
5.25%, 07/27/21 | | | 400,000 | | | | 457,465 | |
6.15%, 04/01/18 | | | 550,000 | | | | 647,986 | |
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | | | 65,000 | | | | 68,453 | |
Unsec. Sub. Global Notes, 6.75%, 10/01/37 | | | 385,000 | | | | 433,035 | |
Series C, Exchangeable Basket-Linked Conv. Medium-Term Notes, 1.00%, 03/15/17(c)(e) | | | 3,328,000 | | | | 3,340,147 | |
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(c) | | | 50,000 | | | | 53,930 | |
Morgan Stanley, | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
3.80%, 04/29/16 | | | 700,000 | | | | 734,241 | |
6.38%, 07/24/42 | | | 705,000 | | | | 831,298 | |
Sr. Unsec. Medium-Term Global Notes, 4.00%, 07/24/15 | | | 610,000 | | | | 638,744 | |
Sr. Unsec. Notes, | | | | | | | | |
3.45%, 11/02/15 | | | 715,000 | | | | 745,435 | |
5.75%, 01/25/21 | | | 220,000 | | | | 251,516 | |
| | | | | | | | 8,779,363 | |
|
| Life & Health Insurance–0.16% | |
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | | | 275,000 | | | | 300,870 | |
MetLife, Inc., Sr. Unsec. Global Notes, 4.75%, 02/08/21 | | | 410,000 | | | | 476,413 | |
Pacific LifeCorp., Sr. Unsec. Notes, 6.00%, 02/10/20(c) | | | 215,000 | | | | 240,293 | |
Prudential Financial, Inc., Series D, Sr. Unsec. Medium-Term Notes, | | | | | | | | |
3.88%, 01/14/15 | | | 50,000 | | | | 52,881 | |
4.75%, 09/17/15 | | | 255,000 | | | | 280,095 | |
6.63%, 12/01/37 | | | 110,000 | | | | 138,818 | |
7.38%, 06/15/19 | | | 105,000 | | | | 134,119 | |
| | | | | | | | 1,623,489 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Managed Health Care–0.49% | |
Aetna, Inc., Sr. Unsec. Global Notes, | | | | | | | | |
3.95%, 09/01/20 | | $ | 605,000 | | | $ | 658,976 | |
4.13%, 11/15/42 | | | 295,000 | | | | 293,285 | |
Humana Inc., Sr. Unsec. Global Notes, 4.63%, 12/01/42 | | | 350,000 | | | | 351,473 | |
WellPoint Inc., Sr. Unsec. Conv. Notes, 2.75%, 10/15/42(c) | | | 3,398,000 | | | | 3,671,964 | |
| | | | | | | | 4,975,698 | |
|
| Movies & Entertainment–0.01% | |
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | | | 130,000 | | | | 152,309 | |
|
| Multi-Line Insurance–0.04% | |
CNA Financial Corp., Sr. Unsec. Global Bonds, 5.88%, 08/15/20 | | | 325,000 | | | | 382,374 | |
|
| Office Electronics–0.00% | |
Xerox Corp., Sr. Unsec. Notes, 4.25%, 02/15/15 | | | 40,000 | | | | 42,085 | |
|
| Office REIT’s–0.04% | |
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | | | 335,000 | | | | 357,364 | |
|
| Oil & Gas Drilling–0.02% | |
Noble Holding International Ltd., Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/17 | | | 150,000 | | | | 155,635 | |
|
| Oil & Gas Equipment & Services–0.13% | |
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(d) | | | 1,126,000 | | | | 1,333,606 | |
|
| Oil & Gas Exploration & Production–0.34% | |
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | | | 15,000 | | | | 19,152 | |
Southwestern Energy Co., Sr. Unsec. Gtd. Notes, 4.10%, 03/15/22(c) | | | 675,000 | | | | 721,683 | |
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17(c) | | | 3,053,000 | | | | 2,694,272 | |
| | | | | | | | 3,435,107 | |
|
| Oil & Gas Refining & Marketing–0.04% | |
Phillips 66, Sr. Unsec. Gtd. Notes, 1.95%, 03/05/15(c) | | | 385,000 | | | | 393,186 | |
|
| Oil & Gas Storage & Transportation–0.13% | |
Enterprise Products Operating LLC, | | | | | | | | |
Sr. Unsec. Gtd. Global Notes, 5.25%, 01/31/20 | | | 155,000 | | | | 185,069 | |
Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | | | 25,000 | | | | 31,508 | |
Series N, Sr. Unsec. Gtd. Notes, 6.50%, 01/31/19 | | | 245,000 | | | | 308,130 | |
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | | | 355,000 | | | | 377,546 | |
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 | |
| Oil & Gas Storage & Transportation–(continued) | |
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/38 | | $ | 120,000 | | | $ | 166,666 | |
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/32 | | | 185,000 | | | | 254,204 | |
| | | | | | | | 1,323,123 | |
|
| Other Diversified Financial Services–0.69% | |
Bank of America Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 5.75%, 12/01/17 | | | 975,000 | | | | 1,136,298 | |
Series L, Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | | | 350,000 | | | | 407,970 | |
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | | | 340,000 | | | | 427,013 | |
Citigroup Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 6.01%, 01/15/15 | | | 65,000 | | | | 71,011 | |
6.13%, 11/21/17 | | | 495,000 | | | | 590,212 | |
8.50%, 05/22/19 | | | 455,000 | | | | 611,954 | |
Sr. Unsec. Notes, 4.75%, 05/19/15 | | | 75,000 | | | | 80,818 | |
General Electric Capital Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 5.90%, 05/13/14 | | | 75,000 | | | | 80,452 | |
Sr. Unsec. Medium-Term Global Notes, 4.65%, 10/17/21 | | | 430,000 | | | | 489,067 | |
Series G, Sr. Unsec. Medium-Term Global Notes, 6.00%, 08/07/19 | | | 300,000 | | | | 364,362 | |
ING US Inc. (Netherlands), Sr. Unsec. Gtd. Notes, 5.50%, 07/15/22(c) | | | 765,000 | | | | 828,402 | |
JPMorgan Chase & Co., | | | | | | | | |
Sr. Unsec. Global Notes, | | | | | | | | |
4.40%, 07/22/20 | | | 400,000 | | | | 452,888 | |
4.50%, 01/24/22 | | | 80,000 | | | | 91,089 | |
4.75%, 05/01/13 | | | 65,000 | | | | 65,870 | |
Sr. Unsec. Notes, 6.00%, 01/15/18 | | | 615,000 | | | | 737,341 | |
Unsec. Sub. Global Notes, 5.13%, 09/15/14 | | | 70,000 | | | | 74,422 | |
Merrill Lynch & Co., Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | | | 410,000 | | | | 496,786 | |
| | | | | | | | 7,005,955 | |
|
| Packaged Foods & Meats–0.10% | |
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, 4.88%, 06/30/20(c) | | | 270,000 | | | | 304,808 | |
Mondelez International Inc., | | | | | | | | |
Sr. Unsec. Global Notes, 7.00%, 08/11/37 | | | 305,000 | | | | 424,654 | |
Sr. Unsec. Notes, 6.88%, 01/26/39 | | | 200,000 | | | | 276,737 | |
| | | | | | | | 1,006,199 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Paper Products–0.03% | |
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/41 | | $ | 245,000 | | | $ | 290,704 | |
|
| Pharmaceuticals–0.48% | |
AbbVie Inc., Sr. Unsec. Gtd. Notes, 1.20%, 11/06/15(c) | | | 1,620,000 | | | | 1,631,328 | |
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | | | | | | | | |
5.65%, 05/15/18 | | | 75,000 | | | | 91,322 | |
6.38%, 05/15/38 | | | 70,000 | | | | 96,772 | |
Merck & Co. Inc., Sr. Unsec. Global Notes, 5.00%, 06/30/19 | | | 280,000 | | | | 337,157 | |
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19(c) | | | 2,467,000 | | | | 2,388,364 | |
Teva Pharmaceutical Finance Co. B.V. (Israel), Sr. Unsec. Gtd. Global Notes, 2.95%, 12/18/22 | | | 345,000 | | | | 348,731 | |
| | | | | | | | 4,893,674 | |
|
| Property & Casualty Insurance–0.05% | |
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | | | 25,000 | | | | 31,313 | |
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/22 | | | 420,000 | | | | 450,895 | |
| | | | | | | | 482,208 | |
|
| Railroads–0.07% | |
CSX Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 6.15%, 05/01/37 | | | 80,000 | | | | 100,651 | |
Sr. Unsec. Notes, 5.50%, 04/15/41 | | | 380,000 | | | | 450,070 | |
Union Pacific Corp., Sr. Unsec. Notes, 6.13%, 02/15/20 | | | 110,000 | | | | 138,000 | |
| | | | | | | | 688,721 | |
|
| Regional Banks–0.10% | |
Nationwide Building Society (United Kingdom), Sr. Unsec. Notes, 6.25%, 02/25/20(c) | | | 485,000 | | | | 574,855 | |
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 02/08/20 | | | 360,000 | | | | 427,651 | |
| | | | | | | | 1,002,506 | |
|
| Retail REIT’s–0.06% | |
Simon Property Group L.P., Sr. Unsec. Notes, 4.75%, 03/15/42 | | | 230,000 | | | | 247,952 | |
WEA Finance LLC (Australia), Sr. Unsec. Gtd. Notes, 7.13%, 04/15/18(c) | | | 270,000 | | | | 333,338 | |
| | | | | | | | 581,290 | |
|
| Semiconductor Equipment–0.47% | |
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | | | 3,026,000 | | | | 3,005,196 | |
Novellus Systems Inc., Sr. Unsec. Gtd. Conv. Notes, 2.63%, 05/15/41 | | | 1,399,000 | | | | 1,748,750 | |
| | | | | | | | 4,753,946 | |
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 | |
| Semiconductors–1.04% | |
Linear Technology Corp., | | | | | | | | |
Sr. Unsec. Conv. Notes, 3.00%, 05/01/14(c)(d) | | $ | 1,193,000 | | | $ | 1,248,176 | |
Series A, Sr. Unsec. Conv. Global Notes, 3.00%, 05/01/14(d) | | | 4,600,000 | | | | 4,812,750 | |
Micron Technology Inc., Series A, Sr. Unsec. Conv. Notes, 1.50%, 08/01/18(d) | | | 2,200,000 | | | | 2,044,625 | |
Xilinx Inc., Jr. Unsec. Sub. Conv. Notes, | | | | | | | | |
3.13%, 03/15/37 | | | 635,000 | | | | 807,641 | |
3.13%, 03/15/37(c) | | | 1,302,000 | | | | 1,655,981 | |
| | | | | | | | 10,569,173 | |
|
| Sovereign Debt–0.01% | |
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | | | 100,000 | | | | 118,800 | |
Peruvian Government International Bond (Peru), Sr. Unsec. Global Notes, 7.13%, 03/30/19 | | | 10,000 | | | | 13,078 | |
| | | | | | | | 131,878 | |
|
| Specialized Finance–0.14% | |
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.75%, 07/01/13(c) | | | 340,000 | | | | 343,135 | |
International Lease Finance Corp., Sr. Unsec. Global Notes, 5.88%, 08/15/22 | | | 300,000 | | | | 319,125 | |
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/22 | | | 485,000 | | | | 520,005 | |
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 3.05%, 02/15/22 | | | 195,000 | | | | 204,428 | |
| | | | | | | | 1,386,693 | |
|
| Specialized REIT’s–0.19% | |
American Tower Corp., | | | | | | | | |
Sr. Unsec. Global Notes, 4.63%, 04/01/15 | | | 170,000 | | | | 180,744 | |
Sr. Unsec. Notes, 4.50%, 01/15/18 | | | 950,000 | | | | 1,047,046 | |
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | | | 495,000 | | | | 513,068 | |
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 4.25%, 03/01/22 | | | 200,000 | | | | 212,502 | |
| | | | | | | | 1,953,360 | |
|
| Steel–0.22% | |
ArcelorMittal (Luxembourg), | | | | | | | | |
Sr. Unsec. Global Bonds, 10.35%, 06/01/19 | | | 446,000 | | | | 540,002 | |
Sr. Unsec. Global Notes, | | | | | | | | |
4.25%, 08/05/15 | | | 585,000 | | | | 592,676 | |
6.13%, 06/01/18 | | | 15,000 | | | | 15,465 | |
7.25%, 03/01/41 | | | 115,000 | | | | 106,967 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
| Steel–(continued) | |
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, | | | | | | | | |
4.63%, 09/15/20 | | $ | 20,000 | | | $ | 21,640 | |
5.63%, 09/15/19 | | | 660,000 | | | | 753,431 | |
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | | | 185,000 | | | | 201,355 | |
| | | | | | | | 2,231,536 | |
|
| Thrifts & Mortgage Finance–0.49% | |
MGIC Investment Corp., Sr. Unsec. Conv. Notes, 5.00%, 05/01/17 | | | 5,337,000 | | | | 4,039,442 | |
People’s United Financial Inc., Sr. Unsec. Global Notes, 3.65%, 12/06/22 | | | 480,000 | | | | 483,793 | |
Radian Group Inc., Sr. Unsec. Conv. Notes, 3.00%, 11/15/17 | | | 485,000 | | | | 431,347 | |
| | | | | | | | 4,954,582 | |
|
| Tobacco–0.00% | |
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | | | 35,000 | | | | 38,038 | |
|
| Trucking–0.09% | |
Penske Truck Leasing Co., L.P./PTL Finance Corp., Sr. Notes, 2.50%, 03/15/16(c) | | | 670,000 | | | | 669,232 | |
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | | | 280,000 | | | | 290,089 | |
| | | | | | | | 959,321 | |
|
| Wireless Telecommunication Services–0.24% | |
Alltel Corp., Sr. Unsec. Notes, 7.00%, 03/15/16 | | | 1,000,000 | | | | 1,183,440 | |
America Movil S.A.B. de C.V. (Mexico), | | | | | | | | |
Sr. Unsec. Global Notes, 4.38%,07/16/42 | | | 600,000 | | | | 612,783 | |
Sr. Unsec. Gtd. Global Notes, 2.38%, 09/08/16 | | | 255,000 | | | | 266,351 | |
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 3.21%, 08/15/15(c) | | | 370,000 | | | | 388,038 | |
| | | | | | | | 2,450,612 | |
Total Bonds and Notes (Cost $166,269,688) | | | | 180,271,652 | |
|
U.S. Treasury Securities–10.73% | |
| U.S. Treasury Bills–0.02% | |
0.18%, 11/14/13(f)(g) | | | 200,000 | | | | 199,754 | |
|
| U.S. Treasury Notes–7.93% | |
1.50%, 12/31/13 | | | 1,085,000 | | | | 1,099,126 | |
0.25%, 02/28/14 | | | 4,000,000 | | | | 4,002,106 | |
1.75%, 03/31/14 | | | 2,300,000 | | | | 2,343,988 | |
2.25%, 01/31/15 | | | 6,000,000 | | | | 6,246,103 | |
2.50%, 03/31/15 | | | 275,000 | | | | 288,688 | |
2.13%, 05/31/15 | | | 680,000 | | | | 709,600 | |
2.25%, 03/31/16 | | | 2,000,000 | | | | 2,119,625 | |
2.63%, 04/30/16 | | | 14,000,000 | | | | 15,016,805 | |
0.63%, 05/31/17 | | | 380,000 | | | | 380,635 | |
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. Treasury Notes–(continued) | |
0.75%, 06/30/17 | | $ | 9,000,000 | | | $ | 9,054,437 | |
4.00%, 08/15/18 | | | 3,055,000 | | | | 3,589,607 | |
1.25%, 01/31/19 | | | 9,000,000 | | | | 9,163,058 | |
3.38%, 11/15/19 | | | 300,000 | | | | 344,866 | |
3.63%, 02/15/20 | | | 46,000 | | | | 53,735 | |
2.63%, 11/15/20 | | | 600,000 | | | | 658,430 | |
2.13%, 08/15/21 | | | 175,000 | | | | 184,005 | |
2.63%, 07/31/14 | | | 1,100,000 | | | | 1,141,511 | |
2.38%, 10/31/14 | | | 15,720,000 | | | | 16,328,161 | |
2.13%, 11/30/14 | | | 5,250,000 | | | | 5,437,542 | |
3.63%, 08/15/19 | | | 1,525,000 | | | | 1,775,937 | |
2.00%, 11/15/21 | | | 240,000 | | | | 249,088 | |
1.75%, 05/15/22 | | | 485,000 | | | | 489,198 | |
3.88%, 08/15/40 | | | 20,000 | | | | 24,005 | |
| | | | | | | | 80,700,256 | |
|
| U.S. Treasury Bonds–2.78% | |
8.13%, 08/15/21 | | | 2,700,000 | | | | 4,172,210 | |
6.63%, 02/15/27 | | | 2,500,000 | | | | 3,844,737 | |
5.38%, 02/15/31 | | | 8,995,000 | | | | 12,829,761 | |
4.63%, 02/15/40 | | | 250,000 | | | | 337,260 | |
4.38%, 05/15/40 | | | 80,000 | | | | 103,998 | |
4.25%, 11/15/40 | | | 2,000,000 | | | | 2,550,252 | |
3.13%, 11/15/41 | | | 3,000,000 | | | | 3,135,283 | |
3.00%, 05/15/42 | | | 210,000 | | | | 213,596 | |
4.25%, 05/15/39 | | | 805,000 | | | | 1,025,714 | |
4.50%, 08/15/39 | | | 40,000 | | | | 52,936 | |
| | | | | | | | 28,265,747 | |
Total U.S. Treasury Securities
(Cost $101,475,955) | | | | 109,165,757 | |
| | |
| | | Shares | | | | |
Preferred Stocks–1.52% | |
| Health Care Facilities–0.28% | |
HealthSouth Corp., Series A, $65.00 Conv. Pfd. | | | 2,785 | | | | 2,890,134 | |
|
| Health Care Services–0.13% | |
Omnicare Capital Trust II, Series B, $2.00 Conv. Pfd. | | | 26,407 | | | | 1,269,384 | |
|
| Oil & Gas Storage & Transportation–0.52% | |
El Paso Energy Captial Trust I, $2.38 Conv. Pfd. | | | 95,499 | | | | 5,271,545 | |
|
| Regional Banks–0.37% | |
KeyCorp, Series A, $7.75 Conv. Pfd. | | | 30,290 | | | | 3,793,822 | |
|
| Research & Consulting Services–0.04% | |
Nielsen Holdings N.V., $3.13 Conv. Pfd. | | | 7,510 | | | | 423,611 | |
|
| Trucking–0.18% | |
2010 Swift Mandatory Common Exchange Security Trust, $0.66 Conv. Pfd.(c) | | | 199,220 | | | | 1,856,352 | |
Total Preferred Stocks
(Cost $12,039,283) | | | | 15,504,848 | |
| | | | | | | | |
| | | Principal
Amount | | | Value | |
U.S. Government Sponsored Agency Securities–0.73% | |
| Federal Home Loan Mortgage Corp. (FHLMC)–0.53% | |
Sr. Unsec. Global Bonds, 6.75%, 03/15/31 | | $ | 750,000 | | | $ | 1,155,038 | |
Sr. Unsec. Global Notes, | | | | | | | | |
3.00%, 07/28/14 | | | 1,020,000 | | | | 1,064,015 | |
5.00%, 04/18/17 | | | 1,500,000 | | | | 1,772,740 | |
5.50%, 08/23/17 | | | 140,000 | | | | 170,172 | |
Unsec. Global Notes, 4.88%, 06/13/18 | | | 1,000,000 | | | | 1,208,772 | |
| | | | | | | | 5,370,737 | |
|
| Federal National Mortgage Association (FNMA)–0.20% | |
Sr. Unsec. Global Notes, 4.38%, 10/15/15 | | | 1,700,000 | | | | 1,887,488 | |
Unsec. Global Notes, 2.63%, 11/20/14 | | | 130,000 | | | | 135,741 | |
| | | | | | | | 2,023,229 | |
Total U.S. Government Sponsored Agency Securities (Cost $6,661,996) | | | | 7,393,966 | |
|
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 | | | | 291,413 | |
|
Asset-Backed Securities–0.00% | |
| Collateralized Mortgage Obligations–0.00% | |
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37
(Cost $4,107) | | | 4,191 | | | | 4,177 | |
|
U.S. Government Sponsored Mortgage-Backed Securities–0.00% | |
| Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | |
Pass Through Ctfs., | | | | | | | | |
6.50%, 02/01/26 | | | 4,553 | | | | 5,132 | |
5.50%, 02/01/37 | | | 404 | | | | 436 | |
| | | | | | | | 5,568 | |
|
| Federal National Mortgage Association (FNMA)–0.00% | |
Pass Through Ctfs., | | | | | | | | |
6.00%, 01/01/17 | | | 1,063 | | | | 1,130 | |
5.50%, 03/01/21 | | | 396 | | | | 429 | |
8.00%, 08/01/21 | | | 3,102 | | | | 3,496 | |
9.50%, 04/01/30 | | | 8,920 | | | | 10,761 | |
| | | | | | | | 15,816 | |
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $19,633) | | | | 21,384 | |
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 | |
Money Market Funds–5.45% | |
Liquid Assets Portfolio–Institutional Class(h) | | | 27,705,777 | | | $ | 27,705,777 | |
Premier Portfolio–Institutional Class(h) | | | 27,705,777 | | | | 27,705,777 | |
Total Money Market Funds
(Cost $55,411,554) | | | | 55,411,554 | |
TOTAL INVESTMENTS–100.24%
(Cost $892,669,583) | | | | 1,019,395,150 | |
OTHER ASSETS LESS LIABILITIES–(0.24)% | | | | (2,466,835 | ) |
NET ASSETS–100.00% | | | $ | 1,016,928,315 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
| 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 |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2012 was $40,317,653, which represented 3.96% of the Fund’s Net Assets. |
| (d) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
| (e) | Exchangeable for a basket of four common stocks and one ordinary share. |
| (f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
| (g) | 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. |
| (h) | 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
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $837,258,029) | | $ | 963,983,596 | |
Investments in affiliated money market funds, at value and cost | | | 55,411,554 | |
Total investments, at value (Cost $892,669,583) | | | 1,019,395,150 | |
Cash | | | 99,360 | |
Foreign currencies, at value (Cost $81) | | | 2,553 | |
Receivable for: | | | | |
Variation margin | | | 28,531 | |
Fund shares sold | | | 317,639 | |
Dividends and interest | | | 3,361,129 | |
Investment for trustee deferred compensation and retirement plans | | | 56,481 | |
