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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: 6/30/13
Item 1. Report to Stockholders.
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Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. American Franchise Fund | ||||
Effective April 29, 2013, Invesco Van Kampen V.I. American Franchise Fund was renamed Invesco V.I. American Franchise Fund. | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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Fund Performance
Performance summary
Fund vs. Indexes |
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 9.04 | % | |||
Series II Shares | 8.92 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 1000 Growth Indexn (Style-Specific Index) | 11.80 | ||||
Lipper VUF Large-Cap Growth Funds Index¿ (Peer Group Index) | 10.56 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
|
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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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns |
| ||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (7/3/95) | 8.04 | % | |||
10 Years | 6.31 | ||||
5 Years | 5.49 | ||||
1 Year | 14.24 | ||||
Series II Shares | |||||
Inception (9/18/00) | -2.46 | % | |||
10 Years | 6.04 | ||||
5 Years | 5.23 | ||||
1 Year |
| 13.95
|
|
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 (renamed Invesco V.I. American Franchise Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Capital Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.90% 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 0.98% and 1.23%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco 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 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 V.I. American Franchise Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.71% |
| |||||||
Aerospace & Defense–3.02% | ||||||||
Boeing Co. (The) | 124,450 | $ | 12,748,658 | |||||
United Technologies Corp. | 96,418 | 8,961,089 | ||||||
21,709,747 | ||||||||
Apparel Retail–1.16% | ||||||||
Gap, Inc. (The) | 200,050 | 8,348,086 | ||||||
Apparel, Accessories & Luxury Goods–1.51% | ||||||||
Michael Kors Holdings Ltd.(b) | 118,876 | 7,372,689 | ||||||
Prada S.p.A. (Italy) | 385,000 | 3,463,463 | ||||||
10,836,152 | ||||||||
Application Software–2.47% | ||||||||
Autodesk, Inc.(b) | 114,153 | 3,874,353 | ||||||
Citrix Systems, Inc.(b) | 116,471 | 7,026,695 | ||||||
Salesforce.com, Inc.(b) | 179,938 | 6,870,033 | ||||||
17,771,081 | ||||||||
Asset Management & Custody Banks–0.40% | ||||||||
BlackRock, Inc. | 11,098 | 2,850,521 | ||||||
Automobile Manufacturers–1.76% | ||||||||
General Motors Co.(b) | 379,087 | 12,627,388 | ||||||
Biotechnology–7.75% | ||||||||
Amgen Inc. | 90,480 | 8,926,757 | ||||||
Biogen Idec Inc.(b) | 25,040 | 5,388,608 | ||||||
Celgene Corp.(b) | 130,005 | 15,198,884 | ||||||
Gilead Sciences, Inc.(b) | 509,976 | 26,115,871 | ||||||
55,630,120 | ||||||||
Brewers–1.16% | ||||||||
Anheuser-Busch InBev N.V.–ADR (Belgium) | 92,672 | 8,364,575 | ||||||
Broadcasting–1.09% | ||||||||
CBS Corp.–Class B | 160,251 | 7,831,466 | ||||||
Cable & Satellite–6.80% | ||||||||
Comcast Corp.–Class A | 91,850 | 3,846,678 | ||||||
DIRECTV(b) | 225,147 | 13,873,558 | ||||||
DISH Network Corp.–Class A | 662,654 | 28,176,048 | ||||||
Sirius XM Radio Inc. | 873,929 | 2,927,662 | ||||||
48,823,946 | ||||||||
Casinos & Gaming–0.90% | ||||||||
Las Vegas Sands Corp. | 122,107 | 6,463,124 | ||||||
Communications Equipment–4.25% | ||||||||
Juniper Networks, Inc.(b) | 120,905 | 2,334,676 | ||||||
QUALCOMM, Inc. | 395,927 | 24,183,221 | ||||||
Telefonaktiebolaget LM Ericsson–ADR (Sweden) | 354,325 | 3,996,786 | ||||||
30,514,683 |
Shares | Value | |||||||
Computer Hardware–4.12% | ||||||||
Apple Inc. | 74,630 | $ | 29,559,450 | |||||
Computer Storage & Peripherals–1.19% | ||||||||
EMC Corp. | 361,878 | 8,547,558 | ||||||
Construction & Engineering–0.82% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 270,368 | 5,869,689 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.51% | ||||||||
Cummins Inc. | 100,026 | 10,848,820 | ||||||
Consumer Finance–0.76% | ||||||||
Capital One Financial Corp. | 87,392 | 5,489,092 | ||||||
Data Processing & Outsourced Services–1.92% | ||||||||
Visa Inc.–Class A | 75,295 | 13,760,161 | ||||||
Fertilizers & Agricultural Chemicals–1.42% | ||||||||
Monsanto Co. | 56,797 | 5,611,544 | ||||||
Mosaic Co. (The) | 84,945 | 4,570,890 | ||||||
10,182,434 | ||||||||
General Merchandise Stores–1.08% | ||||||||
Dollar General Corp.(b) | 153,160 | 7,723,859 | ||||||
Health Care Equipment–0.46% | ||||||||
Abbott Laboratories | 94,736 | 3,304,392 | ||||||
Health Care Facilities–0.69% | ||||||||
HCA Holdings, Inc. | 137,536 | 4,959,548 | ||||||
Health Care Services–0.95% | ||||||||
Express Scripts Holding Co.(b) | 110,613 | 6,823,716 | ||||||
Health Care Technology–0.45% | ||||||||
Cerner Corp.(b) | 33,691 | 3,237,368 | ||||||
Home Improvement Retail–2.21% | ||||||||
Lowe’s Cos., Inc. | 388,607 | 15,894,026 | ||||||
Homebuilding–0.30% | ||||||||
PulteGroup Inc.(b) | 114,114 | 2,164,743 | ||||||
Industrial Conglomerates–3.12% | ||||||||
Danaher Corp. | 122,493 | 7,753,807 | ||||||
General Electric Co. | 632,988 | 14,678,992 | ||||||
22,432,799 | ||||||||
Industrial Machinery–0.84% | ||||||||
Ingersoll-Rand PLC | 108,653 | 6,032,415 | ||||||
Insurance Brokers–0.62% | ||||||||
Aon PLC | 69,004 | 4,440,407 | ||||||
Internet Retail–5.10% | ||||||||
Amazon.com, Inc.(b) | 52,240 | 14,506,526 | ||||||
Priceline.com Inc.(b) | 26,740 | 22,117,456 | ||||||
36,623,982 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Shares | Value | |||||||
Internet Software & Services–10.03% | ||||||||
Baidu, Inc.–ADR (China)(b)(c) | 20,489 | $ | 1,936,825 | |||||
eBay Inc.(b) | 218,586 | 11,305,268 | ||||||
Facebook Inc.–Class A(b) | 1,146,533 | 28,502,810 | ||||||
Google Inc.–Class A(b) | 34,386 | 30,272,403 | ||||||
72,017,306 | ||||||||
Investment Banking & Brokerage–0.72% | ||||||||
Goldman Sachs Group, Inc. (The) | 34,079 | 5,154,449 | ||||||
IT Consulting & Other Services–0.73% | ||||||||
International Business Machines Corp. | 27,621 | 5,278,649 | ||||||
Life Sciences Tools & Services–0.66% | ||||||||
Thermo Fisher Scientific, Inc. | 56,408 | 4,773,809 | ||||||
Movies & Entertainment–0.70% | ||||||||
Walt Disney Co. (The) | 79,857 | 5,042,970 | ||||||
Oil & Gas Equipment & Services–3.54% | ||||||||
Schlumberger Ltd. | 148,989 | 10,676,552 | ||||||
Weatherford International Ltd.(b) | 1,074,235 | 14,717,019 | ||||||
25,393,571 | ||||||||
Oil & Gas Exploration & Production–1.90% | ||||||||
Anadarko Petroleum Corp. | 158,848 | 13,649,809 | ||||||
Other Diversified Financial Services–2.17% | ||||||||
Citigroup Inc. | 325,146 | 15,597,254 | ||||||
Packaged Foods & Meats–2.17% | ||||||||
Mondelez International Inc.–Class A | 545,936 | 15,575,554 | ||||||
Pharmaceuticals–2.67% | ||||||||
Johnson & Johnson | 62,766 | 5,389,089 | ||||||
Pfizer Inc. | 358,128 | 10,031,165 | ||||||
Zoetis Inc. | 121,682 | 3,758,760 | ||||||
19,179,014 | ||||||||
Railroads–0.99% | ||||||||
Norfolk Southern Corp. | 97,913 | 7,113,379 | ||||||
Restaurants–0.55% | ||||||||
McDonald’s Corp. | 39,838 | 3,943,962 | ||||||
Semiconductor Equipment–1.09% | ||||||||
Applied Materials, Inc. | 525,312 | 7,832,402 |
Shares | Value | |||||||
Semiconductors–0.87% | ||||||||
Maxim Integrated Products, Inc. | 225,854 | $ | 6,274,224 | |||||
Specialized Finance–0.66% | ||||||||
CME Group Inc.–Class A | 62,819 | 4,772,988 | ||||||
Specialized REIT’s–1.35% | ||||||||
American Tower Corp. | 132,431 | 9,689,976 | ||||||
Systems Software–3.58% | ||||||||
Microsoft Corp. | 481,378 | 16,621,983 | ||||||
Oracle Corp. | 294,824 | 9,056,993 | ||||||
25,678,976 | ||||||||
Tobacco–0.98% | ||||||||
Philip Morris International Inc. | 80,842 | 7,002,534 | ||||||
Trucking–0.78% | ||||||||
J.B. Hunt Transport Services, Inc. | 77,888 | 5,626,629 | ||||||
Wireless Telecommunication Services–3.74% | ||||||||
Sprint Communications Inc.(b) | 3,826,907 | 26,864,887 | ||||||
Total Common Stocks & Other Equity Interests |
| 716,127,690 | ||||||
Money Market Funds–0.49% |
| |||||||
Liquid Assets Portfolio–Institutional | 1,744,675 | 1,744,675 | ||||||
Premier Portfolio–Institutional | 1,744,675 | 1,744,675 | ||||||
Total Money Market Funds |
| 3,489,350 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.20% |
| 719,617,040 | ||||||
Investments Purchased with Cash |
| |||||||
Money Market Funds–0.20% |
| |||||||
Liquid Assets Portfolio—Institutional Class | 1,478,978 | 1,478,978 | ||||||
TOTAL INVESTMENTS–100.40% |
| 721,096,018 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.40)% |
| (2,900,555 | ) | |||||
NET ASSETS–100.00% |
| $ | 718,195,463 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
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) | All or a portion of this security was out on loan at June 30, 2013. |
(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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Information Technology | 30.3 | % | ||
Consumer Discretionary | 23.2 | |||
Health Care | 13.6 | |||
Industrials | 11.1 | |||
Financials | 6.7 | |||
Energy | 5.4 | |||
Consumer Staples | 4.3 | |||
Telecommunication Services | 3.7 | |||
Materials | 1.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.3 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $553,568,265)* | $ | 716,127,690 | ||
Investments in affiliated money market funds, at value and cost | 4,968,328 | |||
Total investments, at value (Cost $558,536,593) | 721,096,018 | |||
Receivable for: | ||||
Investments sold | 6,811,166 | |||
Fund shares sold | 22,265 | |||
Dividends | 413,696 | |||
Investment for trustee deferred compensation and retirement plans | 215,801 | |||
Other assets | 387 | |||
Total assets | 728,559,333 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 7,230,509 | |||
Fund shares reacquired | 634,071 | |||
Collateral upon return of securities loaned | 1,478,978 | |||
Accrued fees to affiliates | 597,986 | |||
Accrued trustees’ and officers’ fees and benefits | 892 | |||
Accrued other operating expenses | 7,707 | |||
Trustee deferred compensation and retirement plans | 413,727 | |||
Total liabilities | 10,363,870 | |||
Net assets applicable to shares outstanding | $ | 718,195,463 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 732,604,455 | ||
Undistributed net investment income | 2,756,163 | |||
Undistributed net realized gain (loss) | (179,725,686 | ) | ||
Unrealized appreciation | 162,560,531 | |||
$ | 718,195,463 | |||
Net Assets: | ||||
Series I | $ | 493,541,573 | ||
Series II | $ | 224,653,890 | ||
Shares outstanding, $0.01 par value per share, |
| |||
Series I | 12,476,770 | |||
Series II | 5,802,905 | |||
Series I: | ||||
Net asset value per share | $ | 39.56 | ||
Series II: | ||||
Net asset value per share | $ | 38.71 |
* | At June 30, 2013, securities with an aggregate value of $1,453,654 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $64,784) | $ | 3,888,439 | ||
Dividends from affiliated money market funds (includes securities lending income of $33,648) | 37,925 | |||
Total investment income | 3,926,364 | |||
Expenses: | ||||
Advisory fees | 2,462,665 | |||
Administrative services fees | 945,343 | |||
Custodian fees | 10,060 | |||
Distribution fees — Series II | 286,964 | |||
Transfer agent fees | 25,694 | |||
Trustees’ and officers’ fees and benefits | 27,534 | |||
Other | 30,963 | |||
Total expenses | 3,789,223 | |||
Less: Fees waived | (205,898 | ) | ||
Net expenses | 3,583,325 | |||
Net investment income | 343,039 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $146,393) | 47,910,926 | |||
Foreign currencies | (472 | ) | ||
47,910,454 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 15,551,611 | |||
Foreign currencies | (277 | ) | ||
15,551,334 | ||||
Net realized and unrealized gain | 63,461,788 | |||
Net increase in net assets resulting from operations | $ | 63,804,827 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 343,039 | $ | 2,548,252 | ||||
Net realized gain | 47,910,454 | 15,714,490 | ||||||
Change in net unrealized appreciation (depreciation) | 15,551,334 | (8,898,331 | ) | |||||
Net increase in net assets resulting from operations | 63,804,827 | 9,364,411 | ||||||
Share transactions–net: | ||||||||
Series l | (46,874,277 | ) | 370,787,226 | |||||
Series ll | (19,409,953 | ) | 131,813,205 | |||||
Net increase (decrease) in net assets resulting from share transactions | (66,284,230 | ) | 502,600,431 | |||||
Net increase (decrease) in net assets | (2,479,403 | ) | 511,964,842 | |||||
Net assets: | ||||||||
Beginning of period | 720,674,866 | 208,710,024 | ||||||
End of period (includes undistributed net investment income of $2,756,163 and $2,413,124, respectively) | $ | 718,195,463 | $ | 720,674,866 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. American Franchise Fund (the “Fund”), formerly Invesco Van Kampen V.I. American Franchise 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-four 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
Invesco V.I. American Franchise Fund
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 trades 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 of 1986, as amended (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. American Franchise 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 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 Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2014, 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 0.90% and Series II shares to 1.15% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse
Invesco V.I. American Franchise Fund
expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $205,898.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $86,980 for accounting and fund administrative services and reimbursed $858,363 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $3,280 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 June 30, 2013. 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 | $ | 717,632,555 | $ | 3,463,463 | $ | — | $ | 721,096,018 |
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities purchases of $235,771 and securities sales of $1,718,802, which resulted in net realized gains of $146,393.
Invesco V.I. American Franchise 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 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 | |||||||||
$ | 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 six months ended June 30, 2013 was $250,054,543 and $304,373,072, 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 | $ | 169,771,677 | ||
Aggregate unrealized (depreciation) of investment securities | (10,114,476 | ) | ||
Net unrealized appreciation of investment securities | $ | 159,657,201 |
Cost of investments for tax purposes is $561,438,817.