Total assets | | | 1,023,260,843 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 3,467,267 | |
Fund shares reacquired | | | 1,159,890 | |
Foreign currency contracts outstanding | | | 327,037 | |
Accrued fees to affiliates | | | 1,209,400 | |
Accrued other operating expenses | | | 55,194 | |
Trustee deferred compensation and retirement plans | | | 113,740 | |
Total liabilities | | | 6,332,528 | |
Net assets applicable to shares outstanding | | $ | 1,016,928,315 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 904,533,723 | |
Undistributed net investment income | | | 15,314,809 | |
Undistributed net realized gain (loss) | | | (29,420,627 | ) |
Unrealized appreciation | | | 126,500,410 | |
| | | $ | 1,016,928,315 | |
|
Net Assets: | |
Series I | | $ | 53,990,378 | |
Series II | | $ | 962,937,937 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 3,580,540 | |
Series II | | | 63,991,870 | |
Series I: | | | | |
Net asset value per share | | $ | 15.08 | |
Series II: | | | | |
Net asset value per share | | $ | 15.05 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $87,885) | | $ | 16,600,936 | |
Dividends from affiliated money market funds | | | 103,215 | |
Interest | | | 7,995,265 | |
Total investment income | | | 24,699,416 | |
| |
Expenses: | | | | |
Advisory fees | | | 3,821,564 | |
Administrative services fees | | | 2,573,400 | |
Custodian fees | | | 38,012 | |
Distribution fees — Series II | | | 2,321,747 | |
Transfer agent fees | | | 29,238 | |
Trustees’ and officers’ fees and benefits | | | 58,009 | |
Other | | | 112,771 | |
Total expenses | | | 8,954,741 | |
Less: Fees waived | | | (1,011,483 | ) |
Net expenses | | | 7,943,258 | |
Net investment income | | | 16,756,158 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $97,336) | | | 31,439,615 | |
Foreign currencies | | | (28,226 | ) |
Foreign currency contracts | | | 526,126 | |
Futures contracts | | | (848,358 | ) |
Option contracts written | | | 84,703 | |
| | | | 31,173,860 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 65,769,732 | |
Foreign currencies | | | 865 | |
Foreign currency contracts | | | (1,131,318 | ) |
Futures contracts | | | 418,705 | |
| | | | 65,057,984 | |
Net realized and unrealized gain | | | 96,231,844 | |
Net increase in net assets resulting from operations | | $ | 112,988,002 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | |
Net investment income | | $ | 16,756,158 | | | $ | 15,844,404 | |
Net realized gain | | | 31,173,860 | | | | 6,058,577 | |
Change in net unrealized appreciation (depreciation) | | | 65,057,984 | | | | (42,001,839 | ) |
Net increase (decrease) in net assets resulting from operations | | | 112,988,002 | | | | (20,098,858 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (1,018,320 | ) | | | (166,703 | ) |
Series II | | | (16,905,532 | ) | | | (14,481,929 | ) |
Total distributions from net investment income | | | (17,923,852 | ) | | | (14,648,632 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series I | | | (7,678,749 | ) | | | 61,606,856 | |
Series II | | | 8,773,622 | | | | 93,450,310 | |
Net increase in net assets resulting from share transactions | | | 1,094,873 | | | | 155,057,166 | |
Net increase in net assets | | | 96,159,023 | | | | 120,309,676 | |
|
Net assets: | |
Beginning of year | | | 920,769,292 | | | | 800,459,616 | |
End of year (includes undistributed net investment income of $15,314,809 and $14,245,911, respectively) | | $ | 1,016,928,315 | | | $ | 920,769,292 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations 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.
Invesco Van Kampen V.I. Equity and Income Fund
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) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 |
Invesco Van Kampen V.I. Equity and Income Fund
| | 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 the 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. | 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 covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. |
| M. | Collateral — To the extent the Fund has designated 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. (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).
Effectively July 1, 2012, the Adviser has 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 1.50% and Series II shares to 1.75% of average daily net assets. Prior to July 1, 2012, 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 waivers and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.70% and Series II shares to 0.75% (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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $107,561.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $233,975 for accounting and fund administrative services and reimbursed $2,339,425 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 year ended December 31, 2012, 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 had contractually agreed to waive 0.20% of Rule 12b-1plan fees on Series II shares through June 30, 2012. 12b-1 fees before fee waivers incurred under the Plan are detailed in the Statement of Operations of Distribution fees. For the year ended December 31, 2012, 12b-1 fees incurred for Series II shares were $1,417,825 after fee waivers of $903,922.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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. Equity 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 710,842,136 | | | $ | 11,404,665 | | | $ | — | | | $ | 722,246,801 | |
U.S. Treasury Securities | | | — | | | | 109,165,757 | | | | — | | | | 109,165,757 | |
U.S. Government Sponsored Securities | | | — | | | | 7,415,350 | | | | — | | | | 7,415,350 | |
Corporate Debt Securities | | | — | | | | 180,139,774 | | | | — | | | | 180,139,774 | |
Asset-Backed Securities | | | — | | | | 4,177 | | | | — | | | | 4,177 | |
Municipal Obligations | | | — | | | | 291,413 | | | | — | | | | 291,413 | |
Foreign Government Debt Securities | | | — | | | | 131,878 | | | | — | | | | 131,878 | |
| | | $ | 710,842,136 | | | $ | 308,553,014 | | | $ | — | | | $ | 1,019,395,150 | |
Foreign Currency Contracts* | | | — | | | | (327,037 | ) | | | — | | | | (327,037 | ) |
Futures Contracts* | | | 101,016 | | | | — | | | | — | | | | 101,016 | |
Total Investments | | $ | 710,943,152 | | | $ | 308,225,977 | | | $ | — | | | $ | 1,019,169,129 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign currency contracts(a) | | $ | 13,853 | | | $ | (340,890 | ) |
Interest rate risk | | | | | | | | |
Futures contracts(b) | | | 101,016 | | | | — | |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
| (b) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the year ended December 31, 2012
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
Contracts* | | | Foreign Currency
Contracts* | | | Options* | |
Realized Gain (Loss) | | | | | | | | | | | | |
Currency risk | | $ | — | | | $ | 526,126 | | | $ | — | |
Interest rate risk | | | (848,358 | ) | | | — | | | | — | |
Equity risk | | | — | | | | — | | | | 84,703 | |
Change in Unrealized Appreciation (Depreciation) | | | | | | | | | | | | |
Currency risk | | $ | — | | | $ | (1,131,318 | ) | | $ | — | |
Interest rate risk | | | 418,705 | | | | — | | | | — | |
Total | | $ | (429,653 | ) | | $ | (605,192 | ) | | $ | 84,703 | |
| * | The average notional value of futures contracts, foreign currency contracts and options outstanding during the period was $23,382,082, $22,439,284 and $1,440,000, respectively. |
Invesco Van Kampen V.I. Equity and Income Fund
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | Counterparty | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | | Deliver | | | Receive | | | |
| 1/15/13 | | Bank of New York | | | CHF | | | | 3,219,048 | | | | USD | | | | 3,460,821 | | | $ | 3,517,115 | | | $ | (56,294 | ) |
| 1/15/13 | | Bank of New York | | | EUR | | | | 5,464,358 | | | | USD | | | | 7,068,885 | | | | 7,210,791 | | | | (141,906 | ) |
| 1/15/13 | | State Street CA | | | GBP | | | | 6,131,140 | | | | USD | | | | 9,819,217 | | | | 9,961,907 | | | | (142,690 | ) |
| 1/15/13 | | State Street CA | | | USD | | | | 852,764 | | | | GBP | | | | 533,367 | | | | 866,617 | | | | 13,853 | |
Total open foreign currency contracts | | | | | | | | | | | | | | | | | | | | | | $ | (327,037 | ) |
| | |
| CHF | | – Swiss Franc |
| EUR | | – Euro |
| | |
| GBP | | – British Pound Sterling |
| USD | | – U.S. Dollar |
| | | | | | | | | | | | | | | | |
| Open Futures Contracts | |
| Long Contracts | | Number of
Contracts | | | Expiration
Month | | | Notional
Value | | | Unrealized
Appreciation | |
U.S. Treasury 2 Year Notes | | | 20 | | | | March-2013 | | | $ | 4,409,375 | | | $ | 263 | |
| | | | |
| | | | | | | | | | | | | | | | |
| Short Contracts | | | | | | | | | | | | |
U.S. Treasury 5 Year Notes | | | 60 | | | | March-2013 | | | $ | (7,464,844 | ) | | $ | 10,655 | |
U.S. Treasury 10 Year Notes | | | 34 | | | | March-2013 | | | | (4,514,562 | ) | | | 21,178 | |
U.S. Treasury Long Bond | | | 27 | | | | March-2013 | | | | (3,982,500 | ) | | | 68,920 | |
Subtotal | | | | | | | | | | $ | (15,961,906 | ) | | $ | 100,753 | |
Total | | | | | | | | | | | | | | $ | 101,016 | |
| | | | | | | | |
| Transactions During the Period | |
| | | Call Option Contracts | |
| | | Number of
Contracts | | | Premiums
Received | |
Beginning of period | | | — | | | $ | — | |
Written | | | 1,080 | | | | 84,703 | |
Expired | | | 1,080 | | | | (84,703 | ) |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $97,769 and securities sales of $655,929, which resulted in net realized gains of $97,336.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 17,923,852 | | | $ | 14,648,632 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 16,898,578 | |
Net unrealized appreciation — investments | | | 123,338,783 | |
Net unrealized appreciation — other investments | | | 152,107 | |
Temporary book/tax differences | | | (107,011 | ) |
Capital loss carryforward | | | (27,887,865 | ) |
Shares of beneficial interest | | | 904,533,723 | |
Total net assets | | $ | 1,016,928,315 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales, straddles and hybrid securities.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $27,561,725 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2015 | | $ | 487,972 | | | $ | — | | | $ | 487,972 | |
December 31, 2016 | | | 5,167,583 | | | | — | | | | 5,167,583 | |
December 31, 2017 | | | 22,232,310 | | | | — | | | | 22,232,310 | |
| | | $ | 27,887,865 | | | $ | — | | | $ | 27,887,865 | |
| * | 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. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund, are 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 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $271,764,213 and $278,449,208, 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 | | $ | 139,958,308 | |
Aggregate unrealized (depreciation) of investment securities | | | (16,619,525 | ) |
Net unrealized appreciation of investment securities | | $ | 123,338,783 | |
Cost of investments for tax purposes is $896,056,367.
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of the interest income from hybrid securities, on December 31, 2012, undistributed net investment income was increased by $2,236,592 and undistributed net realized gain (loss) was decreased by $2,236,592. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 199,037 | | | $ | 2,889,571 | | | | 166,964 | | | $ | 2,254,649 | |
Series II | | | 5,864,350 | | | | 85,627,285 | | | | 10,464,491 | | | | 146,470,102 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 67,782 | | | | 1,018,096 | | | | 13,178 | | | | 166,498 | |
Series II | | | 1,127,035 | | | | 16,905,532 | | | | 1,025,856 | | | | 14,481,929 | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | — | | | | — | | | | 4,636,112 | | | | 68,904,153 | |
Series II | | | — | | | | — | | | | 2,097,600 | | | | 31,153,983 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (793,562 | ) | | | (11,586,416 | ) | | | (712,240 | ) | | | (9,718,444 | ) |
Series II | | | (6,423,479 | ) | | | (93,759,195 | ) | | | (7,121,326 | ) | | | (98,655,704 | ) |
Net increase in share activity | | | 41,163 | | | $ | 1,094,873 | | | | 10,570,635 | | | $ | 155,057,166 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 80% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund 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. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund (the “Target Funds”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Funds 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 the Target Funds was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Funds 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 $31,074,477, $31,415,511 and $37,568,148 including $4,748,360, $4,098,925 and $3,365,752 of unrealized appreciation, were combined with those of the Fund, respectively. The net assets of the Fund immediately before the acquisition were $883,038,141 and $983,096,277 immediately after the acquisition. |
| | The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 16,266,072 | |
Net realized/unrealized gains (losses) | | | (29,988,355 | ) |
Change in net assets resulting from operations | | $ | (13,722,283 | ) |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Funds that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Ratio of rebate
from Morgan
Stanley
Affiliates
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 13.65 | | | $ | 0.28 | | | $ | 1.42 | | | $ | 1.70 | | | $ | (0.27 | ) | | $ | — | | | $ | (0.27 | ) | | $ | 15.08 | | | | 12.49 | % | | $ | 53,990 | | | | 0.66 | %(d) | | | 0.67 | %(d) | | | 1.85 | %(d) | | | — | % | | | 31 | % |
Year ended 12/31/11 | | | 14.06 | | | | 0.25 | | | | (0.41 | ) | | | (0.16 | ) | | | (0.25 | ) | | | — | | | | (0.25 | ) | | | 13.65 | | | | (1.19 | ) | | | 56,053 | | | | 0.66 | | | | 0.67 | | | | 1.83 | | | | — | | | | 28 | |
Year ended 12/31/10(e) | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 13.63 | | | | 0.25 | | | | 1.44 | | | | 1.69 | | | | (0.27 | ) | | | — | | | | (0.27 | ) | | | 15.05 | | | | 12.39 | | | | 962,938 | | | | 0.81 | (d) | | | 0.92 | (d) | | | 1.70 | (d) | | | — | | | | 31 | |
Year ended 12/31/11 | | | 14.05 | | | | 0.25 | | | | (0.42 | ) | | | (0.17 | ) | | | (0.25 | ) | | | — | | | | (0.25 | ) | | | 13.63 | | | | (1.30 | ) | | | 864,716 | | | | 0.71 | | | | 0.92 | | | | 1.78 | | | | — | | | | 28 | |
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 | |
| (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 December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $84,964,454 and sold of $24,142,395 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) | Ratios are based on average daily net assets (000’s omitted) of $56,034 and $928,699 for Series I and Series II shares, respectively. |
| (e) | Commencement date of June 1, 2010. |
| (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% and 2.20% for the years ended December 31, 2009 and December 31, 2008, 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)%. |
NOTE 13—Subsequent Event
Effective May 1, 2013, the Fund will change its name to Invesco V.I. Equity and Income Fund.
Invesco Van Kampen V.I. Equity and Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. Equity and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. Equity and Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,057.50 | | | $ | 3.41 | | | $ | 1,021.82 | | | $ | 3.35 | | | | 0.66 | % |
Series II | | | 1,000.00 | | | | 1,056.40 | | | | 4.70 | | | | 1,020.56 | | | | 4.62 | | | | 0.91 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Equity and Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 75.44 | % |
U.S. Treasury Obligations* | | | 8.36 | % |
| | * | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. Equity and Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. Equity and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. Equity and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. Equity and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. Equity and Income Fund
Invesco Van Kampen V.I. Growth
and Income Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. Growth and Income Fund underperformed the Russell 1000 Value Index, the Fund’s style-specific benchmark. As the Fund uses a bottom-up stock selection approach, stock selection in various sectors was the primary reason the Fund underperformed its style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 14.63 | % |
| Series II Shares | | | | 14.35 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 1000 Value Index¡ (Style-Specific Index) | | | | 17.51 | |
| Lipper VUF Large-Cap Value Funds Index¨ (Peer Group Index) | | | | 15.92 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; ¡Invesco, Russell via FactSet Research Systems Inc.; ¨Lipper Inc.
How we invest
We call our investment philosophy “value with a catalyst.” We believe undervalued companies that are experiencing positive changes (i.e., “catalysts”) have the potential to generate long-term stock price growth for shareholders. We generally seek to identify companies that are out of favor with investors, under-earning relative to their potential and attractively valued. For these companies, we attempt to identify catalysts that may improve the financial results and/or correct the under-valuation. Typical examples of catalysts include improved operational efficiency, changing industry dynamics and/ or a change in management.
We initially identify potential investments through a series of quantitative screens including, but not limited to, return on capital and enterprise value to sales metrics. We then conduct fundamental research on the most attractive opportunities. The research process includes a thorough review of a company’s financial statements, an evaluation of its competitive position and stability and meetings with its executives. During the research
process, we also value the company under various scenarios to determine if the investment is an attractive opportunity relative to its risks. This is also where we typically identify the positive catalyst, a prerequisite for potential investment. Finally, we generally set a price target for a stock based on normalized earnings and historical valuation multiples.
In short, our objective is to capitalize on negative sentiment toward a company’s stock by analyzing the company’s operations in the context of a cyclical environment and identifying one or more catalysts that may improve the company’s financial performance. Improved financial performance, in turn, has the potential to drive the company’s stock price higher.
We typically sell an investment when it reaches our estimate of fair value or when we identify a more attractive investment opportunity.
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted
into the spring. Then, negative news from the eurozone precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were negatively influenced by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook materially improved. Near year-end, market psychology turned negative –
first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013. As the year closed, the equity markets rallied as investors anticipated a resolution to the fiscal cliff crisis.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains and all sectors of the Russell 1000 Value Index posted positive returns.1
Strong stock selection within the industrials sector was the largest contributor to relative performance versus the Russell 1000 Value Index. Ingersoll-Rand and General Electric (GE) were two top contributors within the sector, benefiting from late-cycle business. GE’s order
| | | | | |
| Portfolio Composition |
| |
| By sector | | | | | |
| |
| Financials | | | | 24.6 | % |
| Health Care | | | | 14.3 | |
| Consumer Staples | | | | 11.8 | |
| Energy | | | | 10.7 | |
| Consumer Discretionary | | | | 10.2 | |
| Information Technology | | | | 8.3 | |
| Industrials | | | | 7.6 | |
| Telecommunication Services | | | | 2.7 | |
| Utilities | | | | 2.4 | |
| Materials | | | | 1.3 | |
| Money Market Funds | | | | | |
| Plus Other Assets Less Liabilities | | | | 6.1 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
1. JPMorgan Chase & Co. | | | | 5.2 | % |
2. General Electric Co. | | | | 3.3 | |
3. Citigroup Inc. | | | | 2.8 | |
4. Marsh & McLennan Cos., Inc. | | | | 2.3 | |
5. Viacom Inc.-Class B | | | | 2.2 | |
6. Time Warner Cable Inc. | | | | 2.1 | |
7. Microsoft Corp. | | | | 2.1 | |
8. Comcast Corp.-Class A | | | | 2.1 | |
9. eBay Inc. | | | | 2.0 | |
10. Avon Products, Inc. | | | | 2.0 | |
| | | | | |
| Total Net Assets | | | | $2.1 billion | |
| |
| Total Number of Holdings* | | | | 74 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco Van Kampen V.I. Growth and Income Fund
growth increased on the industrial side due to demand for infrastructure upgrades. Ingersoll-Rand’s stock rebounded with the help of an improved product offering in residential heating, ventilation and air conditioning and the involvement of a prominent activist investor.
Also, strong stock selection and an overweight position within the consumer discretionary sector provided a boost to relative performance. Specifically, Comcast and Time Warner Cable were top contributors within the media industry, as effective capital deployment through stock buybacks and/or dividend increases was reflected in improved financials toward the end of the reporting period.
A material underweight position in utilities also contributed to Fund performance as the sector was the worst-performing sector in the Russell 1000 Value Index.
Strong stock selection in the materials sector was another driver of relative performance versus the style-specific benchmark. Notably, paint and glass company PPG Industries was a top contributor within this sector as this company saw increased demand from residential home improvement and commercial real estate.
Stock selection within the information technology sector also contributed to performance. eBay was a top contributor as its PayPal line of business helped profits.
On the negative side, the Fund’s relatively high cash position was a large detractor from performance in a market that experienced double digit returns. We believe it is prudent to find attractive risk versus reward opportunities for the portfolio. We continue to actively seek opportunities to invest excess cash.
Stock selection in the consumer staples sector was the largest detractor from Fund performance during the reporting period. Avon was a clear detractor within this sector. The stock price experienced double-digit losses as Avon named a replacement chief executive officer, but investors were disappointed that the company rejected an acquisition offer from Coty (not a Fund holding). We continued to review Avon to ensure it met the Fund’s fundamental and valuation criteria.
An underweight position and weak stock selection in the financials sector also detracted from performance. More specifically, lack of exposure to Bank of America was a large detractor within this sector as the stock posted returns of more than 100%.
Stock selection and underweight exposure to telecommunication services stocks versus the the Fund’s style-specific benchmark also hurt the Fund’s relative performance. Vodafone was the main driver of underperformance in this sector, as this stock is not held in the benchmark and experienced negative returns for the reporting period.
Stock selection in the energy sector also negatively affected the Fund’s relative performance. More specifically, holdings in the oil and gas exploration and production and oil and gas equipment and services industries were the largest detractors, as the price of oil declined over the reporting period. Notably, Royal Dutch Shell, Hess, Anadarko Petroleum and Baker Hughes performed poorly during the year with their stocks declining. Royal Dutch Shell and Hess are no longer held in the Fund.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the Fund. The currency forward contracts were used primarily for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a slightly negative impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
Equity markets experienced continued volatility during the reporting period. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
Thank you for your investment in Invesco Van Kampen V.I. Growth and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Thomas Bastian Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen V.I. |
| Growth and Income Fund. He joined Invesco in 2010. Mr. Bastian earned a BA in accounting from St. John’s University and an MBA in finance from University of Michigan. |
| | |
 | | Mark Laskin Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Growth and Income |
| Fund. He joined Invesco in 2010. Mr. Laskin earned a BA in history from Swarthmore College. He also earned an MBA from the Wharton School and an MA from the Joseph H. Lauder Institute of Management and International Studies, both of the University of Pennsylvania. |
| | |
 | | Mary Jayne Maly Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Growth and Income |
| Fund. She joined Invesco in 2010. Ms. Maly earned a BA from the University of Pittsburgh and an MBA from the Thunderbird School of Global Management. |
| | |
 | | Sergio Marcheli Portfolio manager, is manager of Invesco Van Kampen V.I. Growth and Income Fund. He joined |
| Invesco in 2010. Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. |
| | |
 | | James Roeder Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Growth and Income |
| Fund. He joined Invesco in 2010. Mr. Roeder earned a BS in accounting from Clemson University and an MBA in economics and finance from the University of Chicago Booth School of Business. |
Invesco Van Kampen V.I. Growth and Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
| |
| Series I Shares | | | | | |
| Inception (12/23/96) | | | | 7.73 | % |
| 10 Years | | | | 7.47 | |
| 5 Years | | | | 1.33 | |
| 1 Year | | | | 14.63 | |
| |
| Series II Shares | | | | | |
| Inception (9/18/00) | | | | 4.35 | % |
| 10 Years | | | | 7.21 | |
| 5 Years | | | | 1.08 | |
| 1 Year | | | | 14.35 | |
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 0.72% and 0.97%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.84% and 1.09%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Growth and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
| 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, 2013. See current prospectus for more information. |
Invesco Van Kampen V.I. Growth and Income Fund
Invesco Van Kampen V.I. Growth and Income Fund’s investment objective is to seek long-term growth of capital and income.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Market risk may affect a single issuer, industry, sector of the economy or the market as a whole. Investments in equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. The ability of the Fund’s equity securities holdings to generate income is dependent on the earnings and the continuing declaration of dividends by the issuers of such securities. The values of income-producing equity securities may or may not move in tandem with overall changes in the stock market. The Fund’s investments in fixed income or debt securities generally are affected by changes in interest rates and the creditworthiness of the issuer. The market prices of such securities tend to fall as interest rates rise, and such declines may be greater among securities with longer maturities. The values of convertible securities tend to decline as interest rates rise and, because of the conversion feature, tend to vary with fluctuations in the market value of the underlying equity security.
Foreign risks. Risks of investing in securities of foreign issuers, including developing/emerging market issuers, can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in financial reporting, differences in securities regulation and trading, and foreign taxation issues.
Investing in real estate investment trust (REITs) risks. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and certain other expenses. REITs may be less diversified than other pools of securities, may have lower trading volume, and may be subject to more abrupt or erratic price movements than the overall securities markets.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives.
Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. Growth and Income Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–93.95% | |
| Agricultural Products–1.20% | |
Archer-Daniels-Midland Co. | | | 909,753 | | | $ | 24,918,135 | |
|
| Application Software–0.99% | |
Adobe Systems Inc.(b) | | | 550,049 | | | | 20,725,846 | |
|
| Asset Management & Custody Banks–2.02% | |
Northern Trust Corp. | | | 408,689 | | | | 20,499,840 | |
State Street Corp. | | | 458,808 | | | | 21,568,564 | |
| | | | | | | | 42,068,404 | |
|
| Biotechnology–1.44% | |
Amgen Inc. | | | 347,419 | | | | 29,989,208 | |
|
| Cable & Satellite–4.20% | |
Comcast Corp.–Class A | | | 1,153,472 | | | | 43,116,783 | |
Time Warner Cable Inc. | | | 457,187 | | | | 44,434,005 | |
| | | | | | | | 87,550,788 | |
|
| Department Stores–0.69% | |
Kohl’s Corp. | | | 337,004 | | | | 14,484,432 | |
|
| Diversified Banks–2.71% | |
Comerica Inc. | | | 597,521 | | | | 18,128,787 | |
U.S. Bancorp | | | 348,311 | | | | 11,125,053 | |
Wells Fargo & Co. | | | 796,609 | | | | 27,228,096 | |
| | | | | | | | 56,481,936 | |
|
| Diversified Chemicals–1.25% | |
PPG Industries, Inc. | | | 193,221 | | | | 26,152,462 | |
|
| Diversified Support Services–0.57% | |
Cintas Corp. | | | 292,537 | | | | 11,964,763 | |
|
| Drug Retail–0.61% | |
Walgreen Co. | | | 345,556 | | | | 12,789,028 | |
|
| Electric Utilities–2.41% | |
Edison International | | | 330,859 | | | | 14,951,518 | |
FirstEnergy Corp. | | | 350,279 | | | | 14,627,651 | |
Pinnacle West Capital Corp. | | | 404,919 | | | | 20,642,771 | |
| | | | | | | | 50,221,940 | |
|
| Food Distributors–1.19% | |
Sysco Corp. | | | 781,351 | | | | 24,737,573 | |
|
| Health Care Equipment–1.90% | |
Medtronic, Inc. | | | 967,384 | | | | 39,682,092 | |
|
| Home Improvement Retail–1.08% | |
Home Depot, Inc. (The) | | | 363,505 | | | | 22,482,784 | |
|
| Hotels, Resorts & Cruise Lines–0.94% | |
Carnival Corp. | | | 534,121 | | | | 19,639,629 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Household Products–2.12% | |
Energizer Holdings, Inc. | | | 58,632 | | | $ | 4,689,388 | |
Procter & Gamble Co. (The) | | | 581,397 | | | | 39,471,042 | |
| | | | | | | | 44,160,430 | |
|
| Industrial Conglomerates–3.31% | |
General Electric Co. | | | 3,285,380 | | | | 68,960,126 | |
|
| Industrial Machinery–1.17% | |
Ingersoll-Rand PLC | | | 509,101 | | | | 24,416,484 | |
|
| Insurance Brokers–3.80% | |
Aon PLC | | | 342,570 | | | | 19,046,892 | |
Marsh & McLennan Cos., Inc. | | | 1,398,192 | | | | 48,195,678 | |
Willis Group Holdings PLC | | | 356,614 | | | | 11,957,268 | |
| | | | | | | | 79,199,838 | |
|
| Integrated Oil & Gas–4.03% | |
Chevron Corp. | | | 370,145 | | | | 40,027,480 | |
Exxon Mobil Corp. | | | 319,935 | | | | 27,690,374 | |
Occidental Petroleum Corp. | | | 213,555 | | | | 16,360,449 | |
| | | | | | | | 84,078,303 | |
|
| Integrated Telecommunication Services–0.89% | |
Verizon Communications Inc. | | | 430,356 | | | | 18,621,504 | |
|
| Internet Software & Services–2.03% | |
eBay Inc.(b) | | | 831,146 | | | | 42,405,069 | |
|
| Investment Banking & Brokerage–3.44% | |
Charles Schwab Corp. (The) | | | 1,687,048 | | | | 24,226,010 | |
Goldman Sachs Group, Inc. (The) | | | 122,613 | | | | 15,640,514 | |
Morgan Stanley | | | 1,670,500 | | | | 31,939,960 | |
| | | | | | | | 71,806,484 | |
|
| IT Consulting & Other Services–1.12% | |
Amdocs Ltd. | | | 689,546 | | | | 23,437,669 | |
|
| Managed Health Care–3.26% | |
Cigna Corp. | | | 386,009 | | | | 20,636,041 | |
UnitedHealth Group Inc. | | | 476,008 | | | | 25,818,674 | |
WellPoint, Inc. | | | 353,258 | | | | 21,520,477 | |
| | | | | | | | 67,975,192 | |
|
| Movies & Entertainment–3.27% | |
Time Warner Inc. | | | 461,059 | | | | 22,052,452 | |
Viacom Inc.–Class B | | | 876,393 | | | | 46,220,967 | |
| | | | | | | | 68,273,419 | |
|
| Oil & Gas Equipment & Services–2.00% | |
Baker Hughes Inc. | | | 535,272 | | | | 21,860,509 | |
Halliburton Co. | | | 570,428 | | | | 19,788,147 | |
| | | | | | | | 41,648,656 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
| | | | | | | | |
| | | Shares | | | Value | |
| Oil & Gas Exploration & Production–3.68% | |
Anadarko Petroleum Corp. | | | 558,841 | | | $ | 41,527,475 | |
Canadian Natural Resources Ltd. (Canada) | | | 182,753 | | | | 5,272,535 | |
ConocoPhillips | | | 276,253 | | | | 16,019,911 | |
Devon Energy Corp. | | | 267,268 | | | | 13,908,627 | |
| | | | | | | | 76,728,548 | |
|
| Oil & Gas Storage & Transportation–0.99% | |
Williams Cos., Inc. (The) | | | 632,760 | | | | 20,716,562 | |
|
| Other Diversified Financial Services–7.93% | |
Citigroup Inc. | | | 1,461,666 | | | | 57,823,507 | |
JPMorgan Chase & Co. | | | 2,444,756 | | | | 107,495,921 | |
| | | | | | | | 165,319,428 | |
|
| Packaged Foods & Meats–2.50% | |
Kraft Foods Group, Inc. | | | 350,205 | | | | 15,923,821 | |
Mondelez International Inc.–Class A | | | 604,296 | | | | 15,391,419 | |
Unilever N.V.–New York Shares (Netherlands) | | | 544,388 | | | | 20,850,061 | |
| | | | | | | | 52,165,301 | |
|
| Personal Products–2.02% | |
Avon Products, Inc. | | | 2,940,865 | | | | 42,230,821 | |
|
| Pharmaceuticals–7.75% | |
Bristol-Myers Squibb Co. | | | 786,075 | | | | 25,618,184 | |
Eli Lilly & Co. | | | 540,438 | | | | 26,654,402 | |
Hospira, Inc.(b) | | | 175,693 | | | | 5,488,649 | |
Merck & Co., Inc. | | | 1,026,557 | | | | 42,027,244 | |
Novartis AG (Switzerland) | | | 293,665 | | | | 18,575,114 | |
Novartis AG–ADR (Switzerland) | | | 35,825 | | | | 2,267,722 | |
Pfizer Inc. | | | 1,634,837 | | | | 41,001,712 | |
| | | | | | | | 161,633,027 | |
|
| Property & Casualty Insurance–0.80% | |
Chubb Corp. (The) | | | 220,979 | | | | 16,644,138 | |
|
| Regional Banks–3.92% | |
BB&T Corp. | | | 748,699 | | | | 21,794,628 | |
Fifth Third Bancorp | | | 1,238,986 | | | | 18,820,197 | |
PNC Financial Services Group, Inc. | | | 707,345 | | | | 41,245,287 | |
| | | | | | | | 81,860,112 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Security & Alarm Services–2.53% | |
ADT Corp. (The) | | | 430,177 | | | $ | 19,998,929 | |
Tyco International Ltd. | | | 1,122,403 | | | | 32,830,288 | |
| | | | | | | | 52,829,217 | |
|
| Semiconductor Equipment–1.53% | |
Applied Materials, Inc. | | | 2,796,908 | | | | 31,996,628 | |
|
| Semiconductors–0.57% | |
Intel Corp. | | | 578,487 | | | | 11,934,187 | |
|
| Soft Drinks–2.20% | |
Coca-Cola Co. (The) | | | 408,084 | | | | 14,793,045 | |
PepsiCo, Inc. | | | 454,777 | | | | 31,120,390 | |
| | | | | | | | 45,913,435 | |
|
| Systems Software–2.09% | |
Microsoft Corp. | | | 1,628,836 | | | | 43,538,786 | |
|
| Wireless Telecommunication Services–1.80% | |
Vodafone Group PLC–ADR (United Kingdom) | | | 1,491,650 | | | | 37,574,664 | |
Total Common Stocks & Other Equity Interests
(Cost $1,714,096,375) | | | | 1,959,957,048 | |
| | |
Money Market Funds–6.15% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(c) | | | 64,169,025 | | | | 64,169,025 | |
Premier Portfolio–Institutional Class(c) | | | 64,169,026 | | | | 64,169,026 | |
Total Money Market Funds
(Cost $128,338,051) | | | | | | | 128,338,051 | |
TOTAL INVESTMENTS–100.10%
(Cost $1,842,434,426) | | | | 2,088,295,099 | |
OTHER ASSETS LESS LIABILITIES–(0.10)% | | | | (2,062,355 | ) |
NET ASSETS–100.00% | | | $ | 2,086,232,744 | |
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 Van Kampen V.I. Growth and Income Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $1,714,096,375) | | $ | 1,959,957,048 | |
Investments in affiliated money market funds, at value and cost | | | 128,338,051 | |
Total investments, at value (Cost $1,842,434,426) | | | 2,088,295,099 | |
Foreign currencies, at value (Cost $0) | | | 7,342 | |
Receivable for: | | | | |
Fund shares sold | | | 9,176,719 | |
Dividends | | | 3,312,234 | |
Fund expenses absorbed | | | 23,687 | |
Investment for trustee deferred compensation and retirement plans | | | 25,882 | |
Total assets | | | 2,100,840,963 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Investments purchased | | | 10,191,053 | |
Fund shares reacquired | | | 631,773 | |
Foreign currency contracts outstanding | | | 1,019,544 | |
Accrued fees to affiliates | | | 2,559,167 | |
Accrued other operating expenses | | | 81,431 | |
Trustee deferred compensation and retirement plans | | | 125,251 | |
Total liabilities | | | 14,608,219 | |
Net assets applicable to shares outstanding | | $ | 2,086,232,744 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 1,790,603,841 | |
Undistributed net investment income | | | 29,868,461 | |
Undistributed net realized gain | | | 20,916,746 | |
Unrealized appreciation | | | 244,843,696 | |
| | | $ | 2,086,232,744 | |
|
Net Assets: | |
Series I | | $ | 139,946,884 | |
Series II | | $ | 1,946,285,860 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 6,971,570 | |
Series II | | | 97,149,155 | |
Series I: | | | | |
Net asset value per share | | $ | 20.07 | |
Series II: | | | | |
Net asset value per share | | $ | 20.03 | |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $273,961) | | $ | 47,841,954 | |
Dividends from affiliated money market funds | | | 240,286 | |
Total investment income | | | 48,082,240 | |
| |
Expenses: | | | | |
Advisory fees | | | 11,338,090 | |
Administrative services fees | | | 5,268,689 | |
Custodian fees | | | 61,516 | |
Distribution fees — Series II | | | 4,678,379 | |
Transfer agent fees | | | 26,069 | |
Trustees’ and officers’ fees and benefits | | | 96,896 | |
Other | | | 158,045 | |
Total expenses | | | 21,627,684 | |
Less: Fees waived | | | (3,544,070 | ) |
Net expenses | | | 18,083,614 | |
Net investment income | | | 29,998,626 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities (includes net gains from securities sold to affiliates of $494,397) | | | 82,724,699 | |
Foreign currencies | | | (67,629 | ) |
Foreign currency contracts | | | 1,402,562 | |
Option contracts written | | | 214,500 | |
| | | | 84,274,132 | |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 157,336,535 | |
Foreign currencies | | | 2,567 | |
Foreign currency contracts | | | (3,461,389 | ) |
| | | | 153,877,713 | |
Net realized and unrealized gain | | | 238,151,845 | |
Net increase in net assets resulting from operations | | $ | 268,150,471 | |
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 Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 29,998,626 | | | $ | 26,723,123 | |
Net realized gain | | | 84,274,132 | | | | 43,550,187 | |
Change in net unrealized appreciation (depreciation) | | | 153,877,713 | | | | (107,765,526 | ) |
Net increase (decrease) in net assets resulting from operations | | | 268,150,471 | | | | (37,492,216 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (2,099,962 | ) | | | (1,800,201 | ) |
Series ll | | | (24,684,293 | ) | | | (18,264,703 | ) |
Total distributions from net investment income | | | (26,784,255 | ) | | | (20,064,904 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (35,529,889 | ) | | | 6,256,808 | |
Series ll | | | (1,049,836 | ) | | | 52,879,530 | |
Net increase (decrease) in net assets resulting from share transactions | | | (36,579,725 | ) | | | 59,136,338 | |
Net increase in net assets | | | 204,786,491 | | | | 1,579,218 | |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 1,881,446,253 | | | | 1,879,867,035 | |
End of year (includes undistributed net investment income of $29,868,461 and $26,708,695, respectively) | | $ | 2,086,232,744 | | | $ | 1,881,446,253 | |
Notes to Financial Statements
December 31, 2012
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-five 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 long-term growth of capital and income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
| A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco Van Kampen V.I. Growth and Income Fund
Foreign securities’ (including foreign exchange contracts) prices 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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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 |
Invesco Van Kampen V.I. Growth and Income Fund
| | 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 covered 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. |
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. (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 July 1, 2012, the Adviser has contractually agreed, through April 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 0.72% and Series II shares to 0.97% of average daily net assets. Prior to July 1, 2012, 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 0.62% 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 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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.