Invesco V.I. American Franchise Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 144,073 | $ | 5,645,607 | 789,397 | $ | 28,721,163 | ||||||||||
Series II | 60,991 | 2,314,133 | 320,230 | 11,081,001 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 11,970,981 | 445,461,917 | ||||||||||||
Series II | — | — | 4,415,803 | 161,335,668 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,348,975 | ) | (52,519,884 | ) | (2,934,105 | ) | (103,395,854 | ) | ||||||||
Series II | (568,662 | ) | (21,724,086 | ) | (1,160,262 | ) | (40,603,464 | ) | ||||||||
Net increase (decrease) in share activity | (1,712,573 | ) | $ | (66,284,230 | ) | 13,402,044 | $ | 502,600,431 |
(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 |
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. |
Invesco V.I. American Franchise 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 | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 36.28 | $ | 0.03 | $ | 3.25 | $ | 3.28 | $ | — | $ | — | $ | — | $ | 39.56 | 9.04 | %(d) | $ | 493,542 | 0.90 | %(e) | 0.95 | %(e) | 0.17 | %(e) | 34 | % | ||||||||||||||||||||||||||||
Year ended 12/31/12 | 31.90 | 0.19 | 4.19 | 4.38 | — | — | — | 36.28 | 13.73 | (d) | 496,341 | 0.88 | 0.98 | 0.52 | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 35.55 | (0.01 | ) | 3.17 | 3.16 | — | — | — | 38.71 | 8.89 | (d) | 224,654 | 1.15 | (e) | 1.20 | (e) | (0.08 | )(e) | 34 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 31.35 | 0.10 | 4.10 | 4.20 | — | — | — | 35.55 | 13.40 | (d) | 224,334 | 1.13 | 1.23 | 0.27 | 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 annualized and based on average daily net assets (000’s omitted) of $509,402 and $231,474 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%. |
Invesco 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 January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period 2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,090.40 | $ | 4.66 | $ | 1,020.33 | $ | 4.51 | 0.90 | % | ||||||||||||
Series II | 1,000.00 | 1,089.20 | 5.96 | 1,019.09 | 5.76 | 1.15 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. American Franchise Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Franchise Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one and three year periods and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers noted that abrupt market changes have created a challenging environment for the trend driven process employed by the portfolio management team leading
Invesco V.I. American Franchise Fund |
to a high probability of relative underperformance. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of the two mutual funds advised by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises two other mutual funds with investment strategies comparable to those of the Fund and that the sub-advisory effective fee rate was below the effective advisory fee rate of the Fund.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least June 30, 2014 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s
advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered
periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. American Franchise Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. American Value Fund | ||||
Effective April 29, 2013, Invesco Van Kampen V.I. American Value Fund was renamed Invesco V.I. American Value Fund. |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.96 | % | |||
Series II Shares | 15.80 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell Midcap Value Indexn (Style-Specific Index) | 16.10 | ||||
Lipper VUF Mid-Cap Value Funds Index¿ (Peer Group Index) | 15.91 |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.;
nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns |
| ||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (1/2/97) | 10.15 | % | |||
10 Years | 10.78 | ||||
5 Years | 9.74 | ||||
1 Year | 24.19 | ||||
Series II Shares | |||||
Inception (5/5/03) | 11.47 | % | |||
10 Years | 10.65 | ||||
5 Years | 9.59 | ||||
1 Year | 23.81 |
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 (renamed Invesco V.I. American Value Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.00% and 1.25%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 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. American Value Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.99% |
| |||||||
Alternative Carriers–2.69% | ||||||||
tw telecom inc.(b) | 394,176 | $ | 11,092,113 | |||||
Apparel Retail–4.54% | ||||||||
Ascena Retail Group, Inc.(b) | 645,508 | 11,264,115 | ||||||
Express, Inc.(b) | 356,655 | 7,479,055 | ||||||
18,743,170 | ||||||||
Asset Management & Custody Banks–2.30% | ||||||||
Northern Trust Corp. | 163,587 | 9,471,687 | ||||||
Auto Parts & Equipment–1.99% | ||||||||
Johnson Controls, Inc. | 229,762 | 8,223,182 | ||||||
Automotive Retail–2.08% | ||||||||
Advance Auto Parts, Inc. | 105,743 | 8,583,159 | ||||||
Communications Equipment–1.02% | ||||||||
Juniper Networks, Inc.(b) | 217,693 | 4,203,652 | ||||||
Computer Hardware–2.08% | ||||||||
Diebold, Inc. | 254,601 | 8,577,508 | ||||||
Construction & Engineering–2.05% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 389,025 | 8,445,733 | ||||||
Data Processing & Outsourced Services–2.45% | ||||||||
Fidelity National Information Services, Inc. | 236,181 | 10,117,994 | ||||||
Diversified Banks–2.54% | ||||||||
Comerica Inc. | 262,978 | 10,474,414 | ||||||
Electric Utilities–2.56% | ||||||||
Edison International | 219,121 | 10,552,867 | ||||||
Electronic Equipment & Instruments–1.36% | ||||||||
FLIR Systems, Inc. | 207,999 | 5,609,733 | ||||||
Electronic Manufacturing Services–2.33% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 1,240,072 | 9,598,157 | ||||||
Food Distributors–0.75% | ||||||||
Sysco Corp. | 91,183 | 3,114,811 | ||||||
General Merchandise Stores–0.66% | ||||||||
Family Dollar Stores, Inc. | 43,659 | 2,720,392 | ||||||
Health Care Equipment–1.75% | ||||||||
CareFusion Corp.(b) | 195,688 | 7,211,103 | ||||||
Health Care Facilities–5.48% | ||||||||
Brookdale Senior Living Inc.(b) | 280,285 | 7,410,735 | ||||||
HealthSouth Corp.(b) | 381,743 | 10,994,199 | ||||||
Universal Health Services, Inc.–Class B | 62,703 | 4,198,593 | ||||||
22,603,527 |
Shares | Value | |||||||
Heavy Electrical Equipment–2.41% | ||||||||
Babcock & Wilcox Co. (The) | 331,529 | $ | 9,955,816 | |||||
Housewares & Specialties–2.97% | ||||||||
Newell Rubbermaid Inc. | 467,238 | 12,264,998 | ||||||
Industrial Machinery–5.59% | ||||||||
Ingersoll-Rand PLC | 171,564 | 9,525,233 | ||||||
Snap-on Inc. | 151,786 | 13,566,633 | ||||||
23,091,866 | ||||||||
Insurance Brokers–4.57% | ||||||||
Marsh & McLennan Cos., Inc. | 285,068 | 11,379,915 | ||||||
Willis Group Holdings PLC | 183,821 | 7,496,220 | ||||||
18,876,135 | ||||||||
Investment Banking & Brokerage–1.87% | ||||||||
Stifel Financial Corp.(b) | 216,184 | 7,711,283 | ||||||
Life Sciences Tools & Services–1.28% | ||||||||
PerkinElmer, Inc. | 162,167 | 5,270,428 | ||||||
Multi-Utilities–2.44% | ||||||||
CenterPoint Energy, Inc. | 428,947 | 10,075,965 | ||||||
Office Electronics–1.75% | ||||||||
Zebra Technologies Corp.–Class A(b) | 166,681 | 7,240,623 | ||||||
Oil & Gas Drilling–1.68% | ||||||||
Noble Corp. | 184,949 | 6,950,383 | ||||||
Oil & Gas Exploration & Production–2.07% | ||||||||
Newfield Exploration Co.(b) | 357,548 | 8,541,822 | ||||||
Oil & Gas Storage & Transportation–2.25% | ||||||||
Williams Cos., Inc. (The) | 285,855 | 9,281,712 | ||||||
Packaged Foods & Meats–3.46% | ||||||||
ConAgra Foods, Inc. | 408,755 | 14,277,812 | ||||||
Paper Packaging–4.87% | ||||||||
Sealed Air Corp. | 514,704 | 12,327,161 | ||||||
Sonoco Products Co. | 225,262 | 7,787,307 | ||||||
20,114,468 | ||||||||
Personal Products–1.03% | ||||||||
Avon Products, Inc. | 201,941 | 4,246,819 | ||||||
Property & Casualty Insurance–2.97% | ||||||||
ACE Ltd. | 137,182 | 12,275,045 | ||||||
Real Estate Operating Companies–2.15% | ||||||||
Forest City Enterprises, Inc.–Class A (b) | 495,530 | 8,874,942 | ||||||
Regional Banks–4.55% | ||||||||
BB&T Corp. | 297,962 | 10,094,953 | ||||||
Wintrust Financial Corp. | 227,050 | 8,691,474 | ||||||
18,786,427 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Shares | Value | |||||||
Specialty Chemicals–2.76% | ||||||||
W.R. Grace & Co.(b) | 135,783 | $ | 11,411,203 | |||||
Trucking–3.69% | ||||||||
Swift Transportation Co.(b) | 428,039 | 7,079,765 | ||||||
Werner Enterprises, Inc. | 336,534 | 8,134,027 | ||||||
15,213,792 | ||||||||
Total Common Stocks & Other Equity Interests |
| 383,804,741 | ||||||
Principal Amount | ||||||||
Bonds and Notes–1.01% |
| |||||||
Health Care Facilities–1.01% | ||||||||
Brookdale Senior Living Inc. Sr. Unsec. Conv. Notes 2.75%, 06/15/18 (Cost $3,280,505) | $ | 3,530,000 | 4,174,225 |
Shares | Value | |||||||
Preferred Stock–0.94% |
| |||||||
Health Care Facilities–0.94% | ||||||||
HealthSouth Corp., Series A, $65.00 Conv. Pfd. (Cost $2,857,980) | 3,300 | $ | 3,890,700 | |||||
Money Market Funds–5.49% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 11,321,887 | 11,321,887 | ||||||
Premier Portfolio–Institutional | 11,321,888 | 11,321,888 | ||||||
Total Money Market Funds |
| 22,643,775 | ||||||
TOTAL INVESTMENTS–100.43% |
| 414,513,441 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.43)% |
| (1,762,374 | ) | |||||
NET ASSETS–100.00% |
| $ | 412,751,067 |
Investment Abbreviations:
Conv. | – Convertible | |
Pfd. | – Preferred | |
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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Financials | 21.0 | % | ||
Industrials | 13.7 | |||
Consumer Discretionary | 12.2 | |||
Information Technology | 11.0 | |||
Health Care | 10.5 | |||
Materials | 7.6 | |||
Energy | 6.0 | |||
Consumer Staples | 5.2 | |||
Utilities | 5.0 | |||
Telecommunication Services | 2.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $309,863,328) | $ | 391,869,666 | ||
Investments in affiliated money market funds, at value and cost | 22,643,775 | |||
Total investments, at value (Cost $332,507,103) | 414,513,441 | |||
Receivable for: | ||||
Investments sold | 2,648,101 | |||
Fund shares sold | 253,603 | |||
Dividends and interest | 343,796 | |||
Investment for trustee deferred compensation and retirement plans | 13,637 | |||
Other assets | 8,745 | |||
Total assets | 417,781,323 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 3,535,466 | |||
Fund shares reacquired | 1,052,328 | |||
Accrued fees to affiliates | 386,781 | |||
Accrued trustees’ and officers’ fees and benefits | 823 | |||
Accrued other operating expenses | 20,147 | |||
Trustee deferred compensation and retirement plans | 34,711 | |||
Total liabilities | 5,030,256 | |||
Net assets applicable to shares outstanding | $ | 412,751,067 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 319,772,329 | ||
Undistributed net investment income | 3,185,284 | |||
Undistributed net realized gain | 7,787,116 | |||
Unrealized appreciation | 82,006,338 | |||
$ | 412,751,067 | |||
Net Assets: |
| |||
Series I | $ | 142,999,167 | ||
Series II | $ | 269,751,900 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 8,271,378 | |||
Series II | 15,728,431 | |||
Series I: | ||||
Net asset value per share | $ | 17.29 | ||
Series II: | ||||
Net asset value per share | $ | 17.15 |
Investment income: |
| |||
Dividends | $ | 2,855,450 | ||
Dividends from affiliated money market funds | 13,660 | |||
Interest | 71,165 | |||
Total investment income | 2,940,275 | |||
Expenses: | ||||
Advisory fees | 1,412,170 | |||
Administrative services fees | 476,972 | |||
Custodian fees | 5,270 | |||
Distribution fees — Series II | 314,501 | |||
Transfer agent fees | 10,504 | |||
Trustees’ and officers’ fees and benefits | 19,935 | |||
Other | 30,103 | |||
Total expenses | 2,269,455 | |||
Less: Fees waived | (24,637 | ) | ||
Net expenses | 2,244,818 | |||
Net investment income | 695,457 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 19,085,175 | |||
Option contracts written | 86,659 | |||
19,171,834 | ||||
Change in net unrealized appreciation of investment securities | 36,457,760 | |||
Net realized and unrealized gain | 55,629,594 | |||
Net increase in net assets resulting from operations | $ | 56,325,051 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 695,457 | $ | 2,508,249 | ||||
Net realized gain | 19,171,834 | 24,089,689 | ||||||
Change in net unrealized appreciation | 36,457,760 | 24,164,824 | ||||||
Net increase in net assets resulting from operations | 56,325,051 | 50,762,762 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (939,816 | ) | |||||
Series ll | — | (1,300,592 | ) | |||||
Total distributions from net investment income | — | (2,240,408 | ) | |||||
Share transactions-net: | ||||||||
Series l | (8,811,693 | ) | (18,810,976 | ) | ||||
Series ll | 13,293,511 | 29,381,427 | ||||||
Net increase in net assets resulting from share transactions | 4,481,818 | 10,570,451 | ||||||
Net increase in net assets | 60,806,869 | 59,092,805 | ||||||
Net assets: | ||||||||
Beginning of period | 351,944,198 | 292,851,393 | ||||||
End of period (includes undistributed net investment income of $3,185,284 and $2,489,827, respectively) | $ | 412,751,067 | $ | 351,944,198 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. American Value Fund (the “Fund”), formerly Invesco Van Kampen V.I. American Value 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-four 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
Invesco V.I. American Value 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 trades 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 of 1986, as amended (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. American Value 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. | Call Options Written and Purchased — The Fund may write covered call options and/or buy call options. A covered 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 covered 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 covered 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 covered call 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).
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 2.00% and Series II shares to 2.25% 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $24,637.
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;
Invesco V.I. American Value Fund
and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $47,590 for accounting and fund administrative services and reimbursed $429,382 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $3,585 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 June 30, 2013. 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 | $ | 406,448,516 | $ | 3,890,700 | $ | — | $ | 410,339,216 | ||||||||
Corporate Debt Securities | — | 4,174,225 | — | 4,174,225 | ||||||||||||
Total Investments | $ | 406,448,516 | $ | 8,064,925 | $ | — | $ | 414,513,441 |
NOTE 4—Derivative Investments
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations | ||||
Options* | ||||
Realized Gain | ||||
Equity risk | $ | 86,659 |
* | The average notional value of options outstanding during the period was $821,333. |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 896 | 237,251 | ||||||
Closed | (896 | ) | (237,251 | ) | ||||
End of period | — | $ | — |
Invesco 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 six months ended June 30, 2013, the Fund engaged in securities purchases of $185,200.