Further, the Adviser has contractually agreed, through at least June 30, 2013, 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.
Invesco Van Kampen V.I. Growth and Income Fund
For the year ended December 31, 2012, the Adviser waived advisory fees of $3,544,070.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $419,568 for accounting and fund administrative services and reimbursed $4,849,121 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 year ended December 31, 2012, 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 year ended December 31, 2012, 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, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 2,069,719,985 | | | $ | 18,575,114 | | | $ | — | | | $ | 2,088,295,099 | |
Foreign Currency Contracts* | | | — | | | | (1,019,544 | ) | | | — | | | | (1,019,544 | ) |
Total Investments | | $ | 2,069,719,985 | | | $ | 17,555,570 | | | $ | — | | | $ | 2,087,275,555 | |
| * | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of December 31, 2012:
| | | | | | | | |
| | | Value | |
| Risk Exposure/Derivative Type | | Assets | | | Liabilities | |
Currency risk | | | | | | | | |
Foreign Currency Contracts(a) | | $ | 50,692 | | | $ | (1,070,236 | ) |
| (a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. |
Invesco Van Kampen V.I. Growth and Income Fund
Effect of Derivative Instruments for the year ended December 31, 2012
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 | | | | | | | | |
Currency risk | | $ | 1,402,562 | | | $ | — | |
Equity risk | | | — | | | | 214,500 | |
Change in Unrealized Appreciation (Depreciation) | | | | | | | | |
Currency risk | | $ | (3,461,389 | ) | | $ | — | |
Total | | $ | (2,058,827 | ) | | $ | 214,500 | |
| * | The average notional value of foreign currency contracts and options outstanding during the period was $69,414,482 and $2,735,000, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Open Foreign Currency Contracts | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Unrealized
Appreciation | |
| | Counterparty | | Deliver | | | Receive | | | |
01/15/13 | | State Street | | | USD | | | | 3,120,493 | | | | GBP | | | | 1,951,733 | | | $ | 3,171,185 | | | $ | 50,692 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Settlement
Date | | | | Contract to | | | Notional
Value | | | Unrealized
Appreciation
(Depreciation) | |
| | Counterparty | | Deliver | | | Receive | | | |
01/15/13 | | Bank of New York | | | CHF | | | | 9,984,453 | | | | USD | | | | 10,734,355 | | | $ | 10,908,960 | | | $ | (174,605 | ) |
01/15/13 | | Bank of New York | | | EUR | | | | 16,856,375 | | | | USD | | | | 21,805,996 | | | | 22,243,748 | | | | (437,752 | ) |
01/15/13 | | State Street | | | GBP | | | | 19,674,269 | | | | USD | | | | 31,508,971 | | | | 31,966,850 | | | | (457,879 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | $ | (1,070,236 | ) |
Total open foreign currency contracts | | | | | | | | | | | | | | | | | | | | | | $ | (1,019,544 | ) |
Currency Abbreviations:
| | |
| CHF | | – Canadian Dollar |
| EUR | | – Euro |
| | |
| GBP | | – British Pound Sterling |
| USD | | – U.S. Dollar |
| | | | | | | | |
| Options Transactions During the Period | |
| | | Call Option Contracts | |
| | | Number of
Contracts | | | Premiums
Received | |
Beginning of period | | | — | | | $ | — | |
Written | | | 2,735 | | | | 214,500 | |
Expired | | | (2,735 | ) | | | (214,500 | ) |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $288,508 and securities sales of $2,045,493, which resulted in net realized gains of $494,397.
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.
Invesco Van Kampen V.I. Growth and Income Fund
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. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 26,784,255 | | | $ | 20,064,904 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 29,990,626 | |
Undistributed long-term gain | | | 20,431,963 | |
Net unrealized appreciation — investments | | | 245,275,220 | |
Net unrealized appreciation — other investments | | | 53,259 | |
Temporary book/tax differences | | | (122,165 | ) |
Shares of beneficial interest | | | 1,790,603,841 | |
Total net assets | | $ | 2,086,232,744 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $58,992,327 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have capital loss carryforward as of December 31, 2012.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $577,071,841 and $615,005,632, 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 | | $ | 290,191,964 | |
Aggregate unrealized (depreciation) of investment securities | | | (44,916,744 | ) |
Net unrealized appreciation of investment securities | | $ | 245,275,220 | |
Cost of investments for tax purposes is $1,843,019,879.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and litigation settlements, on December 31, 2012, undistributed net investment income was decreased by $54,605 and undistributed net realized gain was increased by $54,605. This reclassification had no effect on the net assets of the Fund.
Invesco Van Kampen V.I. Growth and Income Fund
NOTE 11—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 887,171 | | | $ | 17,276,539 | | | | 2,123,242 | | | $ | 37,996,201 | |
Series II | | | 8,473,190 | | | | 163,595,757 | | | | 11,601,479 | | | | 208,213,439 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 104,580 | | | | 2,099,962 | | | | 112,865 | | | | 1,800,201 | |
Series II | | | 1,230,523 | | | | 24,684,293 | | | | 1,146,560 | | | | 18,264,703 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (2,832,826 | ) | | | (54,906,390 | ) | | | (1,820,667 | ) | | | (33,539,594 | ) |
Series II | | | (9,776,546 | ) | | | (189,329,886 | ) | | | (9,473,533 | ) | | | (173,598,612 | ) |
Net increase (decrease) in share activity | | | (1,913,908 | ) | | $ | (36,579,725 | ) | | | 3,689,946 | | | $ | 59,136,338 | |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 79% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or
expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or
expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(b) | |
Series I(c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 17.77 | | | $ | 0.33 | | | $ | 2.27 | | | $ | 2.60 | | | $ | (0.30 | ) | | $ | — | | | $ | (0.30 | ) | | $ | 20.07 | | | | 14.63 | %(d) | | $ | 139,947 | | | | 0.66 | %(e) | | | 0.84 | %(e) | | | 1.72 | %(e) | | | 31 | % |
Year ended 12/31/11 | | | 18.40 | | | | 0.30 | | | | (0.70 | ) | | | (0.40 | ) | | | (0.23 | ) | | | — | | | | (0.23 | ) | | | 17.77 | | | | (2.01 | )(d) | | | 156,617 | | | | 0.61 | | | | 0.84 | | | | 1.65 | | | | 28 | |
Year ended 12/31/10 | | | 16.37 | | | | 0.24 | | | | 1.81 | | | | 2.05 | | | | (0.02 | ) | | | — | | | | (0.02 | ) | | | 18.40 | | | | 12.51 | (d) | | | 154,488 | | | | 0.61 | | | | 0.74 | | | | 1.42 | | | | 30 | |
Year ended 12/31/09 | | | 13.74 | | | | 0.24 | | | | 2.98 | | | | 3.22 | | | | (0.59 | ) | | | — | | | | (0.59 | ) | | | 16.37 | | | | 24.37 | | | | 153,653 | | | | 0.62 | | | | — | | | | 1.72 | | | | 55 | |
Year ended 12/31/08 | | | 21.36 | | | | 0.36 | | | | (6.95 | ) | | | (6.59 | ) | | | (0.38 | ) | | | (0.65 | ) | | | (1.03 | ) | | | 13.74 | | | | (32.03 | ) | | | 146,013 | | | | 0.61 | | | | — | | | | 2.06 | | | | 50 | |
Series II(c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 17.74 | | | | 0.28 | | | | 2.27 | | | | 2.55 | | | | (0.26 | ) | | | — | | | | (0.26 | ) | | | 20.03 | | | | 14.35 | (d) | | | 1,946,286 | | | | 0.91 | (e) | | | 1.09 | (e) | | | 1.47 | (e) | | | 31 | |
Year ended 12/31/11 | | | 18.37 | | | | 0.25 | | | | (0.69 | ) | | | (0.44 | ) | | | (0.19 | ) | | | — | | | | (0.19 | ) | | | 17.74 | | | | (2.26 | )(d) | | | 1,724,830 | | | | 0.86 | | | | 1.09 | | | | 1.40 | | | | 28 | |
Year ended 12/31/10 | | | 16.39 | | | | 0.20 | | | | 1.80 | | | | 2.00 | | | | (0.02 | ) | | | — | | | | (0.02 | ) | | | 18.37 | | | | 12.19 | (d) | | | 1,725,378 | | | | 0.86 | | | | 0.99 | | | | 1.17 | | | | 30 | |
Year ended 12/31/09 | | | 13.71 | | | | 0.20 | | | | 2.99 | | | | 3.19 | | | | (0.51 | ) | | | — | | | | (0.51 | ) | | | 16.39 | | | | 24.11 | (f) | | | 1,514,691 | | | | 0.87 | | | | — | | | | 1.45 | | | | 55 | |
Year ended 12/31/08 | | | 21.31 | | | | 0.32 | | | | (6.94 | ) | | | (6.62 | ) | | | (0.33 | ) | | | (0.65 | ) | | | (0.98 | ) | | | 13.71 | | | | (32.21 | )(f) | | | 1,236,160 | | | | 0.86 | | | | — | | | | 1.82 | | | | 50 | |
| (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. |
| (c) | On June 1, 2010, the Class I and Class II shares or the predecessor fund were reorganized into Series I and Series II shares, respectively of the Fund. |
| (d) | 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. |
| (e) | Ratios are based on average daily net assets (000’s omitted) of $144,665 and $1,871,352 for Series I and Series II shares, respectively. |
| (f) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
NOTE 13—Subsequent Event
Effective May 1, 2013, the Fund will change its name to “Invesco V.I. Growth and Income Fund”.
Invesco Van Kampen V.I. Growth and Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. Growth and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. Growth and Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL
(5% annual return before
expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,066.00 | | | $ | 3.74 | | | $ | 1,021.52 | | | $ | 3.66 | | | | 0.72 | % |
Series II | | | 1,000.00 | | | | 1,064.80 | | | | 5.03 | | | | 1,020.26 | | | | 4.93 | | | | 0.97 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Growth and Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. Growth and Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. Growth and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. Growth and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. Growth and Income Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. Growth and Income Fund
Invesco Van Kampen V.I. Mid Cap Growth Fund
Annual Report to Shareholders n December 31, 2012
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, 2012, 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 US 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-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. Mid Cap Growth Fund had solid positive returns but underperformed its style-specific benchmark, the Russell Midcap Growth Index. Underperformance was driven in large part by stock selection in several sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 11.60 | % |
| Series II Shares | | | | 11.63 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell Midcap Growth Indexn (Style-Specific Index) | | | | 15.81 | |
| Lipper VUF Mid-Cap Growth Funds Index¿ (Peer Group Index) | | | | 13.86 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet
Research Systems Inc.; ¿Lipper Inc.
How we invest
We believe a growth investment strategy is an essential component of a diversified portfolio.
Our investment process emphasizes rigorous bottom-up analysis of individual companies. We seek to invest in companies with strong or improving fundamentals, attractive valuation relative to growth prospects and earnings expectations that appear fair to conservative.
To narrow our investment universe, we utilize a holistic approach that emphasizes fundamental research and, to a lesser extent, includes quantitative analysis. At the end of this distillation process, we have a set of stocks to analyze in greater depth.
Our fundamental analysis focuses on identifying companies with strong drivers of growth. To accomplish this goal, we conduct comprehensive, bottom-up analysis in order to develop higher conviction in each company’s prospects for growth. Through our analysis, we develop a mosaic of each company through detailed discussions with company
management teams, competitors, distributors, suppliers, Wall Street analysts and customers. We also utilize a variety of valuation techniques based on the company in question, the industry in which the company operates, the stage of the business cycle and other factors that best reflect a company’s value.
Risk management plays an important role in portfolio construction, as our target portfolio attempts to maximize the relationship between risk and return. We seek to accomplish this goal by investing in companies with attractive fundamental prospects for growth, and we divide the portfolio between stable growth stocks and catalyst-driven stocks.
We consider selling a stock for any of the following reasons:
| n | | The price target set at purchase has been reached. |
| n | | There is deterioration in a company’s fundamentals. |
| n | | The catalysts for growth are no longer present or are reflected in the stock price. |
| n | | There is a more attractive investment opportunity. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market outlook improved materially. Near year end, market psychology turned negative – first, due to uncertainty about the outcome of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
Despite volatility for much of the year, major equity market indexes delivered double-digit gains, and all 10 sectors of the S&P 500 Index had positive returns.1
| | | | | |
| Portfolio Composition |
By sector | | | | | |
| Consumer Discretionary | | | | 24.2 | % |
| Industrials | | | | 17.8 | |
| Information Technology | | | | 17.6 | |
| Health Care | | | | 12.4 | |
| Energy | | | | 7.1 | |
| Materials | | | | 7.0 | |
| Financials | | | | 5.1 | |
| Consumer Staples | | | | 3.8 | |
| Telecommunication Services | | | | 2.9 | |
| Money Market Funds Plus Other Assets Less Liabilities | | | | 2.1 | |
| | | | | |
| Top 10 Equity Holdings* |
| | | | | |
| |
1. Affiliated Managers Group, Inc. | | | | 2.4 | % |
2. Tesla Motors, Inc. | | | | 2.3 | |
3. AMETEK, Inc. | | | | 2.2 | |
4. PPG Industries, Inc. | | | | 2.2 | |
5. Citrix Systems, Inc. | | | | 2.1 | |
6. Joy Global Inc. | | | | 2.1 | |
7. SBA Communications Corp.-Class A | | | | 2.0 | |
8. BioMarin Pharmaceutical Inc. | | | | 2.0 | |
9. Fastenal Co. | | | | 1.9 | |
10. Discovery Communications, Inc.- Class A | | | | 1.8 | |
| | | | | |
| Top Five Industries* |
| | | | | |
| |
1. Specialty Stores | | | | 5.8 | % |
2. Biotechnology | | | | 5.5 | |
3. Internet Software and Services | | | | 4.9 | |
4. Application Software | | | | 3.9 | |
5. Apparel, Accessories and Luxury Goods | | | | 3.9 | |
| | | | | |
| Total Net Assets | | | | $231.7 million | |
| |
| Total Number of Holdings* | | | | 78 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco Van Kampen V.I. Mid Cap Growth Fund
In this environment, the Fund had solid positive returns but underperformed its style-specific benchmark, the Russell Midcap Growth Index, during the fiscal year. Strong performance in the consumer discretionary, financials and industrials sectors was offset by underperformance in the health care, information technology (IT) and materials sectors.
The health care sector proved to be challenging in 2012, resulting in a significant amount of the Fund’s underperformance versus the Russell Midcap Growth Index. The largest detractor was Allscripts, which provides clinical, financial and information solutions to hospitals and physicians. Allscripts announced dramatically lower earnings during the reporting period, and a power struggle in the boardroom led to the departure of several board members. Amid these events, the stock price was hit dramatically. Another detractor was Hologic. The company has a couple of business lines, but investors were focused on the company’s potential growth and rollout of 3D mammography tools. The company made a surprise acquisition announcement that substantially changed the profile of Hologic’s overall business going forward. Because investors were disappointed by this use of capital and lack of forthright communication by company management, the stock was down significantly upon the announcement. We sold our Allscripts position during the reporting period, while trimming Hologic.
The IT sector encompassed both the Fund’s largest contributor and largest detractor. Verifone was the largest detractor, declining when an investment firm downgraded the stock and questioned the company’s portrayal of revenue growth. This was exacerbated when the company also lost a patent infringement case that left it financially liable. We sold the stock during the reporting period. The largest contributor to Fund performance was Equinix, a leader in data center co-location, whose stock was up more than 100% during the reporting period.
The Fund outperformed its style-specific benchmark in a number of sectors. Stock selection in the consumer discretionary sector was strong and led to solid outperformance there. Powerful handbag, clothing and accessories brand, Michael Kors repeatedly reported better-than-expected revenue and earnings during the year. Retailers gave the brand increased promotion and shelf space, and
the stock was up strongly during the reporting period. Television content provider Discovery Communications was another strong performer with consistent growth through a turbulent year.
The Fund also outperformed the Russell Midcap Growth Index in the financials sector due to strong stock selection. Within the sector, Discover Financial Services benefited from a strong cycle in the credit card business. Asset management firm Affiliated Managers Group also contributed to performance, due both to the early-2012 market rally and increased asset flows into its international and alternative funds.
As we’ve discussed, the stock market experienced significant volatility during the fiscal year. We would like to caution investors against making investment decisions based on short-term performance. We thank you for your commitment to Invesco Van Kampen V.I. Mid Cap Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | James Leach Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Mid Cap Growth Fund. He joined |
| Invesco in 2011. Mr. Leach earned a BS in mechanical engineering from the University of California and an MBA from New York University Stern School of Business. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
| | | | | |
| Average Annual Total Returns |
| As of 12/31/12 | | | | | |
| | | | | |
| Series I Shares | | | | | |
| 10 Years | | | | 8.89 | % |
| 5 Years | | | | 1.42 | |
| 1 Year | | | | 11.60 | |
| |
| Series II Shares | | | | | |
| Inception (9/25/00) | | | | –2.57 | % |
| 10 Years | | | | 8.87 | |
| 5 Years | | | | 1.37 | |
| 1 Year | | | | 11.63 | |
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 total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.08% and 1.33%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Mid Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds
(Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Invesco Van Kampen V.I. Mid Cap Growth Fund’s investment objective is to seek capital growth.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Market risk. Market risk is the possibility that the market values of securities owned by the Fund will decline. Investments in common stocks and other equity securities generally are affected by changes in the stock markets, which fluctuate substantially over time, sometimes suddenly and sharply. Convertible securities have risks associated with both common stocks and debt securities. Investments in debt securities are generally affected by changes in the interest rates and creditworthiness of the issuer. The prices of such securities tend to fall as interest rates rise, and such declines tend to be greater for securities with longer maturities. The creditworthiness of the issuer may affect the issuer’s ability to make timely payments of interest and principal. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities.
Medium-sized companies risk. Medium-sized companies often have less predictable earnings and more limited product lines, markets, distribution channels or financial resources. The market movements of equity securities of medium-sized companies may be more abrupt and volatile than the market movements of equity securities of larger, more established companies or the stock market in general. Historically, medium-sized companies have sometimes gone through extended periods when they did not perform as well as larger companies. In addition, equity securities of medium-sized companies generally are less liquid than larger companies. This means that the Fund could have greater difficulty selling such securities at the time and price that the Fund would like.
Growth investing risk. Investments in growth-oriented equity securities may have above-average volatility of price movement. The returns on growth securities may or may not move in tandem with the returns on other styles of investing or the overall stock markets. Different types of stocks tend to shift in and out of favor
depending on market and economic conditions. Thus, the value of the Fund’s investments will vary and at times may be lower or higher than that of other types of investments.
Foreign risk. The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, foreign currency exchange controls, political and economic instability, differences in securities regulation and trading, and foreign taxation issues.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Real estate investment trusts (REITs) risk. Investing in REITs makes the Fund more susceptible to risks associated with the ownership of real estate and with the real estate industry in general and may involve duplication of management fees and other expenses. REITs may be less diversified than other pools of securities, may have lower trading volumes and may be subject to more abrupt or erratic price movements than the overall securities markets.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–97.93% | |
| Aerospace & Defense–2.58% | |
B/E Aerospace, Inc.(b) | | | 56,669 | | | $ | 2,799,449 | |
Triumph Group, Inc. | | | 48,574 | | | | 3,171,882 | |
| | | | | | | | 5,971,331 | |
|
| Apparel Retail–1.73% | |
American Eagle Outfitters, Inc. | | | 140,533 | | | | 2,882,332 | |
Ross Stores, Inc. | | | 20,802 | | | | 1,126,428 | |
| | | | | | | | 4,008,760 | |
|
| Apparel, Accessories & Luxury Goods–3.89% | |
Michael Kors Holdings Ltd.(b) | | | 61,653 | | | | 3,146,153 | |
Ralph Lauren Corp. | | | 18,336 | | | | 2,748,933 | |
Under Armour, Inc.–Class A(b) | | | 64,079 | | | | 3,109,754 | |
| | | | | | | | 9,004,840 | |
|
| Application Software–3.91% | |
Autodesk, Inc.(b) | | | 61,245 | | | | 2,165,011 | |
Citrix Systems, Inc.(b) | | | 75,074 | | | | 4,936,115 | |
Salesforce.com, Inc.(b) | | | 11,699 | | | | 1,966,602 | |
| | | | | | | | 9,067,728 | |
|
| Asset Management & Custody Banks–2.43% | |
Affiliated Managers Group, Inc.(b) | | | 43,158 | | | | 5,617,014 | |
|
| Automobile Manufacturers–2.29% | |
Tesla Motors, Inc.(b) | | | 156,527 | | | | 5,301,569 | |
|
| Automotive Retail–1.53% | |
O’Reilly Automotive, Inc.(b) | | | 39,645 | | | | 3,545,056 | |
|
| Biotechnology–5.53% | |
Alexion Pharmaceuticals, Inc.(b) | | | 20,228 | | | | 1,897,589 | |
BioMarin Pharmaceutical Inc.(b) | | | 93,105 | | | | 4,585,421 | |
Medivation Inc.(b) | | | 59,093 | | | | 3,023,198 | |
Onyx Pharmaceuticals, Inc.(b) | | | 43,730 | | | | 3,302,927 | |
| | | | | | | | 12,809,135 | |
|
| Broadcasting–1.83% | |
Discovery Communications, Inc.–Class A(b) | | | 66,637 | | | | 4,230,117 | |
|
| Building Products–1.08% | |
Lennox International Inc. | | | 47,676 | | | | 2,503,943 | |
|
| Casinos & Gaming–2.58% | |
Penn National Gaming, Inc.(b) | | | 40,930 | | | | 2,010,072 | |
Wynn Resorts Ltd. | | | 35,205 | | | | 3,960,211 | |
| | | | | | | | 5,970,283 | |
|
| Communications Equipment–0.51% | |
F5 Networks, Inc.(b) | | | 12,199 | | | | 1,185,133 | |
|
| Construction & Engineering–1.47% | |
MasTec Inc.(b) | | | 136,820 | | | | 3,410,923 | |
|
| Construction & Farm Machinery & Heavy Trucks–2.06% | |
Joy Global Inc. | | | 74,923 | | | | 4,778,589 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Construction Materials–1.03% | |
Martin Marietta Materials, Inc.(c) | | | 25,373 | | | $ | 2,392,166 | |
|
| Consumer Finance–1.66% | |
Discover Financial Services | | | 99,949 | | | | 3,853,034 | |
|
| Data Processing & Outsourced Services–1.59% | |
Alliance Data Systems Corp.(b) | | | 25,363 | | | | 3,671,548 | |
|
| Diversified Chemicals–2.17% | |
PPG Industries, Inc. | | | 37,199 | | | | 5,034,885 | |
|
| Electrical Components & Equipment–2.79% | |
AMETEK, Inc. | | | 135,823 | | | | 5,102,870 | |
Rockwell Automation, Inc. | | | 16,178 | | | | 1,358,790 | |
| | | | | | | | 6,461,660 | |
|
| Electronic Components–1.76% | |
Amphenol Corp.–Class A | | | 63,175 | | | | 4,087,422 | |
|
| Environmental & Facilities Services–1.46% | |
Waste Connections, Inc. | | | 100,411 | | | | 3,392,888 | |
|
| Food Retail–2.35% | |
Fresh Market, Inc. (The)(b)(c) | | | 33,915 | | | | 1,630,972 | |
Whole Foods Market, Inc. | | | 41,805 | | | | 3,818,051 | |
| | | | | | | | 5,449,023 | |
|
| Health Care Equipment–1.48% | |
Hologic, Inc.(b) | | | 60,433 | | | | 1,210,473 | |
Intuitive Surgical, Inc.(b) | | | 4,538 | | | | 2,225,299 | |
| | | | | | | | 3,435,772 | |
|
| Health Care Facilities–1.41% | |
Universal Health Services, Inc.–Class B | | | 67,406 | | | | 3,259,080 | |
|
| Health Care Services–2.81% | |
Catamaran Corp.(b) | | | 34,725 | | | | 1,635,895 | |
DaVita HealthCare Partners Inc.(b) | | | 15,286 | | | | 1,689,561 | |
Express Scripts Holding Co.(b) | | | 20,277 | | | | 1,094,958 | |
HMS Holdings Corp.(b) | | | 71,930 | | | | 1,864,426 | |
Innovacare Inc. (Acquired 12/21/05;
Cost $241,634)(b)(d) | | | 56,847 | | | | 222,840 | |
| | | | | | | | 6,507,680 | |
|
| Homebuilding–0.93% | |
Toll Brothers, Inc.(b) | | | 66,942 | | | | 2,164,235 | |
|
| Hotels, Resorts & Cruise Lines–0.54% | |
Starwood Hotels & Resorts Worldwide, Inc. | | | 21,870 | | | | 1,254,463 | |
|
| Household Appliances–0.79% | |
Whirlpool Corp. | | | 18,064 | | | | 1,838,012 | |
|
| Household Products–1.40% | |
Church & Dwight Co., Inc. | | | 60,422 | | | | 3,236,807 | |
|
| Industrial Gases–1.36% | |
Airgas, Inc. | | | 34,512 | | | | 3,150,600 | |
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–1.83% | |
Flowserve Corp. | | | 28,802 | | | $ | 4,228,134 | |
|
| Internet Software & Services–4.87% | |
Akamai Technologies, Inc.(b) | | | 82,440 | | | | 3,372,620 | |
Equinix, Inc.(b) | | | 17,154 | | | | 3,537,155 | |
Facebook Inc.–Class A(b) | | | 93,789 | | | | 2,497,601 | |
Rackspace Hosting, Inc.(b) | | | 25,192 | | | | 1,871,010 | |
| | | | | | | | 11,278,386 | |
|
| IT Consulting & Other Services–1.61% | |
Cognizant Technology Solutions Corp.–Class A(b) | | | 33,265 | | | | 2,463,273 | |
Teradata Corp.(b) | | | 20,264 | | | | 1,254,139 | |
| | | | | | | | 3,717,412 | |
|
| Movies & Entertainment–1.58% | |
Cinemark Holdings, Inc. | | | 141,224 | | | | 3,668,999 | |
|
| Oil & Gas Equipment & Services–3.49% | |
Cameron International Corp.(b) | | | 71,939 | | | | 4,061,676 | |
FMC Technologies, Inc.(b) | | | 37,683 | | | | 1,613,963 | |
Weatherford International Ltd.(b) | | | 214,350 | | | | 2,398,576 | |
| | | | | | | | 8,074,215 | |
|
| Oil & Gas Exploration & Production–3.66% | |
EQT Corp. | | | 40,530 | | | | 2,390,459 | |
Gulfport Energy Corp.(b) | | | 59,228 | | | | 2,263,694 | |
Pioneer Natural Resources Co. | | | 35,955 | | | | 3,832,444 | |
| | | | | | | | 8,486,597 | |
|
| Pharmaceuticals–1.18% | |
Shire PLC–ADR (Ireland) | | | 29,666 | | | | 2,734,612 | |
|
| Railroads–1.40% | |
Kansas City Southern | | | 38,944 | | | | 3,251,045 | |
|
| Regional Banks–0.99% | |
First Republic Bank | | | 69,795 | | | | 2,287,880 | |
|
| Restaurants–0.76% | |
Panera Bread Co.–Class A(b) | | | 11,121 | | | | 1,766,348 | |
|
| Semiconductors–1.51% | |
Avago Technologies Ltd. | | | 110,376 | | | | 3,494,504 | |
|
| Specialty Chemicals–2.47% | |
Albemarle Corp. | | | 62,619 | | | | 3,889,892 | |
LyondellBasell Industries N.V.–Class A | | | 32,104 | | | | 1,832,818 | |
| | | | | | | | 5,722,710 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Specialty Stores–5.78% | |
Dick’s Sporting Goods, Inc. | | | 84,372 | | | $ | 3,838,082 | |
GNC Holdings, Inc.–Class A | | | 87,199 | | | | 2,901,983 | |
Tractor Supply Co. | | | 31,533 | | | | 2,786,256 | |
Ulta Salon, Cosmetics & Fragrance, Inc. | | | 39,397 | | | | 3,871,149 | |
| | | | | | | | 13,397,470 | |
|
| Systems Software–0.53% | |
Red Hat, Inc.(b) | | | 23,292 | | | | 1,233,544 | |
|
| Technology Distributors–1.33% | |
Avnet, Inc.(b) | | | 100,319 | | | | 3,070,765 | |
|
| Trading Companies & Distributors–1.86% | |
Fastenal Co. | | | 92,227 | | | | 4,306,079 | |
|
| Trucking–1.27% | |
J.B. Hunt Transport Services, Inc. | | | 49,255 | | | | 2,941,016 | |
|
| Wireless Telecommunication Services–2.86% | |
SBA Communications Corp.–
Class A(b) | | | 65,573 | | | | 4,656,995 | |
Sprint Nextel Corp.(b) | | | 348,872 | | | | 1,978,104 | |
| | | | | | | | 6,635,099 | |
Total Common Stocks & Other Equity Interests
(Cost $184,898,013) | | | | 226,888,511 | |
|
Money Market Funds–2.26% | |
Liquid Assets Portfolio–Institutional Class(e) | | | 2,611,021 | | | | 2,611,021 | |
Premier Portfolio–Institutional Class(e) | | | 2,611,021 | | | | 2,611,021 | |
Total Money Market Funds
(Cost $5,222,042) | | | | 5,222,042 | |
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.19% (Cost $190,120,055) | | | | 232,110,553 | |
| |
Investments Purchased with Cash Collateral from Securities on Loan | | | | | |
Money Market Funds–0.10% | |
Liquid Assets Portfolio–Institutional Class
(Cost $236,012)(e)(f) | | | 236,012 | | | | 236,012 | |
TOTAL INVESTMENTS–100.29%
(Cost $190,356,067) | | | | | | | 232,346,565 | |
OTHER ASSETS LESS LIABILITIES–(0.29)% | | | | (667,959 | ) |
NET ASSETS–100.00% | | | | | | $ | 231,678,606 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | All or a portion of this security was out on loan at December 31, 2012. |
| (d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at December 31, 2012 represented less than 1% of the Fund’s Net Assets. |
| (e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
| (f) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned.See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | | | | |
Investments, at value (Cost $184,898,013)* | | $ | 226,888,511 | |
Investments in affiliated money market funds, at value and cost | | | 5,458,054 | |
Total investments, at value (Cost $190,356,067) | | | 232,346,565 | |
Receivable for: | | | | |
Fund shares sold | | | 89,707 | |
Dividends | | | 41,770 | |
Fund expenses absorbed | | | 7,108 | |
Investment for trustee deferred compensation and retirement plans | | | 66,973 | |
Other assets | | | 83,565 | |
Total assets | | | 232,635,688 | |
| |
Liabilities: | | | | |
Payable for: | | | | |
Fund shares reacquired | | | 336,057 | |
Collateral upon return of securities loaned | | | 236,012 | |
Accrued fees to affiliates | | | 231,556 | |
Accrued other operating expenses | | | 40,560 | |
Trustee deferred compensation and retirement plans | | | 112,897 | |
Total liabilities | | | 957,082 | |
Net assets applicable to shares outstanding | | $ | 231,678,606 | |
| |
Net assets consist of: | | | | |
Shares of beneficial interest | | $ | 242,384,578 | |
Undistributed net investment income | | | 632,366 | |
Undistributed net realized gain (loss) | | | (53,328,825 | ) |
Unrealized appreciation | | | 41,990,487 | |
| | | $ | 231,678,606 | |
|
Net Assets: | |
Series I | | $ | 88,091,033 | |
Series II | | $ | 143,587,573 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 22,446,656 | |
Series II | | | 36,700,915 | |
Series I: | | | | |
Net asset value per share | | $ | 3.92 | |
Series II: | | | | |
Net asset value per share | | $ | 3.91 | |
| * | At December 31, 2012, securities with an aggregate value of $233,444 were on loan to brokers. |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $24,861) | | $ | 2,645,344 | |
Dividends from affiliated money market funds (includes securities lending income of $244,849) | | | 251,571 | |
Total investment income | | | 2,896,915 | |
| |
Expenses: | | | | |
Advisory fees | | | 1,355,673 | |
Administrative services fees | | | 480,552 | |
Custodian fees | | | 17,151 | |
Distribution fees — Series II | | | 295,407 | |
Transfer agent fees | | | 38,261 | |
Trustees’ and officers’ fees and benefits | | | 28,036 | |
Other | | | 97,119 | |
Total expenses | | | 2,312,199 | |
Less: Fees waived | | | (103,685 | ) |
Net expenses | | | 2,208,514 | |
Net investment income | | | 688,401 | |
| |
Realized and unrealized gain (loss) from: | | | | |
Net realized gain (loss) from investment securities | | | (4,820,673 | ) |
Change in net unrealized appreciation (depreciation) of: | | | | |
Investment securities | | | 7,527,960 | |
Foreign currencies | | | (3 | ) |
| | | | 7,527,957 | |
Net realized and unrealized gain | | | 2,707,284 | |
Net increase in net assets resulting from operations | | $ | 3,395,685 | |
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 years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income (loss) | | $ | 688,401 | | | $ | (458,415 | ) |
Net realized gain (loss) | | | (4,820,673 | ) | | | 5,213,870 | |
Change in net unrealized appreciation (depreciation) | | | 7,527,957 | | | | (11,146,604 | ) |
Net increase (decrease) in net assets resulting from operations | | | 3,395,685 | | | | (6,391,149 | ) |
| | |
Distributions to shareholders from net realized gains: | | | | | | | | |
Series l | | | (29,188 | ) | | | — | |
Series ll | | | (3,373,477 | ) | | | — | |
Total distributions from net realized gains | | | (3,402,665 | ) | | | — | |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | 90,879,821 | | | | — | |
Series ll | | | 75,715,072 | | | | (7,991,842 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | 166,594,893 | | | | (7,991,842 | ) |
Net increase (decreased) in net assets | | | 166,587,913 | | | | (14,382,991 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 65,090,693 | | | | 79,473,684 | |
End of year (includes undistributed net investment income (loss) of $632,366 and $(7,352), respectively) | | $ | 231,678,606 | | | $ | 65,090,693 | |
Notes to Financial Statements
December 31, 2012
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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices 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
Invesco Van Kampen V.I. Mid Cap Growth Fund
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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
| 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 affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
| J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable.
| K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
| | | | |
| Average Net Assets | | Rate | |
First $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. (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 July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2014, 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 1.09% and Series II shares to 1.34% of average daily net assets. Prior to July 1, 2012, 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 1.01% 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 or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $103,685.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $430,552 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $2,201 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 232,123,725 | | | $ | — | | | $ | 222,840 | | | $ | 232,346,565 | |
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 year ended December 31, 2012, the Fund engaged in securities purchases of $35,199.
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
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. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary Income | | $ | 4,874 | | | $ | — | |
Long-term capital gain | | | 3,397,791 | | | | — | |
Total distributions | | $ | 3,402,665 | | | $ | — | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 737,259 | |
Net unrealized appreciation — investments | | | 41,826,564 | |
Net unrealized appreciation (depreciation) — other investments | | | (11 | ) |
Temporary book/tax differences | | | (104,893 | ) |
Capital loss carryforward | | | (53,164,891 | ) |
Shares of beneficial interest | | | 242,384,578 | |
Total net assets | | $ | 231,678,606 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund has a capital loss carryforward as of December 31, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2014 | | $ | 3,084,761 | | | $ | — | | | $ | 3,084,761 | |
December 31, 2015 | | | 18,519,479 | | | | — | | | | 18,519,479 | |
December 31, 2016 | | | 26,458,758 | | | | — | | | | 26,458,758 | |
Not subject to expiration | | | 5,101,893 | | | | — | | | | 5,101,893 | |
| | | $ | 53,164,891 | | | $ | — | | | $ | 53,164,891 | |
| * | 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 April 30, 2012 the date of reorganization of Invesco V.I. Capital Development Fund into the Fund are 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 Van Kampen V.I. Mid Cap Growth Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $158,410,122 and $86,617,652, 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 | | $ | 45,265,248 | |
Aggregate unrealized (depreciation) of investment securities | | | (3,438,684 | ) |
Net unrealized appreciation of investment securities | | $ | 41,826,564 | |
Cost of investments for tax purposes is $190,520,001.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of non-deductible proxy costs and expired capital loss carryforward, on December 31, 2012, undistributed net investment income was increased by $38,992, undistributed net realized gain (loss) was increased by $322,510 and shares of beneficial interest was decreased by $361,502. Further, as a result of tax deferrals and capital loss carryforward acquired in the reorganization of Invesco V.I. Capital Development Fund into the Fund, undistributed net investment income was decreased by $87,675, undistributed net realized gain (loss) was decreased by $48,730,063 and shares of beneficial interest was increased by $48,817,738. These reclassifications had no effect on the net assets of the Fund.