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 six months ended June 30, 2013 was $96,724,238 and $77,575,129, 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 | $ | 85,675,782 | ||
Aggregate unrealized (depreciation) of investment securities | (4,607,614 | ) | ||
Net unrealized appreciation of investment securities | $ | 81,068,168 |
Cost of investments for tax purposes is $333,445,273.
Invesco V.I. American Value Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 480,425 | $ | 8,021,501 | 862,272 | $ | 12,101,117 | ||||||||||
Series II | 2,327,861 | 38,064,245 | 4,694,680 | 66,155,232 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 64,460 | 939,816 | ||||||||||||
Series II | — | — | 89,758 | 1,300,592 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,009,525 | ) | (16,833,194 | ) | (2,248,757 | ) | (31,851,909 | ) | ||||||||
Series II | (1,500,685 | ) | (24,770,734 | ) | (2,696,745 | ) | (38,074,397 | ) | ||||||||
Net increase in share activity | 298,076 | $ | 4,481,818 | 765,668 | $ | 10,570,451 |
(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 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 14.91 | $ | 0.04 | $ | 2.34 | $ | 2.38 | $ | — | $ | — | $ | — | $ | 17.29 | 15.96 | % | $ | 142,999 | 0.99 | %(d) | 1.00 | %(d) | 0.51 | %(d) | 21 | % | ||||||||||||||||||||||||||||
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 | 1.00 | 0.86 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 14.81 | 0.02 | 2.32 | 2.34 | — | — | — | 17.15 | 15.80 | 269,752 | 1.24 | (d) | 1.25 | (d) | 0.26 | (d) | 21 | |||||||||||||||||||||||||||||||||||||||
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 | 1.25 | 0.68 | 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 annualized and based on average daily net assets (000’s omitted) of $141,835 and $253,686 for Series I and Series II shares, respectively. |
Invesco 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 January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,159.60 | $ | 5.30 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | ||||||||||||
Series II | 1,000.00 | 1,158.00 | 6.63 | 1,018.65 | 6.21 | 1.24 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. American Value Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Value Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. American Value Fund |
performance universe and against the Lipper VA Underlying Funds – Mid-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of the performance universe for the one and five year periods and the first quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “Contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund and below the total account level fees of two mutual funds with investment strategies comparable to those of the Fund advised or sub-advised by Invesco Advisers.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates providing services to the Fund to be excessive given the nature, quality and extent of services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the
nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. American Value Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Balanced-Risk Allocation Fund | ||||
| ||||
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
|
Fund Performance
Performance summary
Fund vs. Indexes Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | -3.64 | % | |||
Series II Shares | -3.74 | ||||
MSCI World Index ND‚ (Broad Market Index) | 8.43 | ||||
Custom VI Balanced-Risk Allocation Indexn (Style-Specific Index) | 4.04 | ||||
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nInvesco, IDC via FactSet Research Systems Inc. |
The MSCI World IndexSM ND is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return which withholds applicable taxes for non-resident investors.
The Custom VI Balanced-Risk Allocation Index, created by Invesco to serve as a benchmark for Invesco V.I. Balanced-Risk Allocation Fund, comprises the following indexes: MSCI World Index ND (60%) and Barclays U.S. Aggregate Index (40%).
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (1/23/09) | 12.21 | % | |||
1 Year | 1.57 | ||||
Series II Shares | |||||
Inception (1/23/09) | 11.91 | % | |||
1 Year | 1.30 |
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 0.80% and 1.05%, 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 1.17% and 1.42%, respectively.1 The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.02% for Invesco V.I. Balanced-Risk Allocation Fund. |
2 | 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. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
June 30, 2013
(Unaudited)
Interest Rate | Maturity Date | Principal Amount | Value | |||||||||||||
U.S. Treasury Bills–9.22%(a) | ||||||||||||||||
U.S. Treasury Bills | 0.10 | % | 07/25/13 | $ | 20,000,000 | $ | 19,999,866 | |||||||||
U.S. Treasury Bills(b) | 0.03 | % | 09/05/13 | 7,200,000 | 7,199,735 | |||||||||||
U.S. Treasury Bills(b) | 0.10 | % | 09/05/13 | 34,400,000 | 34,398,734 | |||||||||||
U.S. Treasury Bills(b) | 0.08 | % | 10/24/13 | 27,825,000 | 27,820,550 | |||||||||||
U.S. Treasury Bills | 0.07 | % | 11/07/13 | 24,675,000 | 24,671,015 | |||||||||||
U.S. Treasury Bills | 0.13 | % | 01/09/14 | 14,100,000 | 14,096,235 | |||||||||||
U.S. Treasury Bills | 0.14 | % | 01/09/14 | 7,200,000 | 7,198,077 | |||||||||||
Total U.S. Treasury Bills (Cost $135,363,088) | 135,384,212 | |||||||||||||||
Expiration Date | ||||||||||||||||
Commodity-Linked Securities–1.77% | ||||||||||||||||
Canadian Imperial Bank of Commerce Commodity Linked EMTN, 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 | 8,726,524 | |||||||||||||
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 | 8,696,035 | |||||||||||||
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) | 05/12/14 | 8,048,680 | 8,554,325 | |||||||||||||
Total Commodity-Linked Securities (Cost $28,978,680) | 25,976,884 | |||||||||||||||
Shares | ||||||||||||||||
Money Market Funds–83.88% | ||||||||||||||||
Government & Agency Portfolio–Institutional Class(d) | 183,618,771 | 183,618,771 | ||||||||||||||
Invesco V.I. Money Market Fund–Series I(d) | 20,440,310 | 20,440,310 | ||||||||||||||
Liquid Assets Portfolio–Institutional Class(d) | 224,422,942 | 224,422,942 | ||||||||||||||
Premier Portfolio–Institutional Class(d) | 204,020,857 | 204,020,857 | ||||||||||||||
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional Class (Ireland)(d) | 191,426,085 | 191,426,085 | ||||||||||||||
STIC Prime Portfolio–Institutional Class(d) | 163,216,685 | 163,216,685 | ||||||||||||||
Treasury Portfolio–Institutional Class(d) | 244,825,028 | 244,825,028 | ||||||||||||||
Total Money Market Funds (Cost $1,231,970,678) | 1,231,970,678 | |||||||||||||||
TOTAL INVESTMENTS–94.87% (Cost $1,396,312,446) | 1,393,331,774 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–5.13% | 75,290,524 | |||||||||||||||
NET ASSETS–100.00% | $ | 1,468,622,298 |
Investments Abbreviations:
EMTN — European Medium Term Notes
LIBOR — London Interbank Offered Rate
Notes to Consolidated Schedule of Investments:
(a) | Securities traded on a discount basis. The interest rates shown represent the discount rates 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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $25,976,884, which represented 1.77% 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 | 1,640 | September–2013 | $ | 177,539,553 | $ | (5,790,533 | ) | |||||||||||
Brent Crude | 327 | October–2013 | 33,112,020 | 51,825 | ||||||||||||||
Canada 10 Year Bonds | 1,675 | September–2013 | 209,271,487 | (8,499,175 | ) | |||||||||||||
Dow Jones EURO STOXX 50 Index | 3,270 | September–2013 | 110,576,907 | (2,030,825 | ) | |||||||||||||
E-Mini S&P 500 Index | 1,368 | September–2013 | 109,392,120 | (2,042,156 | ) | |||||||||||||
Euro Bonds | 1,390 | September–2013 | 256,041,380 | (3,165,066 | ) | |||||||||||||
FTSE 100 Index | 1,113 | September–2013 | 106,180,698 | (1,099,630 | ) | |||||||||||||
Gas Oil | 194 | July–2013 | 17,135,050 | 357,393 | ||||||||||||||
Gasoline Reformulated Blendstock Oxygenate Blending | 250 | August–2013 | 28,513,800 | (135,196 | ) | |||||||||||||
Hang Seng Index | 422 | July–2013 | 56,391,988 | 2,129,565 | ||||||||||||||
Japan 10 Year Bonds | 98 | September–2013 | 141,002,218 | (418,687 | ) | |||||||||||||
LME Primary Aluminum | 404 | September–2013 | 17,869,425 | (1,226,328 | ) | |||||||||||||
Long Gilt | 1,345 | September–2013 | 228,918,866 | (10,094,775 | ) | |||||||||||||
Russell 2000 Index Mini | 930 | September–2013 | 90,647,100 | (995,598 | ) | |||||||||||||
Silver | 382 | September–2013 | 37,187,700 | 426,563 | ||||||||||||||
Tokyo Stock Price Index | 1,107 | September–2013 | 126,236,842 | 4,617,623 | ||||||||||||||
U.S. Treasury 20 Year Bonds | 798 | September–2013 | 108,403,313 | (5,245,595 | ) | |||||||||||||
WTI Crude | 326 | December–2013 | 30,767,880 | 512,949 | ||||||||||||||
Total Futures Contracts | $ | (32,647,646 | ) | |||||||||||||||
Long Swap Agreements | Counterparty | Termination Date | ||||||||||||||||
Receive a return equal to the Dow Jones-UBS AIG Gold Index and pay the product of (i) 0.15% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Banc of America Securities LLC | 159,800 | December–2013 | 28,044,868 | (3,408,470 | ) | ||||||||||||
Receive a return equal to the MLCX Dynamic Enhanced Copper Excess Return Index and pay the product of (i) 0.25% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Banc of America Securities LLC | 34,600 | May–2014 | 25,288,133 | (1,946,748 | ) | ||||||||||||
Receive a return equal to the Barclays Commodity Strategy 1452 Excess Return Index and pay the product of (i) 0.33% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Barclays Capital Inc. | 55,350 | May–2014 | 31,356,256 | (1,513,041 | ) | ||||||||||||
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 Capital Inc. | 33,350 | October–2013 | 20,803,613 | (337,952 | ) | ||||||||||||
Receive a return equal to the Single Commodity Excess Return Index and pay the product of (i) 0.12% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Cargill, Inc. | 34,600 | May–2014 | 34,724,214 | (4,220,231 | ) | ||||||||||||
Receive a return equal to the CIBC Dynamic Roll LME Copper Excess Return Index Index and pay the product of (i) 0.30% of the Notional Amount multiplied by (ii) days in the period divided by 365. | CIBC World Markets Corp. | 351,500 | April–2014 | 31,364,274 | (1,470,816 | ) | ||||||||||||
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 & Co. | 45,450 | October–2013 | 25,021,138 | (721,605 | ) | ||||||||||||
Receive a return equal to the J.P. Morgan Bespoke Commodity 165 Index and pay the product of (i) 0.49% of the Notional Amount multiplied by (ii) days in the period divided by 365. | JPMorgan Securities Inc. | 28,970 | October–2013 | 19,442,004 | (242,331 | ) | ||||||||||||
Receive a return equal to the S&P GSCI Gold Index Excess Return and pay the product of (i) 0.09% of the Notional Amount multiplied by (ii) days in the period divided by 365. | JPMorgan Securities Inc. | 190,900 | April–2014 | 20,579,726 | (860,500 | ) | ||||||||||||
Total Swap Agreements | $ | (14,721,694 | ) |
(a) | Futures collateralized by $98,506,000 cash held with Goldman Sachs & Co., the futures commission merchant. |
Risk Allocation
By asset class, based on Net Assets
as of June 30, 2013
Asset Class | Risk Allocation | % of Net Assets as of 06/30/13* | ||||||
Equities | 45.72 | % | 39.69 | % | ||||
Fixed Income | 26.29 | 82.38 | ||||||
Commodities | 27.99 | 27.32 |
* | Due to the use of leverage, the percentages may not equal 100%. |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Assets
and Liabilities
June 30, 2013
(Unaudited)
Consolidated Statement of
Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $164,341,768) | $ | 161,361,096 | ||
Investments in affiliated money market funds, at value and cost | 1,231,970,678 | |||
Total investments, at value (Cost $1,396,312,446) | 1,393,331,774 | |||
Foreign currencies, at value (Cost $111,740) | 94,174 | |||
Receivable for: | ||||
Deposits with brokers for open futures contracts | 98,506,000 | |||
Investments sold | 57,794 | |||
Fund shares sold | 1,140,904 | |||
Dividends | 43,659 | |||
Fund expenses absorbed | 42,773 | |||
Premiums paid on swap agreements | 10 | |||
Investment for trustee deferred compensation and retirement plans | 21,209 | |||
Other assets | 7,120 | |||
Total assets | 1,493,245,417 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 1,133,817 | |||
Swap agreements | 39,941 | |||
Variation margin | 7,049,909 | |||
Accrued fees to affiliates | 1,581,384 | |||
Accrued trustees’ and officers’ fees and benefits | 902 | |||
Accrued other operating expenses | 40,522 | |||
Trustee deferred compensation and retirement plans | 54,950 | |||
Unrealized depreciation on swap agreements | 14,721,694 | |||
Total liabilities | 24,623,119 | |||
Net assets applicable to shares outstanding | $ | 1,468,622,298 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,453,825,759 | ||
Undistributed net investment income | 19,164,077 | |||
Undistributed net realized gain | 46,000,215 | |||
Unrealized appreciation (depreciation) | (50,367,753 | ) | ||
$ | 1,468,622,298 | |||
Net Assets: |
| |||
Series I | $ | 9,682,428 | ||
Series II | $ | 1,458,939,870 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: |
| |||
Series I | 794,179 | |||
Series II | 120,561,828 | |||
Series I: | ||||
Net asset value per share | $ | 12.19 | ||
Series II: | ||||
Net asset value per share | $ | 12.10 |
Investment income: |
| |||
Dividends from affiliated money market funds | $ | 363,215 | ||
Interest | 15,629 | |||
Total investment income | 378,844 | |||
Expenses: | ||||
Advisory fees | 6,694,517 | |||
Administrative services fees | 1,362,454 | |||
Custodian fees | 10,518 | |||
Distribution fees — Series II | 1,838,338 | |||
Transfer agent fees | 6,229 | |||
Trustees’ and officers’ fees and benefits | 40,371 | |||
Other | 54,586 | |||
Total expenses | 10,007,013 | |||
Less: Fees waived | (2,838,563 | ) | ||
Net expenses | 7,168,450 | |||
Net investment income (loss) | (6,789,606 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 13,139 | |||
Foreign currencies | (6,888,595 | ) | ||
Futures contracts | 27,118,082 | |||
Swap agreements | (20,956,589 | ) | ||
(713,963 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (706,978 | ) | ||
Foreign currencies | (10,704 | ) | ||
Futures contracts | (39,918,543 | ) | ||
Swap agreements | (12,173,582 | ) | ||
(52,809,807 | ) | |||
Net realized and unrealized gain (loss) | (53,523,770 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (60,313,376 | ) |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (6,789,606 | ) | $ | (6,558,065 | ) | ||
Net realized gain (loss) | (713,963 | ) | 79,594,274 | |||||
Change in net unrealized appreciation (depreciation) | (52,809,807 | ) | (1,536,928 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (60,313,376 | ) | 71,499,281 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (77,493 | ) | |||||
Series ll | — | (9,112,949 | ) | |||||
Total distributions from net investment income | — | (9,190,442 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (34,204 | ) | |||||
Series ll | — | (4,174,439 | ) | |||||
Total distributions from net realized gains | — | (4,208,643 | ) | |||||
Share transactions–net: | ||||||||
Series l | (296,566 | ) | 5,276,102 | |||||
Series ll | 175,072,217 | 1,028,414,257 | ||||||
Net increase in net assets resulting from share transactions | 174,775,651 | 1,033,690,359 | ||||||
Net increase in net assets | 114,462,275 | 1,091,790,555 | ||||||
Net assets: | ||||||||
Beginning of period | 1,354,160,023 | 262,369,468 | ||||||
End of period (includes undistributed net investment income of $19,164,077 and $25,953,683, respectively) | $ | 1,468,622,298 | $ | 1,354,160,023 |
Notes to Consolidated Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Balanced-Risk Allocation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. Balanced-Risk Allocation Fund
day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) 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 trades 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. |
Invesco V.I. Balanced-Risk Allocation Fund
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. |
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
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.