NOTE 10—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 2,853,873 | | | $ | 11,082,336 | | | | — | | | $ | — | |
Series II | | | 3,697,327 | | | | 13,808,375 | | | | 1,834,465 | | | | 7,278,754 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 7,350 | | | | 28,592 | | | | — | | | | — | |
Series II | | | 867,246 | | | | 3,373,473 | | | | — | | | | — | |
| | | | |
Issued in connection with acquisitions:(b) | | | | | | | | | | | | | | | | |
Series I | | | 27,656,004 | | | | 110,336,990 | | | | — | | | | — | |
Series II | | | 20,315,173 | | | | 80,877,943 | | | | — | | | | — | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (8,073,601 | ) | | | (30,568,097 | ) | | | — | | | | — | |
Series II | | | (5,855,175 | ) | | | (22,344,719 | ) | | | (3,749,212 | ) | | | (15,270,596 | ) |
Net increase (decrease) in share activity | | | 41,468,197 | | | $ | 166,594,893 | | | | (1,914,747 | ) | | $ | (7,991,842 | ) |
| (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 Fund 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 April 30, 2012 the Fund acquired all the net assets of Invesco V.I. Capital Development Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 30, 2011 and by the shareholders of the Target Fund on April 2, 2012. The acquisition was accomplished by a tax-free exchange of 47,971,177 shares of the Fund for 13,665,309 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund were exchanged for the like class shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund at the close of business on April 27, 2012. The Target Fund’s net assets at that date of $191,214,933, including $31,284,430 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $71,573,743. The net assets of the Fund immediately following the acquisition were $262,788,676. The pro forma results of operations for the year ended December 31, 2012, assuming the reorganization had been completed on January 1, 2012, the beginning of the annual reporting period are as follows: |
| | | | |
Net investment income | | $ | 333,780 | |
Net realized/unrealized gains | | | 27,965,531 | |
Change in net assets resulting from operations | | $ | 28,299,311 | |
| | The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since April 30, 2012. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income
(loss)(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Distributions
from net
realized
gains | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income (loss)(e)
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 3.69 | | | $ | 0.02 | (d) | | $ | 0.41 | | | $ | 0.43 | | | $ | (0.20 | ) | | $ | 3.92 | | | | 11.60 | % | | $ | 88,091 | | | | 1.06 | %(e) | | | 1.12 | %(e) | | | 0.54 | %(d)(e) | | | 92 | % |
Year ended 12/31/11 | | | 4.05 | | | | (0.01 | ) | | | (0.35 | ) | | | (0.36 | ) | | | — | | | | 3.69 | | | | (8.89 | ) | | | 11 | | | | 1.00 | | | | 1.14 | | | | (0.36 | ) | | | 137 | |
Year ended 12/31/10(f) | | | 3.30 | | | | (0.00 | )(g) | | | 0.75 | | | | 0.75 | | | | — | | | | 4.05 | | | | 22.73 | | | | 12 | | | | 1.01 | (h) | | | 1.12 | (h) | | | (0.18 | )(h) | | | 105 | |
Series II | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | | 3.68 | | | | 0.01 | | | | 0.42 | | | | 0.43 | | | | (0.20 | ) | | | 3.91 | | | | 11.63 | | | | 143,588 | | | | 1.31 | (e) | | | 1.37 | (e) | | | 0.29 | (d)(e) | | | 92 | |
Year ended 12/31/11 | | | 4.06 | | | | (0.02 | ) | | | (0.36 | ) | | | (0.38 | ) | | | — | | | | 3.68 | | | | (9.36 | ) | | | 65,080 | | | | 1.25 | | | | 1.39 | | | | (0.61 | ) | | | 137 | |
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 | ) | | | 2.04 | | | | (46.83 | ) | | | 22,603 | | | | 1.26 | | | | 1.61 | | | | (0.66 | ) | | | 42 | |
| (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 year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $158,450,343 and sold of $99,449,268 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Development Fund into the Fund. |
| (d) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include special cash dividends received of $3.92 per share owned of Avela Inc. on August 16, 2012. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.01 and 0.28% and $0.00 and 0.03% for Series I and Series II shares, respectively. |
| (e) | Ratios are based on average daily net assets (000’s omitted) of $62,594 and $118,163 for Series I and Series II shares, respectively. |
| (f) | Commencement date of June 1, 2010. |
| (g) | Amount is less than $0.01 per share. |
NOTE 12—Subsequent Event
Effective May 1, 2013, the Fund will change its name to “Invesco V.I. Mid Cap Growth Fund”.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. Mid Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. Mid Cap Growth Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, provide a reasonable basis for our opinion. The financial highlights of the Fund for the periods ended December 31, 2009 and prior were audited by another independent registered public accounting firm whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
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 July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,048.50 | | | $ | 5.61 | | | $ | 1,019.66 | | | $ | 5.53 | | | | 1.09 | % |
Series II | | | 1,000.00 | | | | 1,048.60 | | | | 6.90 | | | | 1,018.40 | | | | 6.80 | | | | 1.34 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year—end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Long-Term Capital Gain Dividends | | $ | 3,397,791 | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Invesco Van Kampen V.I. Value
Opportunities Fund
Annual Report to Shareholders ¡ December 31, 2012
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, 2012, 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 US 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-VIVOPP-AR-1
| | | | |
| NOT FDIC INSURED | | MAY LOSE VALUE | | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2012, Invesco Van Kampen V.I. Value Opportunities Fund outperformed its style-specific benchmark, the Russell 3000 Value Index. The Fund benefited from overweight positions and stock selection in the consumer discretionary and financials sectors. The Fund’s lack of exposure to the utilities sector contributed to the relative performance of the Fund. Alternatively, stock selection and overweight exposure to the energy sector and stock selection in the telecommunication services, information technology (IT), health care and materials sectors detracted from the Fund’s performance versus the style-specific benchmark.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/11 to 12/31/12, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
| | | | | |
| Series I Shares | | | | 17.70 | % |
| Series II Shares | | | | 17.66 | |
| S&P 500 Index‚ (Broad Market Index) | | | | 16.00 | |
| Russell 3000 Value Indexn (Style-Specific Index)* | | | | 17.55 | |
| Russell 1000 Value Indexn (Former Style-Specific Index) | | | | 17.51 | |
| Lipper VUF Multi-Cap Value Funds Indext (Peer Group Index) | | | | 15.19 | |
Lipper VUF Large-Cap Value Funds Indext (Former Peer Group Index)* | | | | 15.92 | |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; tLipper Inc
| * | During the reporting period, the Fund has elected to use the Russell 3000 Value Index as its style-specific index rather than the Russell 1000 Value Index, and to use the Lipper VUF Multi-Cap Value Funds Index as its peer group index rather than the Lipper VUF Large-Cap Value Funds Index. This is because the Russell 3000 Value Index and the Lipper VUF Multi-Cap Value Funds Index more closely reflect the performance of the types of securities in which the Fund invests. |
How we invest
We seek to capitalize on market inefficiencies by investing in companies that appear undervalued relative to the market in general. We believe that there are four key drivers to finding attractive stocks.
| n | | Valuation – We use different measures of valuation for different sectors. We use more stable measures of value such as price/book, price/cash flow, and price/sales in more cyclical parts of the market. We use more cash flow and earnings based measures in more growth parts of the market. |
| n | | Fundamentals – We rigorously analyze the fundamentals and risks of the company and its industry. |
| n | | Accounting – We focus on the quality of a company’s accounting including all four financial statements. |
| n | | Psychology – We feel that psychology is one reason that companies become undervalued. |
Ultimately, we believe that the market will recognize the value in companies with such criteria and we will sell them as their stock price begins to reflect their intrinsic value.
We will only initiate a purchase of a security if we believe the potential for stock price appreciation outweighs potential downside risk. To be eligible for inclusion in the Fund, a stock must meet the following criteria:
| | | | | |
Portfolio Composition By sector | | | | | |
| Financials | | | | 38.2 | % |
| Consumer Discretionary | | | | 15.7 | |
| Energy | | | | 14.6 | |
| Health Care | | | | 8.3 | |
| Consumer Staples | | | | 4.9 | |
| Information Technology | | | | 4.4 | |
| Industrials | | | | 4.3 | |
| Telecommunication Services | | | | 2.1 | |
| Materials | | | | 1.2 | |
Money Market Funds Plus Other Assets Less Liabilities | | | | 6.3 | |
| | | | | |
| Total Net Assets | | | | $228.4 million | |
| |
| Total Number of Holdings* | | | | 42 | |
| | | | | |
| Top 10 Equity Holdings* | | |
| |
| | | | | |
1. Omnicom Group Inc. | | | | 6.1 | % |
2. JPMorgan Chase & Co. | | | | 5.0 | |
3. Royal Dutch Shell PLC-ADR | | | | 4.5 | |
4. Chevron Corp. | | | | 4.2 | |
5. Chubb Corp. (The) | | | | 3.7 | |
6. Aspen Insurance Holdings Ltd. | | | | 3.5 | |
7. Wells Fargo & Co. | | | | 3.5 | |
8. Pfizer Inc. | | | | 3.2 | |
9. Allstate Corp. (The) | | | | 3.1 | |
10. Citigroup Inc. | | | | 2.7 | |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* Excluding money market fund holdings.
| n | | The security is statistically cheap on the basis of its primary valuation criteria, which depends upon the cyclical or growth nature of its business. |
| n | | Rigorous fundamental analysis shows that the company is undervalued and possesses potential financial strength and improved quality of management for future growth. |
We maintain an intense focus on the quality of a company’s accounting and on financial statement analysis. Portfolio construction is bottom up and stock specific, concentrating on individual company fundamental analysis and valuations. Therefore, while we monitor and are aware of our positions relative to the style-specific benchmark, it does not play a major role in the construction of the Fund.
Our sell discipline is just as important as the buy decision and is based on the same principles: valuation and fundamentals. While no sale is automatic, a security is typically sold if it meets one or more of the following criteria:
| n | | The target price has been realized and we no longer consider the company undervalued. |
| n | | A better value opportunity can be found elsewhere. |
| n | | The company is experiencing deteriorating fundamentals we believe to be a long-term issue. |
Market conditions and your Fund
The year 2012 began with improving economic data in the US and a rally in equities that continued almost uninterrupted into the spring. However, the ongoing eurozone sovereign debt crisis intensified in April and May, dominating headlines and creating significant volatility in global equity markets.
This negative news from overseas precipitated a slowdown in the US, where economic data began to decelerate as manufacturing, employment, consumer spending and consumer confidence weakened over the summer. While corporate earnings remained solid until late in the year, financial markets were influenced negatively by these weakening economic data. Fears about the fate of the eurozone began to subside after the European Central Bank announced new measures to support member economies through potentially unlimited purchases of sovereign debt, among other measures. At the same time, continued risk aversion among investors and corporations, along with tepid employment growth, prompted the US Federal Reserve to initiate a third round of quantitative easing and to promise to remain accommodative until the labor market
Invesco Van Kampen V.I. Value Opportunities Fund
outlook improved materially. Near year-end, market psychology turned negative – first, due to uncertainty about the out-come of the presidential election, and then due to the apparent inability of the White House and Congress to reach an agreement on legislation averting the so-called “fiscal cliff” – a variety of tax increases and spending cuts scheduled to take effect in January 2013.
In this environment, stock selection and an overweight position in the consumer discretionary sector contributed the most to relative Fund performance during the fiscal year. Consumer discretionary holdings Time Warner Cable and Macy’s were the Fund’s top performers in this sector. Time Warner Cable continued to take market share in broadband while its customers were increasingly moving up to the company’s higher speed and higher priced broadband products. Also, the company has been returning capital through stock buybacks and a dividend. The stock returned more than 50% for the reporting period. Macy’s generated positive performance as it improved its operating performance through localization and enhanced employee training, combined with a high level of free cash flow and an inexpensive valuation.
Stock selection and a material overweight position in financials was also a large contributor as the financials sector was a top performer during the reporting period. More specifically, within diversified financials, Citigroup was a top contributor and within insurance, Allstate contributed the most to relative performance. Citigroup is increasingly focusing on costs while Allstate is improving pricing, particularly in its homeowners line, while building out its small direct business. Allstate and Citigroup were trading at attractive valuations, despite the strong performance over the reporting period and had strong capital positions. Both holdings returned more than 50% for the reporting period, as investors welcomed improving financials and profits for both companies.
Having no exposure to utilities also boosted the Fund’s relative performance for the year as this was the worst performing sector in the Russell 3000 Value Index for the reporting period. Investors’ “chasing yield” resulted in utilities becoming expensive. Indeed, in the last 40 years, utilities have rarely been as overvalued relative to the S&P 500 Index, as they are now.
Stock selection and overweight exposure to energy stocks were the largest detractors to relative performance as the energy sector was the second-worst performing sector during the reporting period. A fear of weaker commodity prices was a primary cause for the stocks’
underperformance. Royal Dutch Shell and Petroleo Brasileiro were among the largest detractors from Fund performance. Royal Dutch Shell had some temporary operating issues that we believe the company will fix. Petroleo Brasileiro had weak pricing in its downstream operations and also had temporary operating issues that we believe will be fixed. Petroleo Brasileiro has a massive resource base and substantial opportunities to increase this resource base. At the close of the year, both companies traded at very attractive valuations.
Stock selection and underweight exposure to the telecommunication services sector detracted from relative performance. Vodafone Group underperformed due to an earnings disappointment. However, Vodafone’s valuation in total is attractive. After backing out its 45% ownership of Verizon Wireless (not a Fund holding), the valuation for its remaining operations was even more attractive. Not owning Sprint Nextel was a large detractor for the Fund as the stock rose more than 140% for the year.1
Unfavorable stock selection in the IT sector hampered Fund performance as well. More specifically, within hardware and equipment, Hewlett-Packard and Dell were large detractors on both an absolute and relative basis. Investors continued to be concerned with Hewlett-Packard over its changes in management, resulting in inconsistent strategic plans and a longer-term turnaround story than expected.
Markets experienced increased volatility during the reporting period. We would like to caution investors against making investment decisions based on short-term performance. Thank you for your investment in the Invesco Van Kampen V.I. Value Opportunities Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
| | |
 | | Jason Leder Chartered Financial Analyst, portfolio manager, is lead manager of Invesco Van Kampen V.I. |
| Value Opportunities Fund. He joined Invesco in 2010. Mr. Leder earned a bachelor’s degree from The University of Texas at Austin and an MBA from Columbia University. |
| | |
 | | Devin Armstrong Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Value Opportunities |
| Fund. He joined Invesco in 2010. Mr. Armstrong earned a BS in psychology and finance from the University of Illinois and an MBA in finance from Columbia University. |
| | |
 | | Kevin Holt Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Value Opportunities |
| Fund. He joined Invesco in 2010. Mr. Holt earned a bachelor’s degree from the University of Iowa and an MBA from the University of Chicago Booth School of Business. |
| | |
 | | Yogi Kak Portfolio manager, is manager of Invesco Van Kampen V.I. Value Opportunities Fund. He joined Invesco in 2011. |
| Mr. Kak earned a Bachelor of Technology degree in electrical engineering from the Institute of Technology, Banares Hindu University and an MBA from Tulane University. |
| | |
 | | Matthew Seinsheimer Chartered Financial Analyst, portfolio manager, is manager of Invesco Van Kampen V.I. Value Opportunities |
| Fund. He joined Invesco in 1998. Mr. Seinsheimer earned a BBA from Southern Methodist University and an MBA from The University of Texas at Austin. |
| | |
 | | James (Jay) Warwick Portfolio manager, is manager of Invesco Van Kampen V.I. Value Opportunities Fund. He joined Invesco in 2010. |
| Mr. Warwick earned a BBA from Stephen F. Austin State University and an MBA from the University of Houston. |
Invesco Van Kampen V.I. Value Opportunities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/02
Past performance cannot guarantee comparable future results.
During the reporting period, the Fund has elected to use the Russell 3000 Value Index as its style-specific index rather than the Russell 1000 Value Index, and to use the Lipper VUF Multi-Cap Value Funds Index as its peer group index
rather than the Lipper VUF Large-Cap Value Funds Index. This is because the Russell 3000 Value Index and the Lipper VUF Multi-Cap Value Funds Index more closely reflect the performance of the types of securities in which the Fund invests. Because this is the first reporting period since we have adopted the new
index, SEC guidelines require that we compare performance to both the old and new indexes.
| | | | | |
Average Annual Total Returns As of 12/31/12 | | |
Series I Shares | | | | | |
| Inception (9/10/01) | | | | 2.07 | % |
| 10 Years | | | | 4.66 | |
| 5 Years | | | | -2.65 | |
| 1 Year | | | | 17.70 | |
| |
| Series II Shares | | | | | |
| Inception (9/10/01) | | | | 1.83 | % |
| 10 Years | | | | 4.41 | |
| 5 Years | | | | -2.89 | |
| 1 Year | | | | 17.66 | |
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 Van Kampen V.I. Value Opportunities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot
purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. Value Opportunities Fund
Invesco Van Kampen V.I. Value Opportunities Fund’s investment objective is long-term growth of capital.
| n | | Unless otherwise stated, information presented in this report is as of December 31, 2012, and is based on total net assets. |
| n | | Unless otherwise noted, all data provided by Invesco. |
| n | | To access your Funds reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Concentration risk. To the extent the Fund invests a greater amount in any one sector or industry, the Fund’s performance will depend to a greater extent on the overall condition of the sector or industry, and there is increased risk to the Fund if conditions adversely affect that sector or industry.
Derivatives risk. The performance of derivative instruments is tied to the performance of an underlying currency, security, index or other instrument. In addition to risks relating to their underlying instruments, the use of derivatives may include other, possibly greater, risks. Derivatives involve costs, may be volatile, and may involve a small initial investment relative to the risk assumed. Risks associated with the use of derivatives may include counterparty, leverage, correlation, liquidity, tax, market, interest rate and management risks. Derivatives may also be more difficult to purchase, sell or value than other investments. The Fund may lose more than the cash amount invested on investments in derivatives. Investors should bear in mind that, while the Fund intends to use derivative strategies, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the investment manager elects not to do so due to availability, cost, market conditions or other factors.
Developing/emerging markets securities risk. Securities issued by foreign companies and governments located in developing/emerging countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations,
decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small and mid-capitalization risks. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 3000® Value Index is an unmanaged index considered representative of U.S. value stocks. The Russell 3000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
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.
The Lipper VUF Multi-Cap Value Funds Index is an unmanaged index considered representative of multi-cap value variable insurance underlying funds tracked by Lipper.
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco Van Kampen V.I. Value Opportunities Fund
Schedule of Investments(a)
December 31, 2012
| | | | | | | | |
| | | Shares | | | Value | |
Common Stocks & Other Equity Interests–93.72% | |
| Advertising–6.06% | |
Omnicom Group Inc. | | | 277,042 | | | $ | 13,841,018 | |
|
| Aerospace & Defense–1.99% | |
Honeywell International Inc. | | | 71,452 | | | | 4,535,058 | |
|
| Asset Management & Custody Banks–1.99% | |
Bank of New York Mellon Corp. (The) | | | 176,992 | | | | 4,548,694 | |
|
| Automobile Manufacturers–2.64% | |
Renault S.A. (France) | | | 109,511 | | | | 6,039,411 | |
|
| Brewers–1.71% | |
Molson Coors Brewing Co.-Class B | | | 91,192 | | | | 3,902,106 | |
|
| Cable & Satellite–2.43% | |
Time Warner Cable Inc. | | | 57,121 | | | | 5,551,590 | |
|
| Computer Hardware–4.41% | |
Apple Inc. | | | 10,412 | | | | 5,549,388 | |
Dell Inc. | | | 164,571 | | | | 1,667,104 | |
Hewlett-Packard Co. | | | 199,693 | | | | 2,845,625 | |
| | | | | | | | 10,062,117 | |
|
| Department Stores–2.25% | |
Macy’s, Inc. | | | 131,743 | | | | 5,140,612 | |
|
| Diversified Banks–6.24% | |
Comerica Inc. | | | 100,346 | | | | 3,044,498 | |
U.S. Bancorp | | | 101,209 | | | | 3,232,615 | |
Wells Fargo & Co. | | | 233,554 | | | | 7,982,876 | |
| | | | | | | | 14,259,989 | |
|
| Food Retail–1.62% | |
Kroger Co. (The) | | | 142,632 | | | | 3,711,285 | |
|
| General Merchandise Stores–2.30% | |
Target Corp. | | | 88,644 | | | | 5,245,066 | |
|
| Household Products–1.58% | |
Procter & Gamble Co. (The) | | | 53,200 | | | | 3,611,748 | |
|
| Industrial Conglomerates–1.91% | |
General Electric Co. | | | 208,001 | | | | 4,365,941 | |
|
| Integrated Oil & Gas–13.54% | |
Chevron Corp. | | | 88,569 | | | | 9,577,852 | |
Exxon Mobil Corp. | | | 34,461 | | | | 2,982,599 | |
Petroleo Brasileiro S.A.–ADR (Brazil) | | | 172,092 | | | | 3,350,631 | |
Royal Dutch Shell PLC–ADR (United Kingdom) | | | 147,681 | | | | 10,182,605 | |
Total S.A.-ADR (France) | | | 92,979 | | | | 4,835,838 | |
| | | | | | | | 30,929,525 | |
|
| Investment Banking & Brokerage–2.89% | |
Goldman Sachs Group, Inc. (The) | | | 24,087 | | | | 3,072,538 | |
Morgan Stanley | | | 183,949 | | | | 3,517,105 | |
| | | | | | | | 6,589,643 | |
| | | | | | | | |
| | | Shares | | | Value | |
| Life & Health Insurance–3.18% | |
MetLife, Inc. | | | 102,622 | | | $ | 3,380,369 | |
Unum Group | | | 186,189 | | | | 3,876,455 | |
| | | | | | | | 7,256,824 | |
|
| Managed Health Care–3.66% | |
UnitedHealth Group Inc. | | | 92,878 | | | | 5,037,703 | |
WellPoint, Inc. | | | 54,592 | | | | 3,325,744 | |
| | | | | | | | 8,363,447 | |
|
| Marine–0.37% | |
Diana Shipping Inc. (Greece)(b) | | | 115,120 | | | | 840,376 | |
|
| Oil & Gas Drilling–1.12% | |
Noble Corp. | | | 73,445 | | | | 2,557,355 | |
|
| Other Diversified Financial Services–9.80% | |
Bank of America Corp. | | | 398,897 | | | | 4,627,205 | |
Citigroup Inc. | | | 158,434 | | | | 6,267,649 | |
JPMorgan Chase & Co. | | | 261,346 | | | | 11,491,384 | |
| | | | | | | | 22,386,238 | |
|
| Pharmaceuticals–4.65% | |
Bristol-Myers Squibb Co. | | | 99,184 | | | | 3,232,406 | |
Pfizer Inc. | | | 295,009 | | | | 7,398,826 | |
| | | | | | | | 10,631,232 | |
|
| Property & Casualty Insurance–14.09% | |
Allied World Assurance Co. Holdings AG | | | 65,727 | | | | 5,179,288 | |
Allstate Corp. (The) | | | 176,050 | | | | 7,071,928 | |
Aspen Insurance Holdings Ltd. | | | 248,971 | | | | 7,986,990 | |
Chubb Corp. (The) | | | 111,148 | | | | 8,371,667 | |
Travelers Cos., Inc. (The) | | | 49,683 | | | | 3,568,233 | |
| | | | | | | | 32,178,106 | |
|
| Steel–1.20% | |
POSCO–ADR (South Korea)(c) | | | 33,397 | | | | 2,743,564 | |
|
| Wireless Telecommunication Services–2.09% | |
Vodafone Group PLC-ADR (United Kingdom) | | | 189,123 | | | | 4,764,008 | |
Total Common Stocks & Other Equity Interests
(Cost $172,860,984) | | | | 214,054,953 | |
| | |
Money Market Funds–6.29% | | | | | | | | |
Liquid Assets Portfolio–Institutional Class(d) | | | 7,188,418 | | | | 7,188,418 | |
Premier Portfolio–Institutional Class(d) | | | 7,188,418 | | | | 7,188,418 | |
Total Money Market Funds
(Cost $14,376,836) | | | | 14,376,836 | |
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.01%
(Cost $187,237,820) | | | | 228,431,789 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
| | | | | | | | |
| | | Shares | | | Value | |
Investments Purchased with Cash Collateral from Securities on Loan | | | | | |
Money Market Funds–0.91% | |
Liquid Assets Portfolio—Institutional Class (Cost $2,072,639)(d)(e) | | | 2,072,639 | | | $ | 2,072,639 | |
TOTAL INVESTMENTS–100.92%
(Cost $189,310,459) | | | | 230,504,428 | |
OTHER ASSETS LESS LIABILITIES–(0.92)% | | | | (2,107,238 | ) |
NET ASSETS–100.00% | | | $ | 228,397,190 | |
Investment Abbreviations:
| | |
| ADR | | – American Depositary Receipt |
Notes to Schedule of Investments:
| (a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
| (b) | Non-income producing security. |
| (c) | All or a portion of this security was out on loan at December 31, 2012. |
| (d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
| (e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
Statement of Assets and Liabilities
December 31, 2012
Statement of Operations
For the year ended December 31, 2012
| | | | |
Assets: | |
Investments, at value (Cost $172,860,984)* | | $ | 214,054,953 | |
Investments in affiliated money market funds, at value and cost | | | 16,449,475 | |
Total investments, at value (Cost $189,310,459) | | | 230,504,428 | |
Receivable for: | | | | |
Fund shares sold | | | 62,610 | |
Dividends | | | 346,905 | |
Investment for trustee deferred compensation and retirement plans | | | 37,010 | |
Total assets | | | 230,950,953 | |
|
Liabilities: | |
Payable for: | | | | |
Fund shares reacquired | | | 124,202 | |
Collateral upon return of securities loaned | | | 2,072,639 | |
Accrued fees to affiliates | | | 208,354 | |
Accrued other operating expenses | | | 43,939 | |
Trustee deferred compensation and retirement plans | | | 104,629 | |
Total liabilities | | | 2,553,763 | |
Net assets applicable to shares outstanding | | $ | 228,397,190 | |
|
Net assets consist of: | |
Shares of beneficial interest | | $ | 234,251,479 | |
Undistributed net investment income | | | 2,892,234 | |
Undistributed net realized gain (loss) | | | (49,940,492 | ) |
Unrealized appreciation | | | 41,193,969 | |
| | | $ | 228,397,190 | |
|
Net Assets: | |
Series I | | $ | 130,383,127 | |
Series II | | $ | 98,014,063 | |
|
Shares outstanding, $0.001 par value per share,
with an unlimited number of shares authorized: | |
Series I | | | 18,351,976 | |
Series II | | | 13,865,475 | |
Series I: | | | | |
Net asset value per share | | $ | 7.10 | |
Series II: | | | | |
Net asset value per share | | $ | 7.07 | |
| * | At December 31, 2012, securities with an aggregate value of $2,057,611 were on loan to brokers. |
| | | | |
Investment income: | |
Dividends (net of foreign withholding taxes of $155,136) | | $ | 5,651,980 | |
Dividends from affiliated money market funds | | | 18,074 | |
Total investment income | | | 5,670,054 | |
| |
Expenses: | | | | |
Advisory fees | | | 1,656,656 | |
Administrative services fees | | | 638,871 | |
Custodian fees | | | 12,761 | |
Distribution fees — Series II | | | 254,613 | |
Transfer agent fees | | | 41,414 | |
Trustees’ and officers’ fees and benefits | | | 30,134 | |
Other | | | 60,914 | |
Total expenses | | | 2,695,363 | |
Less: Fees waived | | | (16,674 | ) |
Net expenses | | | 2,678,689 | |
Net investment income | | | 2,991,365 | |
| |
Realized and unrealized gain from: | | | | |
Net realized gain (loss) from: | | | | |
Investment securities | | | 20,489,394 | |
Foreign currencies | | | (5,152 | ) |
| | | | 20,484,242 | |
Change in net unrealized appreciation of investment securities | | | 15,820,217 | |
Net realized and unrealized gain | | | 36,304,459 | |
Net increase in net assets resulting from operations | | $ | 39,295,824 | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
Statement of Changes in Net Assets
For the years ended December 31, 2012 and 2011
| | | | | | | | |
| | | 2012 | | | 2011 | |
Operations: | | | | | |
Net investment income | | $ | 2,991,365 | | | $ | 3,225,795 | |
Net realized gain | | | 20,484,242 | | | | 13,180,072 | |
Change in net unrealized appreciation (depreciation) | | | 15,820,217 | | | | (23,850,063 | ) |
Net increase (decrease) in net assets resulting from operations | | | 39,295,824 | | | | (7,444,196 | ) |
| | |
Distributions to shareholders from net investment income: | | | | | | | | |
Series I | | | (2,005,611 | ) | | | (1,326,452 | ) |
Series ll | | | (1,209,493 | ) | | | (702,510 | ) |
Total distributions from net investment income | | | (3,215,104 | ) | | | (2,028,962 | ) |
| | |
Share transactions-net: | | | | | | | | |
Series l | | | (25,455,179 | ) | | | (40,031,379 | ) |
Series ll | | | (21,410,450 | ) | | | (25,126,460 | ) |
Net increase (decrease) in net assets resulting from share transactions | | | (46,865,629 | ) | | | (65,157,839 | ) |
Net increase (decrease) in net assets | | | (10,784,909 | ) | | | (74,630,997 | ) |
| | |
Net assets: | | | | | | | | |
Beginning of year | | | 239,182,099 | | | | 313,813,096 | |
End of year (includes undistributed net investment income of $2,892,234 and $3,119,843, respectively) | | $ | 228,397,190 | | | $ | 239,182,099 | |
Notes to Financial Statements
December 31, 2012
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Value Opportunities Fund, formerly 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-five 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 (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments. Foreign securities’ (including foreign exchange contracts) prices 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
Invesco Van Kampen V.I. Value Opportunities Fund
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 the Adviser determines 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’ prices 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 economic 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 became 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 declared and paid to separate accounts of participating insurance companies annually and recorded on the 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 the 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 |
Invesco Van Kampen V.I. Value Opportunities Fund
| | 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 Trust may lend portfolio securities having a market value up to one-third of the Trust’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 Trust’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 Trust 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 Trust could experience delays and costs in gaining access to the collateral. The Trust 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 affiliated money market funds 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 | .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. (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 April 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 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees
Invesco Van Kampen V.I. Value Opportunities Fund
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, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the year ended December 31, 2012, the Adviser waived advisory fees of $16,674.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2012, Invesco was paid $62,311 for accounting and fund administrative services and reimbursed $576,560 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 year ended December 31, 2012, 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 year ended December 31, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2012, the Fund incurred $77 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, 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 December 31, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Equity Securities | | $ | 224,465,017 | | | $ | 6,039,411 | | | $ | — | | | $ | 230,504,428 | |
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.
Invesco Van Kampen V.I. Value Opportunities Fund
NOTE 5—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. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2012 and 2011:
| | | | | | | | |
| | | 2012 | | | 2011 | |
Ordinary income | | $ | 3,215,104 | | | $ | 2,028,962 | |
Tax Components of Net Assets at Period-End:
| | | | |
| | | 2012 | |
Undistributed ordinary income | | $ | 2,992,454 | |
Net unrealized appreciation — investments | | | 39,798,136 | |
Temporary book/tax differences | | | (100,220 | ) |
Capital loss carryforward | | | (48,544,659 | ) |
Shares of beneficial interest | | | 234,251,479 | |
Total net assets | | $ | 228,397,190 | |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. 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 $20,244,604 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, 2012, which expires as follows:
| | | | | | | | | | | | |
| Capital Loss Carryforward* | |
| Expiration | | Short-Term | | | Long-Term | | | Total | |
December 31, 2016 | | $ | 8,259,476 | | | $ | — | | | $ | 8,259,476 | |
December 31, 2017 | | | 32,409,899 | | | | — | | | | 32,409,899 | |
December 31, 2018 | | | 7,875,284 | | | | — | | | | 7,875,284 | |
| | | $ | 48,544,659 | | | $ | — | | | $ | 48,544,659 | |
| * | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2012 was $20,128,185 and $78,723,929, 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 | | $ | 51,157,713 | |
Aggregate unrealized (depreciation) of investment securities | | | (11,359,577 | ) |
Net unrealized appreciation of investment securities | | $ | 39,798,136 | |
Cost of investments for tax purposes is $190,706,292.
Invesco Van Kampen V.I. Value Opportunities Fund
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and fair fund settlements, on December 31, 2012, undistributed net investment income was decreased by $3,870 and undistributed net realized gain (loss) was increased by $3,870. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
| | | | | | | | | | | | | | | | |
| | | Summary of Share Activity | |
| | | Years ended December 31, | |
| | | 2012(a) | | | 2011 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Sold: | | | | | | | | | | | | | | | | |
Series I | | | 1,784,123 | | | $ | 12,416,540 | | | | 969,060 | | | $ | 6,229,063 | |
Series II | | | 1,339,643 | | | | 8,704,187 | | | | 2,174,535 | | | | 13,057,835 | |
| | | | |
Issued as reinvestment of dividends: | | | | | | | | | | | | | | | | |
Series I | | | 282,878 | | | | 2,005,611 | | | | 248,399 | | | | 1,326,452 | |
Series II | | | 171,316 | | | | 1,209,493 | | | | 132,299 | | | | 702,510 | |
| | | | |
Reacquired: | | | | | | | | | | | | | | | | |
Series I | | | (5,892,112 | ) | | | (39,877,330 | ) | | | (7,489,282 | ) | | | (47,586,894 | ) |
Series II | | | (4,662,117 | ) | | | (31,324,130 | ) | | | (6,151,667 | ) | | | (38,886,805 | ) |
Net increase (decrease) in share activity | | | (6,976,269 | ) | | $ | (46,865,629 | ) | | | (10,116,656 | ) | | $ | (65,157,839 | ) |
| (a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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 Fund 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net asset
value,
beginning
of period | | | Net
investment
income(a) | | | Net gains
(losses)
on securities
(both
realized and
unrealized) | | | Total from
investment
operations | | | Dividends
from net
investment
income | | | Distributions
from net
realized
gains | | | Total
distributions | | | Net asset
value, end
of period | | | Total
return(b) | | | Net assets,
end of period
(000’s omitted) | | | Ratio of
expenses
to average
net assets
with fee waivers
and/or expenses
absorbed | | | Ratio of
expenses
to average net
assets without
fee waivers
and/or expenses
absorbed | | | Ratio of net
investment
income
to average
net assets | | | Portfolio
turnover(c) | |
Series I | | | | | | | | | | | | | | | | | | | | | |
Year ended 12/31/12 | | $ | 6.12 | | | $ | 0.09 | | | $ | 0.99 | | | $ | 1.08 | | | $ | (0.10 | ) | | $ | – | | | $ | (0.10 | ) | | $ | 7.10 | | | | 17.70 | % | | $ | 130,383 | | | | 1.01 | %(d) | | | 1.02 | %(d) | | | 1.37 | %(d) | | | 9 | % |
Year ended 12/31/11 | | | 6.38 | | | | 0.08 | | | | (0.28 | ) | | | (0.20 | ) | | | (0.06 | ) | | | – | | | | (0.06 | ) | | | 6.12 | | | | (3.05 | ) | | | 135,644 | | | | 1.00 | | | | 1.00 | | | | 1.28 | | | | 15 | |
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 | |
Series II | |
Year ended 12/31/12 | | | 6.08 | | | | 0.07 | | | | 1.00 | | | | 1.07 | | | | (0.08 | ) | | | – | | | | (0.08 | ) | | | 7.07 | | | | 17.66 | | | | 98,014 | | | | 1.26 | (d) | | | 1.27 | (d) | | | 1.12 | (d) | | | 9 | |
Year ended 12/31/11 | | | 6.34 | | | | 0.06 | | | | (0.28 | ) | | | (0.22 | ) | | | (0.04 | ) | | | – | | | | (0.04 | ) | | | 6.08 | | | | (3.39 | ) | | | 103,538 | | | | 1.25 | | | | 1.25 | | | | 1.03 | | | | 15 | |
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 | |
| (a) | Calculated using average shares outstanding. |
| (b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
| (c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
| (d) | Ratios are based on average daily net assets (000’s) of $136,523 and $101,845 for Series I and Series II shares, respectively. |
NOTE 11—Subsequent Event
Effective May 1, 2013, the Fund will change its name to “Invesco V.I. Value Opportunities Fund”.
Invesco Van Kampen V.I. Value Opportunities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco Van Kampen V.I. Value Opportunities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco Van Kampen V.I. Value Opportunities Fund, (formerly known as Invesco V.I. Basic Value Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 15, 2013
Houston, Texas
Invesco Van Kampen V.I. Value Opportunities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2012 through December 31, 2012.