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 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 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 |
Invesco V.I. Balanced-Risk Allocation Fund
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 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 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 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 Daily 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., Invesco Canada Ltd. and Invesco PowerShares Capital Management LLC (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The 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 July 1, 2013, the Adviser has contractually agreed, through at least April 30, 2014, to waive advisory fees and/or reimburse expenses of 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 0.78% and Series II shares to 1.03% of average daily net assets. Prior to July 1, 2013, 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 0.72% and 0.97% 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 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 total annual fund operating expenses used in determining whether the Fund meets or exceeds the expense limitations described above do not include Acquired Fund Fees and Expenses. Acquired Fund Fees and Expenses are not operating expenses of a Fund directly, but are fees and expenses, including management fees of the investment companies in which a Fund invests. As a result, the total annual fund operating expenses after expense reimbursement may exceed the expense limits above. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2014. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $2,838,563.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $172,747 for accounting and fund administrative services and reimbursed $1,189,707 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Consolidated Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2013. 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 consolidated 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 | $ | 1,231,970,678 | $ | — | $ | — | $ | 1,231,970,678 | ||||||||
U.S. Treasury Bills | — | 135,384,212 | — | 135,384,212 | ||||||||||||
Commodity-Linked Securities | — | 25,976,884 | — | 25,976,884 | ||||||||||||
$ | 1,231,970,678 | $ | 161,361,096 | $ | — | $ | 1,393,331,774 | |||||||||
Futures Contracts* | (32,647,646 | ) | — | — | (32,647,646 | ) | ||||||||||
Swap Agreements* | — | (14,721,694 | ) | — | (14,721,694 | ) | ||||||||||
Total Investments | $ | 1,199,323,032 | $ | 146,639,402 | $ | — | $ | 1,345,962,434 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Commodity risk | ||||||||
Futures contracts(a) | $ | 1,348,730 | $ | (1,361,524 | ) | |||
Swap agreements(b) | — | (14,721,694 | ) | |||||
Interest rate risk | ||||||||
Futures contracts(a) | — | (33,213,831 | ) | |||||
Market risk | ||||||||
Futures contracts(a) | 6,747,188 | (6,168,209 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin payable 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. |
Invesco V.I. Balanced-Risk Allocation Fund
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, 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 (Loss) | ||||||||
Commodity risk | $ | (38,999,694 | ) | $ | (21,750,421 | ) | ||
Interest rate risk | (4,034,795 | ) | 793,832 | |||||
Market risk | 70,152,571 | — | ||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Commodity risk | $ | 4,082,478 | $ | (12,173,582 | ) | |||
Interest rate risk | (34,022,657 | ) | — | |||||
Market risk | (9,978,364 | ) | — | |||||
Total | $ | (12,800,461 | ) | $ | (33,130,171 | ) |
* | The average notional value of futures contracts and swap agreements outstanding during the period was $1,948,587,209 and $208,569,572, respectively. |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of assets
| Collateral Received | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
Goldman Sachs & Co. | $ | 8,095,918 | $ | (8,095,918 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of liabilities
| Collateral Pledged | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
Banc of America Securities LLC | $ | 5,355,218 | $ | — | $ | 5,355,218 | $ | — | $ | (5,355,218 | ) | $ | — | |||||||||||
Barclays Capital Inc. | 1,850,993 | — | 1,850,993 | — | (1,850,993 | ) | — | |||||||||||||||||
Cargill, Inc. | 4,220,231 | — | 4,220,231 | — | (4,220,231 | ) | — | |||||||||||||||||
CIBC World Markets Corp. | 1,470,816 | — | 1,470,816 | — | (1,470,816 | ) | — | |||||||||||||||||
Goldman Sachs & Co. | 41,465,169 | (8,095,918 | ) | 33,369,251 | (721,605 | ) | (32,647,646 | ) | — | |||||||||||||||
JPMorgan Securities Inc. | 1,102,831 | — | 1,102,831 | — | (1,102,831 | ) | — | |||||||||||||||||
Total | $ | 55,465,258 | $ | (8,095,918 | ) | $ | 47,369,340 | $ | (721,605 | ) | $ | (46,647,7359 | ) | $ | — |
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 V.I. Balanced-Risk Allocation 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did not have a capital loss carryforward as of December 31, 2012.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $8,048,680 and $0, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 21,123 | ||
Aggregate unrealized (depreciation) of investment securities | (3,001,795 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (2,980,672 | ) |
Cost of investments is the same for financial reporting and tax purposes.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 160,502 | $ | 2,061,075 | 580,788 | $ | 7,112,873 | ||||||||||
Series II | 23,362,954 | 297,082,072 | 89,709,269 | 1,093,292,927 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 8,809 | 111,428 | ||||||||||||
Series II | — | — | 1,056,225 | 13,287,315 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (184,907 | ) | (2,357,641 | ) | (158,889 | ) | (1,948,199 | ) | ||||||||
Series II | (9,699,596 | ) | (122,009,855 | ) | (6,320,776 | ) | (78,165,985 | ) | ||||||||
Net increase in share activity | 13,638,953 | $ | 174,775,651 | 84,875,426 | $ | 1,033,690,359 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 90% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Balanced-Risk Allocation Fund
NOTE 10—Consolidated Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 12.65 | $ | (0.04 | ) | $ | (0.42 | ) | $ | (0.46 | ) | $ | — | $ | — | $ | — | $ | 12.19 | (3.64 | )% | $ | 9,682 | 0.72 | %(d)(e) | 1.10 | %(e) | (0.67 | )%(e) | 0 | % | |||||||||||||||||||||||||
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) | 1.15 | (0.59 | ) | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 12.57 | (0.06 | ) | (0.41 | ) | (0.47 | ) | — | — | — | 12.10 | (3.74 | ) | 1,458,940 | 0.97 | (d)(e) | 1.35 | (e) | (0.92 | )(e) | 0 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.49 | (0.10 | ) | 1.32 | 1.22 | (0.10 | ) | (0.04 | ) | (0.14 | ) | 12.57 | 10.64 | 1,343,806 | 0.95 | (d) | 1.40 | (0.84 | ) | 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%, 0.02% and 0.04% for the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011, respectively. |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $9,998 and $1,482,859 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 the 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. |
(k) | Annualized. |
(l) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/13) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 963.60 | $ | 3.51 | $ | 1,021.22 | $ | 3.61 | 0.72 | % | ||||||||||||
Series II | 1,000.00 | 962.60 | 4.72 | 1,019.98 | 4.86 | 0.97 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective July 1, 2013, the Fund’s Adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 0.78% and 1.03% of average daily net assets, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.78% and 1.03% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.80 and $5.01 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.91 and $5.16 for Series I and Series II shares, respectively. |
Invesco V.I. Balanced-Risk Allocation Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Balanced-Risk Allocation Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board noted that comparative performance data for only the past three calendar years was available. The Board compared the Fund’s performance during the past three calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Global Flexible Portfolio Funds Index. The Board noted that the Fund’s performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period and the first quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period (there being no three year performance data). The Trustees also reviewed more recent Fund
Invesco V.I. Balanced-Risk Allocation Fund |
performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the Fund’s contractual management fee rate was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate for one mutual fund and below the effective advisory fee rate of one mutual fund advised by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises four off-shore and one domestic fund with comparable investment strategies at lower sub-adviser rates.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least April 30, 2014 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco
Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Balanced-Risk Allocation Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Comstock Fund | ||||
Effective April 29, 2013, Invesco Van Kampen V.I. Comstock Fund was renamed Invesco V.I. Comstock Fund. |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 17.56 | % | |||
Series II Shares | 17.40 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 1000 Value Indexn (Style-Specific Index) | 15.90 | ||||
Lipper VUF Large-Cap Value Funds Index¿ (Peer Group Index) | 16.40 |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.;
nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (4/30/99) | 6.19 | % | |||
10 Years | 7.91 | ||||
5 Years | 9.50 | ||||
1 Year | 28.90 | ||||
Series II Shares | |||||
Inception (9/18/00) | 6.23 | % | |||
10 Years | 7.64 | ||||
5 Years | 9.22 | ||||
1 Year | 28.56 |
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 (renamed Invesco V.I. Comstock Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco 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 0.78% and 1.03%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.85% and 1.10%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco 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 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, 2014. See current prospectus for more information. |
Invesco V.I. Comstock Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.92% |
| |||||||
Aerospace & Defense–1.42% | ||||||||
Honeywell International Inc. | 214,763 | $ | 17,039,296 | |||||
Textron Inc. | 471,737 | 12,288,749 | ||||||
29,328,045 | ||||||||
Agricultural Products–0.75% | ||||||||
Archer-Daniels-Midland Co. | 455,596 | 15,449,260 | ||||||
Aluminum–0.88% | ||||||||
Alcoa Inc. | 2,322,787 | 18,164,194 | ||||||
Asset Management & Custody Banks–3.04% | ||||||||
Bank of New York Mellon Corp. (The) | 1,609,277 | 45,140,220 | ||||||
State Street Corp. | 266,959 | 17,408,396 | ||||||
62,548,616 | ||||||||
Auto Parts & Equipment–0.94% | ||||||||
Johnson Controls, Inc. | 542,355 | 19,410,885 | ||||||
Automobile Manufacturers–2.21% | ||||||||
General Motors Co.(b) | 1,362,712 | 45,391,937 | ||||||
Cable & Satellite–4.04% | ||||||||
Comcast Corp.–Class A | 797,622 | 33,404,409 | ||||||
Time Warner Cable Inc. | 441,322 | 49,639,899 | ||||||
83,044,308 | ||||||||
Communications Equipment–1.23% | ||||||||
Cisco Systems, Inc. | 1,043,278 | 25,362,088 | ||||||
Computer Hardware–2.38% | ||||||||
Hewlett-Packard Co. | 1,974,805 | 48,975,164 | ||||||
Department Stores–0.73% | ||||||||
Kohl’s Corp. | 297,896 | 15,046,727 | ||||||
Diversified Banks–2.96% | ||||||||
U.S. Bancorp | 364,823 | 13,188,352 | ||||||
Wells Fargo & Co. | 1,154,963 | 47,665,323 | ||||||
60,853,675 | ||||||||
Drug Retail–1.62% | ||||||||
CVS Caremark Corp. | 584,592 | 33,426,971 | ||||||
Electric Utilities–1.97% | ||||||||
FirstEnergy Corp. | 365,022 | 13,629,922 | ||||||
PPL Corp. | 888,732 | 26,893,030 | ||||||
40,522,952 | ||||||||
Electrical Components & Equipment–1.14% | ||||||||
Emerson Electric Co. | 430,487 | 23,478,761 | ||||||
Electronic Components–1.28% | ||||||||
Corning Inc. | 1,851,323 | 26,344,326 |
Shares | Value | |||||||
General Merchandise Stores–0.87% | ||||||||
Target Corp. | 260,374 | $ | 17,929,354 | |||||
Health Care Distributors–0.87% | ||||||||
Cardinal Health, Inc. | 380,987 | 17,982,586 | ||||||
Home Improvement Retail–0.40% | ||||||||
Lowe’s Cos., Inc. | 201,661 | 8,247,935 | ||||||
Hotels, Resorts & Cruise Lines–0.93% | ||||||||
Carnival Corp. | 559,506 | 19,185,461 | ||||||
Household Products–0.28% | ||||||||
Procter & Gamble Co. (The) | 73,608 | 5,667,080 | ||||||
Housewares & Specialties–0.51% | ||||||||
Newell Rubbermaid Inc. | 397,247 | 10,427,734 | ||||||
Hypermarkets & Super Centers–0.25% | ||||||||
Wal-Mart Stores, Inc. | 68,104 | 5,073,067 | ||||||
Industrial Conglomerates–2.09% | ||||||||
General Electric Co. | 1,852,841 | 42,967,383 | ||||||
Industrial Machinery–1.57% | ||||||||
Ingersoll-Rand PLC | 582,758 | 32,354,724 | ||||||
Integrated Oil & Gas–8.50% | ||||||||
BP PLC–ADR (United Kingdom) | 999,232 | 41,707,944 | ||||||
Chevron Corp. | 229,893 | 27,205,537 | ||||||
Murphy Oil Corp. | 518,214 | 31,554,050 | ||||||
Occidental Petroleum Corp. | 300,668 | 26,828,606 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 467,121 | 29,802,320 | ||||||
Suncor Energy, Inc. (Canada) | 602,471 | 17,766,870 | ||||||
174,865,327 | ||||||||
Integrated Telecommunication Services–1.14% | ||||||||
AT&T Inc. | 261,450 | 9,255,330 | ||||||
Verizon Communications Inc. | 283,630 | 14,277,934 | ||||||
23,533,264 | ||||||||
Internet Software & Services–2.76% | ||||||||
eBay Inc.(b) | 592,914 | 30,665,512 | ||||||
Yahoo! Inc.(b) | 1,037,757 | 26,058,078 | ||||||
56,723,590 | ||||||||
Investment Banking & Brokerage–2.55% | ||||||||
Goldman Sachs Group, Inc. (The) | 150,706 | 22,794,283 | ||||||
Morgan Stanley | 1,215,803 | 29,702,067 | ||||||
52,496,350 | ||||||||
Life & Health Insurance–1.91% | ||||||||
Aflac, Inc. | 192,849 | 11,208,384 | ||||||
MetLife, Inc. | 612,874 | 28,045,114 | ||||||
39,253,498 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Shares | Value | |||||||
Managed Health Care–3.32% | ||||||||
UnitedHealth Group Inc. | 646,076 | $ | 42,305,057 | |||||
WellPoint, Inc. | 317,779 | 26,007,033 | ||||||
68,312,090 | ||||||||
Movies & Entertainment–4.91% | ||||||||
News Corp.–Class B | 1,093,467 | 35,887,587 | ||||||
Time Warner Inc. | 248,127 | 14,346,703 | ||||||
Viacom Inc.–Class B | 745,492 | 50,730,731 | ||||||
100,965,021 | ||||||||
Oil & Gas Drilling–0.50% | ||||||||
Noble Corp. | 274,142 | 10,302,256 | ||||||
Oil & Gas Equipment & Services–4.46% | ||||||||
Halliburton Co. | 1,010,455 | 42,156,183 | ||||||
Weatherford International Ltd.(b) | 3,623,322 | 49,639,511 | ||||||
91,795,694 | ||||||||
Oil & Gas Exploration & Production–1.11% | ||||||||
QEP Resources Inc. | 818,722 | 22,744,097 | ||||||
Other Diversified Financial Services–9.20% | ||||||||
Bank of America Corp. | 2,531,320 | 32,552,775 | ||||||
Citigroup Inc. | 1,785,042 | 85,628,465 | ||||||
JPMorgan Chase & Co. | 1,347,536 | 71,136,425 | ||||||
189,317,665 | ||||||||
Packaged Foods & Meats–2.52% | ||||||||
Mondelez International Inc.–Class A | 657,533 | 18,759,416 | ||||||
Tyson Foods, Inc.–Class A | 541,839 | 13,914,426 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 485,899 | 19,100,690 | ||||||
51,774,532 | ||||||||
Paper Products–1.26% | ||||||||
International Paper Co. | 585,821 | 25,957,729 | ||||||
Pharmaceuticals–10.36% | ||||||||
Bristol-Myers Squibb Co. | 711,579 | 31,800,465 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 440,906 | 22,032,073 | ||||||
Merck & Co., Inc. | 995,627 | 46,246,874 |
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Novartis AG (Switzerland) | 368,808 | $ | 26,138,588 | |||||
Pfizer Inc. | 1,317,014 | 36,889,562 | ||||||
Roche Holding AG–ADR (Switzerland) | 317,583 | 19,719,904 | ||||||
Sanofi–ADR (France) | 589,386 | 30,359,273 | ||||||
213,186,739 | ||||||||
Property & Casualty Insurance–2.45% | ||||||||
Allstate Corp. (The) | 829,759 | 39,928,003 | ||||||
Travelers Cos., Inc. (The) | 130,652 | 10,441,708 | ||||||
50,369,711 | ||||||||
Regional Banks–2.78% | ||||||||
Fifth Third Bancorp | 1,277,345 | 23,056,077 | ||||||
PNC Financial Services Group, Inc. | 469,539 | 34,238,784 | ||||||
57,294,861 | ||||||||
Semiconductors–0.60% | ||||||||
Intel Corp. | 511,161 | 12,380,319 | ||||||
Specialty Stores–0.76% | ||||||||
Staples, Inc. | 980,673 | 15,553,474 | ||||||
Systems Software–2.65% | ||||||||
Microsoft Corp. | 1,580,517 | 54,575,252 | ||||||
Wireless Telecommunication Services–0.82% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 588,567 | 16,915,416 | ||||||
Total Common Stocks & Other Equity Interests |
| 2,035,500,118 | ||||||
Money Market Funds–1.23% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 12,634,417 | 12,634,417 | ||||||
Premier Portfolio–Institutional Class(c) | 12,634,417 | 12,634,417 | ||||||
Total Money Market Funds |
| 25,268,834 | ||||||
TOTAL INVESTMENTS–100.15% (Cost $1,783,859,530) |
| 2,060,768,952 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.15)% |
| (3,207,658 | ) | |||||
NET ASSETS–100.00% | $ | 2,057,561,294 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Investment Abbreviations:
ADR – | American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Financials | 24.9 | % | ||
Consumer Discretionary | 16.3 | |||
Energy | 14.6 | |||
Health Care | 14.5 | |||
Information Technology | 10.9 | |||
Industrials | 6.2 | |||
Consumer Staples | 5.4 | |||
Materials | 2.1 | |||
Telecommunication Services | 2.0 | |||
Utilities | 2.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,758,590,696) | $ | 2,035,500,118 | ||
Investments in affiliated money market funds, at value and cost | 25,268,834 | |||
Total investments, at value (Cost $1,783,859,530) | 2,060,768,952 | |||
Foreign currencies, at value (Cost $53) | 2,537 | |||
Receivable for: | ||||
Investments sold | 6,355,823 | |||
Fund shares sold | 2,324,660 | |||
Dividends | 3,894,001 | |||
Foreign currency contracts outstanding | 4,727,278 | |||
Investment for trustee deferred compensation and retirement plans | 31,477 | |||
Total assets | 2,078,104,728 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,045,663 | |||
Fund shares reacquired | 14,954,346 | |||
Accrued fees to affiliates | 2,354,034 | |||
Accrued trustees’ and officers’ fees and benefits | 1,626 | |||
Accrued other operating expenses | 36,048 | |||
Trustee deferred compensation and retirement plans | 151,717 | |||
Total liabilities | 20,543,434 | |||
Net assets applicable to shares outstanding | $ | 2,057,561,294 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 2,084,203,767 | ||
Undistributed net investment income | 44,082,785 | |||
Undistributed net realized gain (loss) | (352,366,506 | ) | ||
Unrealized appreciation | 281,641,248 | |||
$ | 2,057,561,294 | |||
Net Assets: | ||||
Series I | $ | 289,315,953 | ||
Series II | $ | 1,768,245,341 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 18,547,530 | |||
Series II | 113,926,128 | |||
Series I: | ||||
Net asset value per share | $ | 15.60 | ||
Series II: | ||||
Net asset value per share | $ | 15.52 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $552,896) | $ | 23,540,663 | ||
Dividends from affiliated money market funds | 19,600 | |||
Total investment income | 23,560,263 | |||
Expenses: | ||||
Advisory fees | 5,676,291 | |||
Administrative services fees | 2,626,543 | |||
Custodian fees | 37,072 | |||
Distribution fees — Series II | 2,184,928 | |||
Transfer agent fees | 18,241 | |||
Trustees’ and officers’ fees and benefits | 52,378 | |||
Other | 41,398 | |||
Total expenses | 10,636,851 | |||
Less: Fees waived | (1,018,881 | ) | ||
Net expenses | 9,617,970 | |||
Net investment income | 13,942,293 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $97,913) | 62,718,028 | |||
Foreign currencies | 5,283 | |||
Foreign currency contracts | (1,746,952 | ) | ||
60,976,359 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 239,374,273 | |||
Foreign currencies | 4,548 | |||
Foreign currency contracts | 7,735,075 | |||
247,113,896 | ||||
Net realized and unrealized gain | 308,090,255 | |||
Net increase in net assets resulting from operations | $ | 322,032,548 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 13,942,293 | $ | 29,982,774 | ||||
Net realized gain | 60,976,359 | 75,264,850 | ||||||
Change in net unrealized appreciation | 247,113,896 | 219,912,553 | ||||||
Net increase in net assets resulting from operations | 322,032,548 | 325,160,177 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,448,545 | ) | |||||
Series ll | — | (24,222,015 | ) | |||||
Total distributions from net investment income | — | (28,670,560 | ) | |||||
Share transactions–net: | ||||||||
Series l | (4,761,320 | ) | (53,247,968 | ) | ||||
Series ll | (151,331,460 | ) | (142,005,504 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (156,092,780 | ) | (195,253,472 | ) | ||||
Net increase in net assets | 165,939,768 | 101,236,145 | ||||||
Net assets: | ||||||||
Beginning of period | 1,891,621,526 | 1,790,385,381 | ||||||
End of period (includes undistributed net investment income of $44,082,785 and $30,140,492, respectively) | $ | 2,057,561,294 | $ | 1,891,621,526 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Comstock Fund (the “Fund”), formerly Invesco Van Kampen V.I. Comstock 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-four 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 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 trades 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 of 1986, as amended (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. |
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 V.I. Comstock 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. |
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 | 0.60% | |||
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 May 1, 2013, the Adviser has contractually agreed, through at least April 30, 2014, 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 0.78% and Series II shares to 1.03% of average daily net assets. Prior to May 1, 2013, 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 iterms discussed below) of Series I shares to 0.72% and Series II shares to 0.97% 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. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2014. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $1,018,881.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $208,100 for accounting and fund administrative services and reimbursed $2,418,443 for services provided by insurance companies.
Invesco V.I. Comstock Fund
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. 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 | $ | 2,014,910,460 | $ | 45,858,492 | $ | — | $ | 2,060,768,952 | ||||||||
Foreign Currency Contracts* | — | 4,727,278 | — | 4,727,278 | ||||||||||||
Total Investments | $ | 2,014,910,460 | $ | 50,585,770 | $ | — | $ | 2,065,496,230 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 4,727,278 | $ | — |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, 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 | $ | (1,746,952 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 7,735,075 | |||
Total | $ | 5,988,123 |
* | The average notional value of foreign currency contracts outstanding during the period was $174,248,115. |
Invesco V.I. Comstock Fund
Open Foreign Currency Contracts at Period End | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/15/13 | Bank of New York Mellon (The) | CHF | 12,308,858 | USD | 13,399,876 | $ | 13,033,722 | $ | 366,154 | |||||||||||||||||
07/15/13 | Citibank, N.A. | CHF | 8,792,042 | USD | 9,570,351 | 9,309,802 | 260,549 | |||||||||||||||||||
07/15/13 | State Street Bank & Trust Co. | CHF | 13,617,148 | USD | 14,830,587 | 14,419,056 | 411,531 | |||||||||||||||||||
07/15/13 | Bank of New York Mellon (The) | EUR | 11,969,070 | USD | 15,975,956 | 15,580,366 | 395,590 | |||||||||||||||||||
07/15/13 | CIBC World Markets Corp. | EUR | 15,405,729 | USD | 20,561,533 | 20,053,930 | 507,603 | |||||||||||||||||||
07/15/13 | Citibank, N.A. | EUR | 14,813,208 | USD | 19,770,744 | 19,282,634 | 488,110 | |||||||||||||||||||
07/15/13 | State Street Bank & Trust Co. | EUR | 9,825,894 | USD | 13,116,291 | 12,790,553 | 325,738 | |||||||||||||||||||
07/15/13 | Bank of New York Mellon (The) | GBP | 11,847,705 | USD | 18,546,871 | 18,017,868 | 529,003 | |||||||||||||||||||
07/15/13 | CIBC World Markets Corp. | GBP | 15,994,400 | USD | 25,036,722 | 24,324,120 | 712,602 | |||||||||||||||||||
07/15/13 | Citibank, N.A. | GBP | 8,293,395 | USD | 12,982,853 | 12,612,510 | 370,343 | |||||||||||||||||||
07/15/13 | State Street Bank & Trust Co. | GBP | 8,011,855 | USD | 12,544,402 | 12,184,347 | 360,055 | |||||||||||||||||||
Total open foreign currency contracts | $ | 4,727,278 |
Currency Abbreviations:
CHF | – Swiss Franc | |
EUR | – Euro |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards (“ASU”) Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York Mellon (The) | $1,290,747 | $— | $1,290,747 | $— | $— | $1,290,747 | ||||||||||||||||||
CIBC World Markets Corp. | 1,220,205 | — | 1,220,205 | — | — | 1,220,205 | ||||||||||||||||||
Citibank, N.A. | 1,119,002 | — | 1,119,002 | — | — | 1,119,002 | ||||||||||||||||||
State Street Bank & Trust Co. | 1,097,324 | — | 1,097,324 | — | — | 1,097,324 | ||||||||||||||||||
Total | $4,727,278 | $— | $4,727,278 | $— | $— | $4,727,278 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
$— | $— | $— | $— | $— | $— |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities sales of $369,743, which resulted in net realized gains of $97,913.
Invesco V.I. Comstock Fund
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 reorganization. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $73,510,701 and $198,116,067, 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 | $ | 402,217,822 | ||
Aggregate unrealized (depreciation) of investment securities | (127,929,444 | ) | ||
Net unrealized appreciation of investment securities | $ | 274,288,378 |
Cost of investments for tax purposes is $1,786,480,574.
Invesco V.I. Comstock Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,328,467 | $ | 20,424,149 | 402,978 | $ | 5,045,720 | ||||||||||
Series II | 2,951,224 | 43,550,540 | 8,047,364 | 99,973,148 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 342,459 | 4,448,545 | ||||||||||||
Series II | — | — | 1,870,411 | 24,221,820 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,700,177 | ) | (25,185,469 | ) | (4,996,146 | ) | (62,742,233 | ) | ||||||||
Series II | (13,155,713 | ) | (194,882,000 | ) | (21,242,957 | ) | (266,200,472 | ) | ||||||||
Net increase (decrease) in share activity | (10,576,199 | ) | $ | (156,092,780 | ) | (15,575,891 | ) | $ | (195,253,472 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 60% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 13.27 | $ | 0.12 | $ | 2.21 | $ | 2.33 | $ | — | $ | — | $ | — | $ | 15.60 | 17.56 | %(d) | $ | 289,316 | 0.74 | %(e) | 0.84 | %(e) | 1.60 | %(e) | 4 | % | ||||||||||||||||||||||||||||
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 | 0.85 | 1.81 | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 13.22 | 0.10 | 2.20 | 2.30 | — | — | — | 15.52 | 17.40 | (d) | 1,768,245 | 0.99 | (e) | 1.09 | (e) | 1.35 | (e) | 4 | ||||||||||||||||||||||||||||||||||||||
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 | 1.10 | 1.56 | 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 Name 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 annualized and based on average daily net assets (000’s omitted) of $273,329 and $1,762,428 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%. |
Invesco V.I. Comstock Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/13) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,175.60 | $ | 3.97 | $ | 1,021.14 | $ | 3.69 | 0.74 | % | ||||||||||||
Series II | 1,000.00 | 1,174.00 | 5.32 | 1,019.90 | 4.94 | 0.99 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective May 1, 2013, the Fund’s Adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 0.78% and 1.03% of average daily net assets, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.78% and 1.03% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.21 and $5.55 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.91 and $5.16 for Series I and Series II shares, respectively. |
Invesco V.I. Comstock Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Comstock Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement.
Invesco V.I. Comstock Fund |
The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund with comparable investment strategies and below the total account level fees of nine mutual funds sub-advised by Invesco Advisers with comparable investment strategies. The Board did not consider a comparison of fees to an off-shore fund to be apt as the fee includes more than the advisory fees.
The Board noted that Invesco Advisers and its affiliates do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least April 30, 2014 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services,
including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Comstock Fund |
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![]() | Semiannual Report to Shareholders
| June 30, 2013
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Invesco V.I. Core Equity Fund | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
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NOT FDIC INSURED I MAY LOSE VALUE I NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 13.34 | % | |||
Series II Shares | 13.20 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 1000 Indexn (Style-Specific Index) | 13.91 | ||||
Lipper VUF Large-Cap Core Funds Index¿ (Peer Group Index) | 13.97 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
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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) described 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.