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.
| | | | | | | | | | | | | | | | | | | | | | | | |
Class | | Beginning
Account Value
(07/01/12) | | | ACTUAL | | | HYPOTHETICAL (5% annual return before expenses) | | | Annualized
Expense
Ratio | |
| | | Ending
Account Value
(12/31/12)1 | | | Expenses
Paid During
Period2 | | | Ending
Account Value
(12/31/12) | | | Expenses
Paid During
Period2 | | |
Series I | | $ | 1,000.00 | | | $ | 1,080.00 | | | $ | 5.28 | | | $ | 1,020.06 | | | $ | 5.13 | | | | 1.01 | % |
Series II | | | 1,000.00 | | | | 1,079.00 | | | | 6.58 | | | | 1,018.80 | | | | 6.39 | | | | 1.26 | |
| 1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2012 through December 31, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
| 2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 184/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Value Opportunities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2012:
| | | | |
Federal and State Income Tax | |
Corporate Dividends Received Deduction* | | | 100 | % |
| | * | The above percentage is based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco Van Kampen V.I. Value Opportunities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Interested Persons | | | | | | | | |
| Martin L. Flanagan1 — 1960 Trustee | | 2007 | | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization) | | 124 | | None |
| Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | | 2006 | | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp. Formerly: Director and Chairman, Van Kampen Investor Services Inc.: Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company); and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships); and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Trustee and Executive Vice President, Tax-Free Investments Trust; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | | 124 | | None |
Wayne W. Whalen3 — 1939 Trustee | | 2010 | | Of Counsel, and prior to 2010, partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to certain funds in the Fund Complex | | 137 | | Director of the Mutual Fund Directors Forum, a nonprofit membership organization for investment directors; Chairman and Director of the Abraham Lincoln Presidential Library Foundation; and Director of the Stevenson Center for Democracy |
| 1 | Mr. Flanagan is considered an interested person of the Trust because he is an officer of the adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the adviser to the Trust. |
| 2 | Mr. Taylor is considered an interested person of the Trust because he is an officer and a director of the adviser to, and a director of the principal underwriter of, the Trust. |
| 3 | Mr. Whalen is considered an “interested person” (within the meaning of Section 2(a)(19) of the 1940 Act) of certain Funds in the Invesco Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such Funds in the Invesco Fund Complex. |
Invesco Van Kampen V.I. Value Opportunities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees | | | | | | | | |
Bruce L. Crockett — 1944 Trustee and Chair | | 1993 | | Chairman, Crockett Technologies Associates (technology consulting company) Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer COMSAT Corporation; and Chairman, Board of Governors of INTELSAT (international communications company) | | 124 | | ACE Limited (insurance company); and Investment Company Institute |
David C. Arch — 1945 Trustee | | 2010 | | Chairman and Chief Executive Officer of Blistex Inc., (consumer health care products manufacturer) Formerly: Member of the Heartland Alliance Advisory Board, a nonprofit organization serving human needs based in Chicago | | 137 | | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan |
Frank S. Bayley — 1939 Trustee | | 2001 | | Retired Formerly: Director, Badgley Funds, Inc. (registered investment company) (2 portfolios) and General Partner and Of Counsel, law firm of Baker & McKenzie, LLP | | 124 | | Director and Chairman, C.D. Stimson Company (a real estate investment company); Trustee and Overseer, The Curtis institute of Music |
James T. Bunch — 1942 Trustee | | 2004 | | Managing Member, Grumman Hill Group LLC (family office private equity management) Formerly: Founder, Green, Manning & Bunch Ltd. (investment banking firm)(1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | | 124 | | Chairman, Board of Governors, Western Golf Association; Chairman-elect, Evans Scholars Foundation; and Director, Denver Film Society |
Rodney F. Dammeyer — 1940 Trustee | | 2010 | | Chairman of CAC, LLC, (private company offering capital investment and management advisory services) Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Vice Chairman of Anixter International; Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | | 126 | | Director of Quidel Corporation and Stericycle, Inc.; Prior to May 2008, Trustee of The Scripps Research Institute; Prior to February 2008, Director of Ventana Medical Systems, Inc.; Prior to April 2007, Director of GATX Corporation; Prior to April 2004, Director of TheraSense, Inc. |
Albert R. Dowden — 1941 Trustee | | 2000 | | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Reich & Tang Funds (5 portfolios) (registered investment company); and Homeowners of America Holding Corporation/ Homeowners of America Insurance Company (property casualty company) Formerly: Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | | 124 | | Director of Nature’s Sunshine Products, Inc. |
Jack M. Fields — 1952 Trustee | | 1997 | | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit) Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | | 124 | | Insperity, Inc. (formerly known as Administaff) |
Prema Mathai-Davis — 1950 Trustee | | 1998 | | Retired Formerly: Chief Executive Officer, YWCA of the U.S.A. | | 124 | | None |
Larry Soll — 1942 Trustee | | 2004 | | Retired Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | | 124 | | None |
Hugo F. Sonnenschein — 1940 Trustee | | 2010 | | Distinguished Service Professor and President Emeritus of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago Formerly: President of the University of Chicago | | 137 | | Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences |
Invesco Van Kampen V.I. Value Opportunities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Independent Trustees—(continued) |
Raymond Stickel, Jr. — 1944 Trustee | | 2005 | | Retired Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | | 124 | | None |
| Other Officers | | | | | | | | |
Russell C. Burk — 1958
Senior Vice President and Senior Officer | | 2005 | | Senior Vice President and Senior Officer, The Invesco Funds | | N/A | | N/A |
John M. Zerr — 1962
Senior Vice President, Chief Legal Officer and Secretary | | 2006 | | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Van Kampen Funds Inc. and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | | N/A | | N/A |
Karen Dunn Kelley — 1960
Vice President | | 1993 | | Head of Invesco’s World Wide Fixed Income and Cash Management Group; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc., INVESCO Global Asset Management Limited, Invesco Management Company Limited and INVESCO Management S.A.; Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only) Formerly: Senior Vice President, Van Kampen Investments Inc.; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; President and Principal Executive Officer, Tax-Free Investments Trust; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), Short-Term Investments Trust and Tax-Free Investments Trust only) | | N/A | | N/A |
Invesco Van Kampen V.I. Value Opportunities Fund
Trustees and Officers—(continued)
| | | | | | | | |
Name, Year of Birth and
Position(s) Held with the Trust | | Trustee and/
or Officer Since | | Principal Occupation(s)
During Past 5 Years | | Number of
Funds in Fund
Complex
Overseen by
Trustee | | Other Directorship(s)
Held by Trustee During
Past 5 Years |
| Other Officers—(continued) | | | | | | | | |
Sheri Morris — 1964
Vice President, Treasurer and Principal Financial Officer | | 1999 | | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | | N/A | | N/A |
Yinka Akinsola — 1977 Anti-Money Laundering Compliance Officer | | 2011 | | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.), Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.), Invesco Management Group, Inc., The Invesco Funds, Invesco Van Kampen Closed-End Funds, Van Kampen Exchange Corp., Van Kampen Funds Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Fund Trust Formerly: Regulatory Analyst III, Financial Industry Regulatory Authority (FINRA) | | N/A | | N/A |
Todd L. Spillane — 1958
Chief Compliance Officer | | 2006 | | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) Formerly: Chief Compliance Officer, Invesco Van Kampen Closed-End Funds; Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | | N/A | | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
| | | | | | |
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E.
Atlanta, GA 30309 | | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Auditors PricewaterhouseCoopers LLP 1201 Louisiana Street, Suite 2900 Houston, TX 77002-5678 |
| | | |
| | | | | | |
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | | Counsel to the Independent Trustees Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001 | | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | | Custodian State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110-2801 |
Invesco Van Kampen V.I. Value Opportunities Fund
As of the end of the period covered by this report, the Registrant had adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
| .ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees has determined that the Registrant has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Raymond Stickel, Jr. Mr. Stickel is “independent” within the meaning of that term as used in Form N-CSR.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Fees Billed by PWC Related to the Registrant
PWC billed the Registrant aggregate fees for services rendered to the Registrant for the last two fiscal years as follows:
| | | | | | | | | | | | |
| | | Fees Billed for
Services Rendered to
the Registrant for
fiscal year end 2012 | | | Percentage of Fees
Billed Applicable to
Non-Audit Services
Provided for fiscal
year end 2012
Pursuant to Waiver of
Pre-Approval
Requirement(1) | | Fees Billed for
Services Rendered to
the Registrant for
fiscal year end 2011 | | | Percentage of Fees
Billed Applicable to
Non-Audit Services
Provided for fiscal
year end 2011
Pursuant to Waiver of
Pre-Approval
Requirement(1) |
Audit Fees | | $ | 633,700 | | | N/A | | $ | 665,525 | | | N/A |
Audit-Related Fees(2) | | $ | 12,000 | | | 0% | | $ | 42,500 | | | 0% |
Tax Fees(3) | | $ | 113,729 | | | 0% | | $ | 162,500 | | | 0% |
All Other Fees | | $ | 0 | | | 0% | | $ | 0 | | | 0% |
| | | | | | | | | | | | |
Total Fees | | $ | 759,429 | | | 0% | | $ | 870,525 | | | 0% |
PWC billed the Registrant aggregate non-audit fees of $125,729 for the fiscal year ended 2012, and $205,000 for the fiscal year ended 2011, for non-audit services rendered to the Registrant.
| (1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. |
| (2) | Audit-Related fees for the fiscal year end December 31, 2012 includes fees billed for agreed upon procedures related to fund mergers. Audit-Related fees for the fiscal year end December 31, 2011 includes fees billed for agreed upon procedures related to fund mergers. |
| (3) | Tax fees for the fiscal year end December 31, 2012 includes fees billed for reviewing tax returns and consultation services. Tax fees for the fiscal year end December 31, 2011 includes fees billed for reviewing tax returns. |
Fees Billed by PWC Related to Invesco and Invesco Affiliates
PWC billed Invesco Advisers, Inc. (“Invesco”), the Registrant’s adviser, and any entity controlling, controlled by or under common control with Invesco that provides ongoing services to the Registrant (“Invesco Affiliates”) aggregate fees for pre-approved non-audit services rendered to Invesco and Invesco Affiliates for the last two fiscal years as follows:
| | | | | | | | | | | | | | | | |
| | | Fees Billed for Non-
Audit Services
Rendered to Invesco
and Invesco Affiliates
for fiscal year end
2012 That Were
Required
to be Pre-Approved
by the Registrant’s
Audit Committee | | | Percentage of Fees
Billed Applicable to
Non-Audit Services
Provided for fiscal year
end 2012 Pursuant to
Waiver of Pre-
Approval
Requirement(1) | | | Fees Billed for Non-
Audit Services
Rendered to Invesco
and Invesco Affiliates
for fiscal year end
2011 That Were
Required
to be Pre-Approved
by the Registrant’s
Audit Committee | | | Percentage of Fees
Billed Applicable to
Non-Audit Services
Provided for fiscal year
end 2011 Pursuant to
Waiver of Pre-
Approval
Requirement(1) | |
Audit-Related Fees | | $ | 0 | | | | 0 | % | | $ | 0 | | | | 0 | % |
Tax Fees | | $ | 0 | | | | 0 | % | | $ | 0 | | | | 0 | % |
All Other Fees | | $ | 0 | | | | 0 | % | | $ | 0 | | | | 0 | % |
| | | | | | | | | | | | | | | | |
Total Fees(2) | | $ | 0 | | | | 0 | % | | $ | 0 | | | | 0 | % |
| (1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant, Invesco and Invesco Affiliates to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. |
| (2) | Including the fees for services not required to be pre-approved by the registrant’s audit committee, PWC billed Invesco and Invesco Affiliates aggregate non-audit fees of $0 for the fiscal year ended 2012, and $0 for the fiscal year ended 2011, for non-audit services rendered to Invesco and Invesco Affiliates. |
| | The Audit Committee also has considered whether the provision of non-audit services that were rendered to Invesco and Invesco Affiliates that were not required to be pre-approved pursuant to SEC regulations, if any, is compatible with maintaining PWC’s independence. |
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the Invesco Funds (the “Funds”)
Last Amended May 4, 2010
Statement of Principles
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission (“SEC”) (“Rules”), the Audit Committees of the Funds’ (the “Audit Committees”) Board of Trustees (the “Board”) are responsible for the appointment, compensation and oversight of the work of independent accountants (an “Auditor”). As part of this responsibility and to assure that the Auditor’s independence is not impaired, the Audit Committees pre-approve the audit and non-audit services provided to the Funds by each Auditor, as well as all non-audit services provided by the Auditor to the Funds’ investment adviser and to affiliates of the adviser that provide ongoing services to the Funds (“Service Affiliates”) if the services directly impact the Funds’ operations or financial reporting. The SEC Rules also specify the types of services that an Auditor may not provide to its audit client. The following policies and procedures comply with the requirements for pre-approval and provide a mechanism by which management of the Funds may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific case-by-case services by the Audit Committees (“general pre-approval”) or require the specific pre-approval of the Audit Committees (“specific pre-approval”). As set forth in these policies and procedures, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committees. Additionally, any fees exceeding 110% of estimated pre-approved fee levels provided at the time the service was pre-approved will also require specific approval by the Audit Committees before payment is made. The Audit Committees will also consider the impact of additional fees on the Auditor’s independence when determining whether to approve any additional fees for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services that may be provided by each Auditor without obtaining specific pre-approval from the Audit Committee generally on an annual basis. The term of any general pre-approval runs from the date of such pre-approval through September 30th of the following year, unless the Audit Committees consider a different period and state otherwise. The Audit Committees will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to assist the Audit Committees in fulfilling their responsibilities.
Delegation
The Audit Committees may from time to time delegate pre-approval authority to one or more of its members who are Independent Trustees. All decisions to pre-approve a service by a delegated member shall be reported to the Audit Committees at the next quarterly meeting.
Audit Services
The annual audit services engagement terms will be subject to specific pre-approval of the Audit Committees. Audit services include the annual financial statement audit and other procedures such as tax provision work that is required to be performed by the independent auditor to be able to form an opinion on the Funds’ financial statements. The Audit Committees will obtain, review and consider sufficient information concerning the proposed Auditor to make a reasonable evaluation of the Auditor’s qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may grant either general or specific pre-approval of other audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services such as issuing consents for the inclusion of audited financial statements with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Non-Audit Services
The Audit Committees may provide either general or specific pre-approval of any non-audit services to the Funds and its Service Affiliates if the Audit Committees believe that the provision of the service will not impair the independence of the Auditor, is consistent with the SEC’s Rules on auditor independence, and otherwise conforms to the Audit Committees’ general principles and policies as set forth herein.
Audit-Related Services
“Audit-related services” are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; and agreed-upon procedures related to mergers, compliance with ratings agency requirements and interfund lending activities.
Tax Services
“Tax services” include, but are not limited to, the review and signing of the Funds’ federal tax returns, the review of required distributions by the Funds and consultations regarding tax matters such as the tax treatment of new investments or the impact of new regulations. The Audit Committees will scrutinize carefully the retention of the Auditor in connection with a transaction initially recommended by the Auditor, the major business purpose of which may be tax avoidance or the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committees will consult with the Funds’ Treasurer (or his or her designee) and may consult with outside counsel or advisors as necessary to ensure the consistency of Tax services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and approved by the SEC, in connection with seeking Audit Committees’ pre-approval of permissible Tax services, the Auditor shall:
| | 1. | Describe in writing to the Audit Committees, which writing may be in the form of the proposed engagement letter: |
| | a. | The scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the Fund, relating to the service; and |
| | b. | Any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor and any person (other than the Fund) with respect to the promoting, marketing, or recommending of a transaction covered by the service; |
| | 2. | Discuss with the Audit Committees the potential effects of the services on the independence of the Auditor; and |
| | 3. | Document the substance of its discussion with the Audit Committees. |
All Other Auditor Services
The Audit Committees may pre-approve non-audit services classified as “All other services” that are not categorically prohibited by the SEC, as listed in Exhibit 1 to this policy.
Pre-Approval Fee Levels or Established Amounts
Pre-approval of estimated fees or established amounts for services to be provided by the Auditor under general or specific pre-approval policies will be set periodically by the Audit Committees. Any proposed fees exceeding 110% of the maximum estimated pre-approved fees or established amounts for pre-approved audit and non-audit services will be reported to the Audit Committees at the quarterly Audit Committees meeting and will require specific approval by the Audit Committees before payment is made. The Audit Committees will always factor in the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services and in determining whether to approve any additional fees exceeding 110% of the maximum pre-approved fees or established amounts for previously pre-approved services.
Procedures
Generally on an annual basis, Invesco Advisers, Inc. (“Invesco”) will submit to the Audit Committees for general pre-approval, a list of non-audit services that the Funds or Service Affiliates of the Funds may request from the Auditor. The list will describe the non-audit services in reasonable detail and will include an estimated range of fees and such other information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general pre-approval of the Audit Committees will be submitted to the Funds’ Treasurer (or his or her designee) and must include a detailed description of the services to be rendered. The Treasurer or his or her designee will ensure that such services are included within the list of services that have received the general pre-approval of the Audit Committees. The Audit Committees will be informed at the next quarterly scheduled Audit Committees meeting of any such services for which the Auditor rendered an invoice and whether such services and fees had been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit Committees shall be submitted to the Audit Committees jointly by the Fund’s Treasurer or his or her designee and the Auditor, and must include a joint statement that, in their view, such request is consistent with the policies and procedures and the SEC Rules.
Each request to provide tax services under either the general or specific pre-approval of the Audit Committees will describe in writing: (i) the scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the audit client, relating to the service; and (ii) any compensation arrangement or other agreement between the Auditor and any person (other than the audit client) with respect to the promoting, marketing, or recommending of a transaction covered by the service. The Auditor will discuss with the Audit Committees the potential effects of the services on the Auditor’s independence and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC Rules will be promptly brought to the attention of the Audit Committees for approval, including documentation that each of the conditions for this exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the services provided to any entity in the investment company complex as defined in section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of the engagement and the fees associated with those services.
The Audit Committees have designated the Funds’ Treasurer to monitor the performance of all services provided by the Auditor and to ensure such services are in compliance with these policies and procedures. The Funds’ Treasurer will report to the Audit Committees on a periodic basis as to the results of such monitoring. Both the Funds’ Treasurer and management of Invesco will immediately report to the chairman of the Audit Committees any breach of these policies and procedures that comes to the attention of the Funds’ Treasurer or senior management of Invesco.
Exhibit 1 to Pre-Approval of Audit and Non-Audit Services Policies and Procedures
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can reasonably conclude that the results of the service would not be subject to audit procedures in connection with the audit of the Fund’s financial statements)
| | • | | Bookkeeping or other services related to the accounting records or financial statements of the audit client |
| | • | | Financial information systems design and implementation |
| | • | | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports |
| | • | | Internal audit outsourcing services |
Categorically Prohibited Non-Audit Services
| | • | | Broker-dealer, investment adviser, or investment banking services |
| | • | | Expert services unrelated to the audit |
| | • | | Any service or product provided for a contingent fee or a commission |
| | • | | Services related to marketing, planning, or opining in favor of the tax treatment of confidential transactions or aggressive tax position transactions, a significant purpose of which is tax avoidance |
| | • | | Tax services for persons in financial reporting oversight roles at the Fund |
| | • | | Any other service that the Public Company Oversight Board determines by regulation is impermissible. |
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. |
Not applicable.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | As of February 12, 2013, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the PEO and PFO, to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of February 12, 2013, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. |
| (b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| | |
| |
| 12(a) (1) | | Code of Ethics. |
| |
| 12(a) (2) | | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
| |
| 12(a) (3) | | Not applicable. |
| |
| 12(b) | | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
| | |
| By: | | /s/ Philip A. Taylor |
| | Philip A. Taylor |
| | Principal Executive Officer |
|
| Date: February 28, 2013 |
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | |
| By: | | /s/ Philip A. Taylor |
| | Philip A. Taylor |
| | Principal Executive Officer |
|
| Date: February 28, 2013 |
| |
| By: | | /s/ Sheri Morris |
| | Sheri Morris |
| | Principal Financial Officer |
|
| Date: February 28, 2013 |
EXHIBIT INDEX
| | |
| 12(a) (1) | | Code of Ethics. |
| |
| 12(a) (2) | | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. |
| |
| 12(a) (3) | | Not applicable. |
| |
| 12 (b) | | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