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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 0.90% and 1.15%, 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
Inception (5/2/94) | 8.03 | % | |||
10 Years | 7.60 | ||||
5 Years | 6.30 | ||||
1 Year | 22.30 | ||||
Series II Shares | |||||
Inception (10/24/01) | 6.09 | % | |||
10 Years | 7.34 | ||||
5 Years | 6.03 | ||||
1 Year | 21.98 |
Invesco V.I. Core Equity Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–85.21% |
| |||||||
Aerospace & Defense–1.03% | ||||||||
Boeing Co. (The) | 121,330 | $ | 12,429,045 | |||||
Air Freight & Logistics–0.77% | ||||||||
FedEx Corp. | 94,859 | 9,351,200 | ||||||
Application Software–1.12% | ||||||||
Adobe Systems Inc.(b) | 296,486 | 13,507,902 | ||||||
Asset Management & Custody Banks–2.20% | ||||||||
Northern Trust Corp. | 460,721 | 26,675,746 | ||||||
Auto Parts & Equipment–1.09% | ||||||||
Johnson Controls, Inc. | 369,651 | 13,229,809 | ||||||
Automobile Manufacturers–0.75% | ||||||||
Daimler AG (Germany) | 149,637 | 9,044,008 | ||||||
Biotechnology–1.65% | ||||||||
Gilead Sciences, Inc.(b) | 390,934 | 20,019,730 | ||||||
Brewers–1.12% | ||||||||
Molson Coors Brewing Co.–Class B | 282,966 | 13,542,753 | ||||||
Casinos & Gaming–0.95% | ||||||||
Las Vegas Sands Corp. | 216,782 | 11,474,271 | ||||||
Communications Equipment–4.12% | ||||||||
Cisco Systems, Inc. | 584,320 | 14,204,819 | ||||||
F5 Networks, Inc.(b) | 122,471 | 8,426,005 | ||||||
QUALCOMM, Inc. | 263,258 | 16,079,799 | ||||||
Telefonaktiebolaget LM Ericsson–ADR (Sweden) | 991,139 | 11,180,048 | ||||||
49,890,671 | ||||||||
Computer Storage & Peripherals–0.76% | ||||||||
EMC Corp. | 389,939 | 9,210,359 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.67% | ||||||||
Caterpillar Inc. | 98,247 | 8,104,395 | ||||||
Construction Materials–0.51% | ||||||||
CRH PLC (Ireland) | 305,495 | 6,183,182 | ||||||
Consumer Finance–2.42% | ||||||||
American Express Co. | 391,839 | 29,293,884 | ||||||
Department Stores–1.77% | ||||||||
Macy’s, Inc. | 446,002 | 21,408,096 | ||||||
Diversified Banks–1.24% | ||||||||
U.S. Bancorp | 415,308 | 15,013,384 | ||||||
Diversified Chemicals–0.60% | ||||||||
Dow Chemical Co. (The) | 225,000 | 7,238,250 | ||||||
Electric Utilities–0.99% | ||||||||
Duke Energy Corp. | 177,824 | 12,003,120 | ||||||
Electronic Manufacturing Services–1.98% | ||||||||
TE Connectivity Ltd. (Switzerland) | 527,911 | 24,041,067 |
Shares | Value | |||||||
Food Retail–1.05% | ||||||||
Kroger Co. (The) | 368,738 | $ | 12,736,211 | |||||
General Merchandise Stores–1.22% | ||||||||
Target Corp. | 215,368 | 14,830,241 | ||||||
Gold–0.58% | ||||||||
Agnico-Eagle Mines Ltd. (Canada) | 72,960 | 2,009,318 | ||||||
Kinross Gold Corp. (Canada) | 990,000 | 5,049,000 | ||||||
7,058,318 | ||||||||
Health Care Distributors–1.12% | ||||||||
Cardinal Health, Inc. | 287,211 | 13,556,359 | ||||||
Health Care Equipment–1.99% | ||||||||
Baxter International Inc. | 149,682 | 10,368,472 | ||||||
Covidien PLC | 219,399 | 13,787,033 | ||||||
24,155,505 | ||||||||
Heavy Electrical Equipment–0.67% | ||||||||
ABB Ltd. (Switzerland) | 377,886 | 8,158,544 | ||||||
Home Improvement Retail–1.09% | ||||||||
Lowe’s Cos., Inc. | 322,057 | 13,172,131 | ||||||
Household Products–1.26% | ||||||||
Procter & Gamble Co. (The) | 198,622 | 15,291,908 | ||||||
Industrial Conglomerates–2.23% | ||||||||
General Electric Co. | 1,164,909 | 27,014,240 | ||||||
Industrial Gases–1.06% | ||||||||
Air Products & Chemicals, Inc. | 140,285 | 12,845,898 | ||||||
Industrial Machinery–2.48% | ||||||||
Illinois Tool Works Inc. | 178,076 | 12,317,517 | ||||||
Parker Hannifin Corp. | 136,321 | 13,005,024 | ||||||
Sandvik AB (Sweden) | 396,290 | 4,718,783 | ||||||
30,041,324 | ||||||||
Insurance Brokers–1.63% | ||||||||
Marsh & McLennan Cos., Inc. | 493,879 | 19,715,650 | ||||||
Integrated Oil & Gas–2.55% | ||||||||
Exxon Mobil Corp. | 203,078 | 18,348,097 | ||||||
Occidental Petroleum Corp. | 140,200 | 12,510,046 | ||||||
30,858,143 | ||||||||
Internet Software & Services–1.19% | ||||||||
eBay Inc.(b) | 277,888 | 14,372,367 | ||||||
Investment Banking & Brokerage–1.13% | ||||||||
Charles Schwab Corp. (The) | 641,912 | 13,627,792 | ||||||
IT Consulting & Other Services–0.69% | ||||||||
International Business Machines Corp. | 43,430 | 8,299,907 | ||||||
Life Sciences Tools & Services–2.14% | ||||||||
Agilent Technologies, Inc. | 291,185 | 12,451,071 | ||||||
Thermo Fisher Scientific, Inc. | 159,746 | 13,519,304 | ||||||
25,970,375 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Managed Health Care–1.19% | ||||||||
UnitedHealth Group Inc. | 219,809 | $ | 14,393,093 | |||||
Oil & Gas Equipment & Services–3.53% | ||||||||
Cameron International Corp.(b) | 168,876 | 10,328,456 | ||||||
Halliburton Co. | 333,073 | 13,895,806 | ||||||
Weatherford International Ltd.(b) | 1,348,534 | 18,474,916 | ||||||
42,699,178 | ||||||||
Oil & Gas Exploration & Production–2.96% | ||||||||
Anadarko Petroleum Corp. | 119,053 | 10,230,224 | ||||||
EOG Resources, Inc. | 75,411 | 9,930,120 | ||||||
Pioneer Natural Resources Co. | 108,706 | 15,735,194 | ||||||
35,895,538 | ||||||||
Packaged Foods & Meats–3.57% | ||||||||
Danone S.A. (France) | 202,978 | 15,233,551 | ||||||
Kellogg Co. | 435,988 | 28,003,509 | ||||||
43,237,060 | ||||||||
Paper Products–0.88% | ||||||||
International Paper Co. | 241,225 | 10,688,680 | ||||||
Pharmaceuticals–8.31% | ||||||||
Merck & Co., Inc. | 328,981 | 15,281,167 | ||||||
Novartis AG–ADR (Switzerland) | 308,567 | 21,818,773 | ||||||
Pfizer Inc. | 396,259 | 11,099,215 | ||||||
Roche Holding AG (Switzerland) | 71,522 | 17,722,972 | ||||||
Sanofi–ADR (France) | 494,956 | 25,495,183 | ||||||
Zoetis Inc. | 299,399 | 9,248,434 | ||||||
100,665,744 | ||||||||
Property & Casualty Insurance–4.36% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 168 | 28,324,800 | ||||||
Progressive Corp. (The) | 965,472 | 24,542,298 | ||||||
52,867,098 |
Shares | Value | |||||||
Railroads–1.63% | ||||||||
Norfolk Southern Corp. | 110,365 | $ | 8,018,017 | |||||
Union Pacific Corp. | 75,663 | 11,673,288 | ||||||
19,691,305 | ||||||||
Semiconductor Equipment–0.62% | ||||||||
KLA-Tencor Corp. | 134,659 | 7,504,546 | ||||||
Semiconductors–3.56% | ||||||||
Analog Devices, Inc. | 471,838 | 21,261,020 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,047,823 | 21,879,028 | ||||||
43,140,048 | ||||||||
Systems Software–3.82% | ||||||||
Microsoft Corp. | 597,601 | 20,635,163 | ||||||
Symantec Corp. | 1,138,339 | 25,578,477 | ||||||
46,213,640 | ||||||||
Wireless Telecommunication Services–0.96% | ||||||||
Vodafone Group PLC (United Kingdom) | 4,071,913 | 11,685,629 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,032,047,344 | ||||||
Money Market Funds–14.51% |
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Liquid Assets Portfolio–Institutional Class(c) | 87,907,162 | 87,907,162 | ||||||
Premier Portfolio– | 87,907,163 | 87,907,163 | ||||||
Total Money Market Funds |
| 175,814,325 | ||||||
TOTAL INVESTMENTS–99.72% |
| 1,207,861,669 | ||||||
OTHER ASSETS LESS LIABILITIES–0.28% |
| 3,357,243 | ||||||
NET ASSETS–100.00% |
| $ | 1,211,218,912 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Information Technology | 17.8 | % | ||
Health Care | 16.4 | |||
Financials | 13.0 | |||
Industrials | 9.5 | |||
Energy | 9.0 | |||
Consumer Staples | 7.0 | |||
Consumer Discretionary | 6.9 | |||
Materials | 3.6 | |||
Telecommunication Services | 1.0 | |||
Utilities | 1.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 14.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: | ||||
Investments, at value (Cost $755,020,551) | $ | 1,032,047,344 | ||
Investments in affiliated money market funds, at value and cost | 175,814,325 | |||
Total investments, at value (Cost $930,834,876) | 1,207,861,669 | |||
Foreign currencies, at value (Cost $984,860) | 968,087 | |||
Receivable for: | ||||
Investments sold | 1,332,662 | |||
Fund shares sold | 383,279 | |||
Dividends | 2,416,748 | |||
Investment for trustee deferred compensation and retirement plans | 158,606 | |||
Other assets | 3,911 | |||
Total assets | 1,213,124,962 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 583,672 | |||
Accrued fees to affiliates | 818,289 | |||
Accrued trustees’ and officers’ fees and benefits | 1,331 | |||
Accrued other operating expenses | 20,699 | |||
Trustee deferred compensation and retirement plans | 482,059 | |||
Total liabilities | 1,906,050 | |||
Net assets applicable to shares outstanding | $ | 1,211,218,912 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 966,873,734 | ||
Undistributed net investment income | 24,689,880 | |||
Undistributed net realized gain (loss) | (57,336,850 | ) | ||
Unrealized appreciation | 276,992,148 | |||
$ | 1,211,218,912 | |||
Net Assets: | ||||
Series I | $ | 1,081,643,047 | ||
Series II | $ | 129,575,865 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 31,661,882 | |||
Series II | 3,833,690 | |||
Series I: | ||||
Net asset value per share | $ | 34.16 | ||
Series II: | ||||
Net asset value per share | $ | 33.80 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $552,488) | $ | 13,339,606 | ||
Dividends from affiliated money market funds | 53,156 | |||
Total investment income | 13,392,762 | |||
Expenses: | ||||
Advisory fees | 3,664,902 | |||
Administrative services fees | 1,599,231 | |||
Custodian fees | 26,725 | |||
Distribution fees — Series II | 152,037 | |||
Transfer agent fees | 24,358 | |||
Trustees’ and officers’ fees and benefits | 36,339 | |||
Other | 24,627 | |||
Total expenses | 5,528,219 | |||
Less: Fees waived | (96,836 | ) | ||
Net expenses | 5,431,383 | |||
Net investment income | 7,961,379 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 45,816,135 | |||
Foreign currencies | (56,811 | ) | ||
45,759,324 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 95,905,020 | |||
Foreign currencies | (55,746 | ) | ||
95,849,274 | ||||
Net realized and unrealized gain | 141,608,598 | |||
Net increase in net assets resulting from operations | $ | 149,569,977 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,961,379 | $ | 14,806,822 | ||||
Net realized gain | 45,759,324 | 45,482,074 | ||||||
Change in net unrealized appreciation | 95,849,274 | 90,993,715 | ||||||
Net increase in net assets resulting from operations | 149,569,977 | 151,282,611 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (10,258,120 | ) | |||||
Series ll | — | (825,074 | ) | |||||
Total distributions from net investment income | — | (11,083,194 | ) | |||||
Share transactions-net: | ||||||||
Series l | (86,989,061 | ) | (189,370,062 | ) | ||||
Series ll | 5,769,744 | 49,735,579 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (81,219,317 | ) | (139,634,483 | ) | ||||
Net increase in net assets | 68,350,660 | 564,934 | ||||||
Net assets: | ||||||||
Beginning of period | 1,142,868,252 | 1,142,303,318 | ||||||
End of period (includes undistributed net investment income of $24,689,880 and $16,728,501, respectively) | $ | 1,211,218,912 | $ | 1,142,868,252 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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 trades 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 of 1986, as amended (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 provides discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective May 1, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2013, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $96,836.
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. Core Equity 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 six months ended June 30, 2013, Invesco was paid $140,591 for accounting and fund administrative services and reimbursed $1,458,640 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $291 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2013, there were transfers from Level 1 to Level 2 of $21,879,028 and from Level 2 to Level 1 of $15,233,551, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,134,652,705 | $ | 73,208,964 | $ | — | $ | 1,207,861,669 |
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. Core Equity Fund
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $130,584,499 and $232,178,070, 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 | $ | 286,405,658 | ||
Aggregate unrealized (depreciation) of investment securities | (13,942,457 | ) | ||
Net unrealized appreciation of investment securities | $ | 272,463,201 |
Cost of investments for tax purposes is $935,398,468.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 395,876 | $ | 13,150,422 | 633,084 | $ | 18,165,623 | ||||||||||
Series II | 453,792 | 14,894,542 | 2,065,035 | 59,301,631 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 343,081 | 10,258,120 | ||||||||||||
Series II | — | — | 27,836 | 825,074 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,028,755 | ) | (100,139,483 | ) | (7,514,023 | ) | (217,793,805 | ) | ||||||||
Series II | (277,968 | ) | (9,124,798 | ) | (363,524 | ) | (10,391,126 | ) | ||||||||
Net increase (decrease) in share activity | (2,457,055 | ) | $ | (81,219,317 | ) | (4,808,511 | ) | $ | (139,634,483 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 45% of the outstanding shares of the Fund. IDI has an agreement with these entities to sell Fund shares. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as securities brokerage, distribution, third party record keeping and account servicing. The 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. Core Equity Fund
NOTE 9—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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 30.14 | $ | 0.22 | $ | 3.80 | $ | 4.02 | $ | — | $ | 34.16 | 13.34 | % | $ | 1,081,643 | 0.88 | %(d) | 0.90 | %(d) | 1.35 | %(d) | 12 | % | ||||||||||||||||||||||||
Year ended 12/31/12 | 26.72 | 0.37 | 3.34 | 3.71 | (0.29 | ) | 30.14 | 13.88 | 1,033,655 | 0.88 | 0.90 | 1.29 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 29.86 | 0.18 | 3.76 | 3.94 | — | 33.80 | 13.20 | 129,576 | 1.13 | (d) | 1.15 | (d) | 1.10 | (d) | 12 | |||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 26.51 | 0.30 | 3.31 | 3.61 | (0.26 | ) | 29.86 | 13.61 | 109,213 | 1.13 | 1.15 | 1.04 | 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 omitted) of $1,088,287 and $122,637 for Series I and Series II shares, respectively. |
Invesco V.I. Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,133.40 | $ | 4.65 | $ | 1,020.43 | $ | 4.41 | 0.88 | % | ||||||||||||
Series II | 1,000.00 | 1,132.00 | 5.97 | 1,019.19 | 5.66 | 1.13 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Core Equity Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one and three year periods and the first quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Core Equity Fund |
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was the same as the effective advisory fee rate of the other mutual fund managed by Invesco Advisers with investment strategies comparable to those of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not
paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary
charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Core Equity Fund |
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Semiannual Report to Shareholders |
June 30, 2013 | ||
Invesco V.I. Diversified Dividend Fund |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.85 | % | |||
Series II Shares | 15.72 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 1000 Value Indexn (Style-Specific Index) | 15.90 | ||||
Lipper VUF Large-Cap Value Funds Index¿ (Peer Group Index) | 16.40 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
|
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (3/1/90) | 7.65 | % | |||
10 Years | 6.24 | ||||
5 Years | 6.35 | ||||
1 Year | 25.97 | ||||
Series II Shares | |||||
Inception (6/5/00) | 3.93 | % | |||
10 Years | 5.98 | ||||
5 Years | 6.07 | ||||
1 Year | 25.67 |
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 (renamed Invesco V.I. Diversified Dividend Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Diversified Dividend 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 0.68% and 0.93%, 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 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
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.51% |
| |||||||
Aerospace & Defense–3.79% | ||||||||
General Dynamics Corp. | 90,470 | $ | 7,086,515 | |||||
Raytheon Co. | 112,292 | 7,424,747 | ||||||
14,511,262 | ||||||||
Air Freight & Logistics–1.12% | ||||||||
United Parcel Service, Inc.–Class B | 49,730 | 4,300,650 | ||||||
Apparel Retail–1.14% | ||||||||
Guess?, Inc. | 62,569 | 1,941,516 | ||||||
TJX Cos., Inc. (The) | 48,027 | 2,404,232 | ||||||
4,345,748 | ||||||||
Apparel, Accessories & Luxury Goods–1.14% | ||||||||
Coach, Inc. | 34,831 | 1,988,502 | ||||||
Columbia Sportswear Co. | 37,739 | 2,364,348 | ||||||
4,352,850 | ||||||||
Asset Management & Custody Banks–3.10% | ||||||||
Federated Investors, Inc.–Class B | 259,229 | 7,105,467 | ||||||
Legg Mason, Inc. | 152,967 | 4,743,507 | ||||||
11,848,974 | ||||||||
Auto Parts & Equipment–1.27% | ||||||||
Johnson Controls, Inc. | 135,718 | 4,857,347 | ||||||
Brewers–2.52% | ||||||||
Heineken N.V. (Netherlands) | 151,435 | 9,626,727 | ||||||
Building Products–1.38% | ||||||||
Masco Corp. | 270,442 | 5,270,915 | ||||||
Consumer Finance–0.34% | ||||||||
Capital One Financial Corp. | 20,545 | 1,290,431 | ||||||
Data Processing & Outsourced Services–1.57% | ||||||||
Automatic Data Processing, Inc. | 87,184 | 6,003,490 | ||||||
Distillers & Vintners–0.32% | ||||||||
Treasury Wine Estates (Australia) | 227,094 | 1,205,340 | ||||||
Drug Retail–2.02% | ||||||||
Walgreen Co. | 175,052 | 7,737,298 | ||||||
Electric Utilities–7.79% | ||||||||
American Electric Power Co., Inc. | 122,991 | 5,507,537 | ||||||
Duke Energy Corp. | 80,299 | 5,420,182 | ||||||
Entergy Corp. | 48,318 | 3,366,798 | ||||||
Exelon Corp. | 212,022 | 6,547,239 | ||||||
Pepco Holdings, Inc. | 236,623 | 4,770,320 | ||||||
PPL Corp. | 137,726 | 4,167,589 | ||||||
29,779,665 | ||||||||
Food Distributors–1.98% | ||||||||
Sysco Corp. | 221,242 | 7,557,627 | ||||||
Gas Utilities–1.23% | ||||||||
AGL Resources Inc. | 110,059 | 4,717,129 |
Shares | Value | |||||||
General Merchandise Stores–1.87% | ||||||||
Target Corp. | 103,816 | $ | 7,148,770 | |||||
Health Care Equipment–2.49% | ||||||||
Medtronic, Inc. | 67,602 | 3,479,475 | ||||||
Stryker Corp. | 93,170 | 6,026,236 | ||||||
9,505,711 | ||||||||
Heavy Electrical Equipment–0.67% | ||||||||
ABB Ltd. (Switzerland) | 119,390 | 2,577,625 | ||||||
Hotels, Resorts & Cruise Lines–1.61% | ||||||||
Accor S.A. (France) | 78,211 | 2,746,839 | ||||||
Marriott International Inc.–Class A | 84,198 | 3,399,073 | ||||||
6,145,912 | ||||||||
Household Products–3.88% | ||||||||
Kimberly-Clark Corp. | 84,922 | 8,249,323 | ||||||
Procter & Gamble Co. (The) | 85,728 | 6,600,199 | ||||||
14,849,522 | ||||||||
Housewares & Specialties–1.37% | ||||||||
Newell Rubbermaid Inc. | 200,042 | 5,251,102 | ||||||
Industrial Machinery–1.71% | ||||||||
Pentair Ltd. | 113,569 | 6,551,796 | ||||||
Integrated Oil & Gas–1.22% | ||||||||
Total S.A. (France) | 95,291 | 4,646,634 | ||||||
Integrated Telecommunication Services–2.20% | ||||||||
AT&T Inc. | 162,586 | 5,755,544 | ||||||
Deutsche Telekom AG (Germany) | 228,542 | 2,666,524 | ||||||
8,422,068 | ||||||||
Investment Banking & Brokerage–2.08% | ||||||||
Charles Schwab Corp. (The) | 374,738 | 7,955,688 | ||||||
Life & Health Insurance–3.48% | ||||||||
Lincoln National Corp. | 122,974 | 4,484,862 | ||||||
Prudential Financial, Inc. | 37,116 | 2,710,581 | ||||||
StanCorp Financial Group, Inc. | 123,532 | 6,103,716 | ||||||
13,299,159 | ||||||||
Motorcycle Manufacturers–0.64% | ||||||||
Harley-Davidson, Inc. | 44,940 | 2,463,611 | ||||||
Movies & Entertainment–1.16% | ||||||||
Time Warner Inc. | 76,914 | 4,447,167 | ||||||
Multi-Utilities–3.25% | ||||||||
Consolidated Edison, Inc. | 84,219 | 4,910,810 | ||||||
Dominion Resources, Inc. | 52,112 | 2,961,004 | ||||||
Sempra Energy | 55,718 | 4,555,503 | ||||||
12,427,317 | ||||||||
Office Services & Supplies–0.81% | ||||||||
Avery Dennison Corp. | 72,371 | 3,094,584 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–1.24% | ||||||||
Baker Hughes Inc. | 102,667 | $ | 4,736,029 | |||||
Packaged Foods & Meats–9.15% | ||||||||
Campbell Soup Co. | 195,291 | 8,747,084 | ||||||
General Mills, Inc. | 272,236 | 13,211,613 | ||||||
Kraft Foods Group, Inc. | 123,088 | 6,876,927 | ||||||
Mead Johnson Nutrition Co. | 21,876 | 1,733,235 | ||||||
Mondelez International Inc.–Class A | 155,143 | 4,426,230 | ||||||
34,995,089 | ||||||||
Paper Packaging–0.67% | ||||||||
Sonoco Products Co. | 73,865 | 2,553,513 | ||||||
Paper Products–0.79% | ||||||||
International Paper Co. | 67,969 | 3,011,706 | ||||||
Personal Products–1.10% | ||||||||
L’Oreal S.A. (France) | 25,714 | 4,204,128 | ||||||
Pharmaceuticals–4.42% | ||||||||
Bristol-Myers Squibb Co. | 51,203 | 2,288,262 | ||||||
Eli Lilly & Co. | 104,253 | 5,120,907 | ||||||
Johnson & Johnson | 83,452 | 7,165,189 | ||||||
Novartis AG (Switzerland) | 32,941 | 2,334,633 | ||||||
16,908,991 | ||||||||
Property & Casualty Insurance–1.00% | ||||||||
Travelers Cos., Inc. (The) | 47,950 | 3,832,164 | ||||||
Regional Banks–8.52% | ||||||||
Cullen/Frost Bankers, Inc. | 35,093 | 2,343,160 | ||||||
Fifth Third Bancorp | 259,901 | 4,691,213 | ||||||
M&T Bank Corp. | 44,622 | 4,986,508 | ||||||
SunTrust Banks, Inc. | 332,815 | 10,506,970 | ||||||
Zions Bancorp. | 348,191 | 10,055,756 | ||||||
32,583,607 |
Shares | Value | |||||||
Restaurants–0.54% | ||||||||
Brinker International, Inc. | 52,523 | $ | 2,070,982 | |||||
Semiconductors–2.27% | ||||||||
Linear Technology Corp. | 106,560 | 3,925,670 | ||||||
Texas Instruments Inc. | 136,918 | 4,774,331 | ||||||
8,700,001 | ||||||||
Soft Drinks–0.89% | ||||||||
Coca-Cola Co. (The) | 84,677 | 3,396,394 | ||||||
Specialized REIT’s–0.50% | ||||||||
Weyerhaeuser Co. | 67,700 | 1,928,773 | ||||||
Systems Software–0.81% | ||||||||
Microsoft Corp. | 90,090 | 3,110,808 | ||||||
Thrifts & Mortgage Finance–1.75% | ||||||||
Hudson City Bancorp, Inc. | 728,768 | 6,675,515 | ||||||
Tobacco–1.71% | ||||||||
Altria Group, Inc. | 136,068 | 4,761,019 | ||||||
Philip Morris International Inc. | 20,577 | 1,782,380 | ||||||
6,543,399 | ||||||||
Total Common Stocks & Other Equity Interests |
| 361,443,218 | ||||||
Money Market Funds–5.30% |
| |||||||
Liquid Assets Portfolio–Institutional Class(b) | 10,130,555 | 10,130,555 | ||||||
Premier Portfolio– | 10,130,555 | 10,130,555 | ||||||
Total Money Market Funds |
| 20,261,110 | ||||||
TOTAL INVESTMENTS–99.81% |
| 381,704,328 | ||||||
OTHER ASSETS LESS LIABILITIES–0.19% |
| 720,784 | ||||||
NET ASSETS–100.00% |
| $ | 382,425,112 |
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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Consumer Staples | 23.6 | % | ||
Financials | 20.8 | |||
Utilities | 12.3 | |||
Consumer Discretionary | 10.7 | |||
Industrials | 9.5 | |||
Health Care | 6.9 | |||
Information Technology | 4.7 | |||
Energy | 2.4 | |||
Telecommunication Services | 2.2 | |||
Materials | 1.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.5 |
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
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: | ||||
Investments, at value (Cost $291,867,044) | $ | 361,443,218 | ||
Investments in affiliated money market funds, at value and cost | 20,261,110 | |||
Total investments, at value (Cost $312,128,154) | 381,704,328 | |||
Foreign currencies, at value (Cost $64,171) | 65,361 | |||
Receivable for: | ||||
Investments sold | 2,875,143 | |||
Fund shares sold | 190,262 | |||
Dividends | 523,787 | |||
Foreign currency contracts outstanding | 311,216 | |||
Investment for trustee deferred compensation and retirement plans | 33,192 | |||
Total assets | 385,703,289 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,690,583 | |||
Fund shares reacquired | 259,608 | |||
Accrued fees to affiliates | 207,396 | |||
Accrued trustees’ and officers’ fees and benefits | 1,141 | |||
Accrued other operating expenses | 39,232 | |||
Trustee deferred compensation and retirement plans | 80,217 | |||
Total liabilities | 3,278,177 | |||
Net assets applicable to shares outstanding | $ | 382,425,112 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 372,665,306 | ||
Undistributed net investment income | 11,861,538 | |||
Undistributed net realized gain (loss) | (71,994,315 | ) | ||
Unrealized appreciation | 69,892,583 | |||
$ | 382,425,112 | |||
Net Assets: | ||||
Series I | $ | 299,385,577 | ||
Series II | $ | 83,039,535 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 15,818,331 | |||
Series II | 4,406,859 | |||
Series I: | ||||
Net asset value per share | $ | 18.93 | ||
Series II: | ||||
Net asset value per share | $ | 18.84 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $67,888) | $ | 4,638,229 | ||
Dividends from affiliated money market funds | 8,166 | |||
Total investment income | 4,646,395 | |||
Expenses: | ||||
Advisory fees | 936,387 | |||
Administrative services fees | 329,558 | |||
Custodian fees | 11,313 | |||
Distribution fees — Series II | 100,155 | |||
Transfer agent fees | 14,820 | |||
Trustees’ and officers’ fees and benefits | 20,815 | |||
Other | 32,917 | |||
Total expenses | 1,445,965 | |||
Less: Fees waived | (14,312 | ) | ||
Net expenses | 1,431,653 | |||
Net investment income | 3,214,742 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from: | ||||
Investment securities | 17,121,040 | |||
Foreign currencies | 12,841 | |||
Foreign currency contracts | (329,029 | ) | ||
16,804,852 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 33,183,628 | |||
Foreign currencies | 5,630 | |||
Foreign currency contracts | 484,969 | |||
33,674,227 | ||||
Net realized and unrealized gain | 50,479,079 | |||
Net increase in net assets resulting from operations | $ | 53,693,821 |
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 six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,214,742 | $ | 7,491,024 | ||||
Net realized gain | 16,804,852 | 15,904,682 | ||||||
Change in net unrealized appreciation | 33,674,227 | 33,682,450 | ||||||
Net increase in net assets resulting from operations | 53,693,821 | 57,078,156 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (5,387,849 | ) | |||||
Series ll | — | (1,277,732 | ) | |||||
Total distributions from net investment income | — | (6,665,581 | ) | |||||
Share transactions-net: | ||||||||
Series l | (14,326,100 | ) | (22,261,163 | ) | ||||
Series ll | (990,423 | ) | (6,378,324 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (15,316,523 | ) | (28,639,487 | ) | ||||
Net increase in net assets | 38,377,298 | 21,773,088 | ||||||
Net assets: | ||||||||
Beginning of period | 344,047,814 | 322,274,726 | ||||||
End of period (includes undistributed net investment income of $11,861,538 and $8,646,796, respectively) | $ | 382,425,112 | $ | 344,047,814 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Dividend 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-four 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
Invesco V.I. Diversified Dividend 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 trades 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 of 1986, as amended (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 May 1, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2013, 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 0.77% and Series II shares to 1.02% 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $14,312.
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. Diversified Dividend 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 six months ended June 30, 2013, Invesco was paid $45,271 for accounting and fund administrative services and reimbursed $284,287 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $551 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 June 30, 2013. 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 | $ | 354,362,402 | $ | 27,341,926 | $ | — | $ | 381,704,328 | ||||||||
Foreign Currency Contracts* | — | 311,216 | — | 311,216 | ||||||||||||
Total Investments | $ | 354,362,402 | $ | 27,653,142 | $ | — | $ | 382,015,544 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 311,216 | $ | — |
(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 Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, 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 | $ | (329,029 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | $ | 484,969 | ||
Total | $ | 155,940 |
* | The average notional value of foreign currency contracts outstanding during the period was $10,578,582. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Contract to | Notional Value | Unrealized Appreciation | |||||||||||||||||||||||
Counterparty | Deliver | Receive | ||||||||||||||||||||||||
07/24/13 | State Street Bank | EUR | 8,363,104 | USD | 11,198,154 | $ | 10,886,938 | $ | 311,216 |
Currency Abbreviations:
EUR | –Euro | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of assets
| Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
State Street Bank | $ | 311,216 | $ | — | $ | 311,216 | $ | — | $ | — | $ | 311,216 | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of
| Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
State Street Bank | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
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. Diversified Dividend Fund
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $37,918,799 and $53,530,933, 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 | $ | 73,718,348 | ||
Aggregate unrealized (depreciation) of investment securities | (5,120,749 | ) | ||
Net unrealized appreciation of investment securities | $ | 68,597,599 |
Cost of investments for tax purposes is $313,106,729.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,125,210 | $ | 20,587,634 | 1,577,471 | $ | 24,311,856 | ||||||||||
Series II | 546,406 | 9,966,808 | 610,747 | 9,439,806 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 336,320 | 5,387,849 | ||||||||||||
Series II | — | — | 79,958 | 1,277,732 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,920,304 | ) | (34,913,734 | ) | (3,376,184 | ) | (51,960,868 | ) | ||||||||
Series II | (600,184 | ) | (10,957,231 | ) | (1,116,302 | ) | (17,095,862 | ) | ||||||||
Net increase (decrease) in share activity | (848,872 | ) | $ | (15,316,523 | ) | (1,887,990 | ) | $ | (28,639,487 | ) |
(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. |
Invesco V.I. Diversified Dividend 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 | Net asset value, end | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 16.34 | $ | 0.16 | $ | 2.43 | $ | 2.59 | $ | — | $ | 18.93 | 15.85 | % | $ | 299,386 | 0.71 | %(d) | 0.72 | %(d) | 1.79 | %(d) | 11 | % | ||||||||||||||||||||||||
Year ended 12/31/12 | 14.04 | 0.35 | 2.27 | 2.62 | (0.32 | ) | 16.34 | 18.72 | 271,407 | 0.67 | 0.68 | 2.29 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 16.28 | 0.14 | 2.42 | 2.56 | — | 18.84 | 15.72 | 83,040 | 0.96 | (d) | 0.97 | (d) | 1.54 | (d) | 11 | |||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 14.00 | 0.31 | 2.26 | 2.57 | (0.29 | ) | 16.28 | 18.37 | 72,641 | 0.92 | 0.93 | 2.04 | 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. 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 $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 annualized and based on average daily net assets (000’s omitted) of $294,401 and $80,788 for Series I and Series II shares, respectively. |
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 January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,158.50 | $ | 3.80 | $ | 1,021.27 | $ | 3.56 | 0.71 | % | ||||||||||||
Series II | 1,000.00 | 1,157.20 | 5.13 | 1,020.03 | 4.81 | 0.96 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Diversified Dividend Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Diversified Dividend Fund |
performance universe and against the Lipper VA Underlying Funds – Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one year period, the second quintile for the three year period, and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund with comparable investment strategies, and was also above the internal sub-adviser rate of an off-shore fund sub-advised by Invesco Advisers.
Other than the funds described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to
Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such
services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Diversified Dividend Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Diversified Income Fund |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -2.60 | % | |||
Series II Shares | -2.62 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | -2.44 | ||||
Barclays U.S. Credit Index¡ (Style-Specific Index) | -3.60 | ||||
Lipper VUF Corporate Debt BBB-Rated Funds Index¡ (Peer Group Index) | -2.67 |
Source(s): ‚Invesco, Barclays via FactSet Research Systems Inc.; ¡Lipper Inc.
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (5/5/93) | 4.30 | % | |||
10 Years | 3.26 | ||||
5 Years | 4.00 | ||||
1 Year | 2.22 | ||||
Series II Shares | |||||
Inception (3/14/02) | 3.72 | % | |||
10 Years | 3.00 | ||||
5 Years | 3.76 | ||||
1 Year | 2.03 |
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 1.49% and 1.74%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 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. Diversified Income Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–90.38% |
| |||||||
Advertising–0.12% | ||||||||
Omnicom Group Inc., Sr. Unsec. Gtd. Global Notes, 3.63%, 05/01/22 | $ | 25,000 | $ | 24,198 | ||||
Aerospace & Defense–0.61% | ||||||||
B/E Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | 10,000 | 10,050 | ||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | 15,000 | 16,875 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Notes, 5.25%, 02/01/21(b) | 8,000 | 7,760 | ||||||
Erickson Air-Crane Inc., Sr. Sec. Gtd. Notes, 8.25%, 05/01/20(b) | 2,000 | 1,965 | ||||||
GenCorp Inc., Sr. Sec. Gtd. Notes, 7.13%, 03/15/21(b) | 10,000 | 10,425 | ||||||
General Dynamics Corp., Sr. Unsec. Gtd. Global Notes, 2.25%, 11/15/22 | 60,000 | 54,501 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 03/15/18 | 5,000 | 5,381 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 10,000 | 10,450 | ||||||
TransDigm Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Notes, 5.50%, 10/15/20(b) | 5,000 | 4,687 | ||||||
Sr. Unsec. Sub. Notes, | 5,000 | 5,050 | ||||||
127,144 | ||||||||
Agricultural Products–0.38% | ||||||||
Ingredion Inc., | ||||||||
Sr. Unsec. Global Notes, 1.80%, 09/25/17 | 45,000 | 44,185 | ||||||
Sr. Unsec. Notes, 6.63%, 04/15/37 | 30,000 | 34,289 | ||||||
78,474 | ||||||||
Airlines–2.98% | ||||||||
Air Canada Pass Through Trust (Canada), Series 2013-1, Class B, Sec. Pass Through Ctfs., 5.38%, 05/15/21(b) | 5,000 | 4,917 | ||||||
American Airlines Pass Through Trust, | ||||||||
Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 36,784 | 39,198 | ||||||
Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 72,774 | 76,413 | ||||||
British Airways PLC (United Kingdom), Sec. Pass Through Ctfs., | 5,000 | 5,089 | ||||||
Continental Airlines Pass Through Trust, | ||||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | 1,952 | 2,006 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 99,615 | 114,557 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 10,017 | 11,151 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.00%, 01/12/19 | 12,238 | 12,605 | ||||||
Series 2012-3, Class C, Sr. Sec. Pass Through Ctfs., 6.13%, 04/29/18 | 3,000 | 3,045 |
Principal Amount | Value | |||||||
Airlines–(continued) | ||||||||
Delta Air Lines Pass Through Trust, | ||||||||
Series 2009-1, Class A, Sr. Sec. Pass Through Ctfs., 7.75%, 12/17/19 | $ | 32,140 | $ | 37,443 | ||||
Series 2010-2, Class A, Sec. Pass Through Ctfs., 4.95%, 05/23/19 | 49,279 | 52,482 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15 | 5,000 | 5,238 | ||||||
Series 2011-1, Class A, Sec. Pass Through Ctfs., 5.30%, 04/15/19 | 12,056 | 12,991 | ||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 4.75%, 05/07/20 | 57,858 | 60,931 | ||||||
Hawaiian Airlines, | ||||||||
Series 2013-1, Class A, Sr. Sec. Gtd. Pass Through Ctfs., 3.90%, 01/15/26 | 70,000 | 66,675 | ||||||
Series 2013-1, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 4.95%, 01/15/22 | 35,000 | 33,250 | ||||||
UAL Pass Through Trust, | ||||||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 27,392 | 31,500 | ||||||
Series 2009-2A, Sr. Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 21,337 | 24,551 | ||||||
United Continental Holdings Inc., Sr. Unsec. Gtd. Notes, 6.38%, 06/01/18 | 12,000 | 11,820 | ||||||
US Airways Pass Through Trust, | ||||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | 998 | 1,055 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 1,000 | 1,090 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 1,000 | 1,060 | ||||||
Series 2013-1, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 5.38%, 11/15/21 | 10,000 | 9,875 | ||||||
618,942 | ||||||||
Alternative Carriers–0.22% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 10,000 | 11,050 | ||||||
Level 3 Communications Inc., Sr. Unsec. Global Notes, | ||||||||
8.88%, 06/01/19 | 4,000 | 4,200 | ||||||
11.88%, 02/01/19 | 12,000 | 13,680 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.00%, 06/01/20 | 2,000 | 2,010 | ||||||
8.63%, 07/15/20 | 2,000 | 2,140 | ||||||
9.38%, 04/01/19 | 12,000 | 13,050 | ||||||
46,130 | ||||||||
Apparel Retail–0.14% | ||||||||
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | 14,000 | 14,700 |
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) | ||||||||
L Brands Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.63%, 02/15/22 | $ | 2,000 | $ | 2,032 | ||||
8.50%, 06/15/19 | 10,000 | 11,675 | ||||||
28,407 | ||||||||
Apparel, Accessories & Luxury Goods–0.25% | ||||||||
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | 25,000 | 25,250 | ||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, | ||||||||
6.88%, 05/01/22 | 8,000 | 8,720 | ||||||
7.63%, 05/15/20 | 15,000 | 16,200 | ||||||
PVH Corp., Sr. Unsec. Global Notes, 4.50%, 12/15/22 | 2,000 | 1,902 | ||||||
52,072 | ||||||||
Application Software–0.06% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | 12,000 | 11,790 | ||||||
Asset Management & Custody Banks–1.03% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/21(b) | 5,000 | 5,063 | ||||||
Bank of New York Mellon (The), Series D, Jr. Unsec. Sub. Global Notes, 4.50%(c) | 70,000 | 65,800 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 6.25%, 08/15/42(b) | 45,000 | 49,134 | ||||||
Carlyle Holdings II Finance LLC, Sr. Sec. Gtd. Notes, 5.63%, 03/30/43(b) | 55,000 | 51,387 | ||||||
Prospect Capital Corp., Sr. Unsec. Global Notes, 5.88%, 03/15/23 | 45,000 | 42,745 | ||||||
214,129 | ||||||||
Auto Parts & Equipment–0.11% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 14,000 | 14,875 | ||||||
American Axle & Manufacturing Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 03/15/21 | 5,000 | 5,100 | ||||||
6.63%, 10/15/22 | 3,000 | 3,075 | ||||||
23,050 | ||||||||
Automobile Manufacturers–0.21% | ||||||||
Ford Motor Co., Sr. Unsec. Global Notes, 4.75%, 01/15/43 | 50,000 | 44,317 | ||||||
Automotive Retail–0.49% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 95,000 | 100,986 | ||||||
Brewers–0.26% | ||||||||
Heineken NV (Netherlands), Sr. Unsec. Notes, 1.40%, 10/01/17(b) | 55,000 | 53,508 |
Principal Amount | Value | |||||||
Broadcasting–2.27% | ||||||||
Clear Channel Worldwide Holdings Inc., | ||||||||
Series A, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | $ | 2,000 | $ | 2,030 | ||||
Series B, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | 6,000 | 6,150 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | 14,000 | 14,560 | ||||||
COX Communications Inc., | ||||||||
Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 30,000 | 32,033 | ||||||
Sr. Unsec. Notes, | ||||||||
4.50%, 06/30/43(b) | 55,000 | 47,635 | ||||||
8.38%, 03/01/39(b) | 75,000 | 101,163 | ||||||
9.38%, 01/15/19(b) | 140,000 | 186,617 | ||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 4.88%, 04/01/43 | 70,000 | 66,207 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 01/15/21 | 14,000 | 14,245 | ||||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 2,000 | 1,981 | ||||||
472,621 | ||||||||
Building Products–0.66% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 15,000 | 15,900 | ||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 8,000 | 7,780 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Notes, 6.25%, 02/01/21(b) | 17,000 | 17,722 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.50%, 04/15/21 | 22,000 | 23,485 | ||||||
10.00%, 12/01/18 | 5,000 | 5,450 | ||||||
Owens Corning Inc., Sr. Unsec. Gtd. Global Notes, 4.20%, 12/15/22 | 40,000 | 38,842 | ||||||
Ply Gem Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.38%, 04/15/17 | 3,000 | 3,173 | ||||||
USG Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 7.88%, 03/30/20(b) | 12,000 | 13,110 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 10,000 | 11,350 | ||||||
136,812 | ||||||||
Cable & Satellite–3.38% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Notes, 5.25%, 03/15/21(b) | 5,000 | 4,975 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 4.25%, 01/15/33 | 80,000 | 76,857 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
2.40%, 03/15/17 | 25,000 | 25,131 | ||||||
5.15%, 03/15/42 | 70,000 | 62,369 | ||||||
Sr. Unsec. Gtd. Notes, 1.75%, 01/15/18 | 40,000 | 38,636 | ||||||
DISH DBS Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
5.00%, 03/15/23 | 9,000 | 8,696 | ||||||
5.88%, 07/15/22 | 15,000 | 15,319 | ||||||
Sr. Unsec. Gtd. Notes, 5.13%, 05/01/20(b) | 17,000 | 16,830 |
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) | ||||||||
Hughes Satellite Systems Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | $ | 4,000 | $ | 4,300 | ||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 5,000 | 5,350 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 10/15/20 | 6,000 | 6,345 | ||||||
7.50%, 04/01/21 | 10,000 | 10,525 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 12/15/22(b) | 10,000 | 9,725 | ||||||
7.75%, 06/01/21(b) | 12,000 | 12,150 | ||||||
8.13%, 06/01/23(b) | 6,000 | 6,195 | ||||||
NBC Universal Media LLC, Sr. Unsec. Gtd. Global Notes, | ||||||||
2.10%, 04/01/14 | 35,000 | 35,435 | ||||||
5.95%, 04/01/41 | 35,000 | 40,097 | ||||||
Time Warner Cable, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18 | 55,000 | 63,999 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 38,000 | 39,751 | ||||||
ViaSat Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 06/15/20 | 13,000 | 13,715 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | 200,000 | 207,039 | ||||||
703,439 | ||||||||
Casinos & Gaming–0.78% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | 10,000 | 10,475 | ||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
9.00%, 07/01/20 | 17,000 | 17,425 | ||||||
9.13%, 12/01/18 | 2,000 | 2,095 | ||||||
Caesars Entertainment Operating Co. Inc., | ||||||||
Sec. Gtd. Global Notes, 12.75%, 04/15/18 | 3,000 | 2,048 | ||||||
Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | 8,000 | 7,660 | ||||||
Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/13 | 6,000 | 6,000 | ||||||
Caesars Operating Escrow LLC/Caesars Escrow Corp., Sr. Sec. Gtd. Notes, | ||||||||
9.00%, 02/15/20(b) | 5,000 | 4,787 | ||||||
9.00%, 02/15/20(b) | 3,000 | 2,873 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sr. Sec. Gtd. Global PIK Notes, 10.75%, 01/15/17 | 10,137 | 10,999 | ||||||
MGM Resorts International, | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 12/15/21 | 25,000 | 25,875 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 17,000 | 18,572 | ||||||
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, 4.22%, 02/01/14(b)(d) | 7,000 | 6,851 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 13,000 | 12,870 |
Principal Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
Sugarhouse HSP Gaming Prop Mezz L.P./Sugarhouse HSP Gaming Finance Corp., Sr. Sec. Notes, | $ | 2,000 | $ | 1,955 | ||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. First Mortgage Global Notes, 5.38%, 03/15/22 | 20,000 | 20,312 | ||||||
161,397 | ||||||||
Catalog Retail–0.41% | ||||||||
QVC Inc., Sr. Sec. Gtd. Notes, 4.38%, 03/15/23(b) | 90,000 | 84,980 | ||||||
Coal & Consumable Fuels–0.24% | ||||||||
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 9.75%, 04/15/18 | 4,000 | 3,880 | ||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | 23,000 | 24,322 | ||||||
Peabody Energy Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.00%, 11/15/18 | 13,000 | 13,097 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | 9,000 | 9,023 | ||||||
50,322 | ||||||||
Communications Equipment–0.09% | ||||||||
Avaya Inc., | ||||||||
Sec. Gtd. Notes, 10.50%, 03/01/21(b) | 4,000 | 3,050 | ||||||
Sr. Sec. Gtd. Notes, | ||||||||
7.00%, 04/01/19(b) | 15,000 | 13,594 | ||||||
9.00%, 04/01/19(b) | 3,000 | 2,910 | ||||||
19,554 | ||||||||
Computer & Electronics Retail–0.08% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 15,000 | 15,769 | ||||||
Computer Storage & Peripherals–0.12% | ||||||||
Seagate HDD Cayman, | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.00%, 11/01/21 | 15,000 | 16,162 | ||||||
Sr. Unsec. Gtd. Notes, 4.75%, 06/01/23(b) | 10,000 | 9,325 | ||||||
25,487 | ||||||||
Construction & Engineering–0.43% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 15,000 | 15,975 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 25,000 | 25,813 | ||||||
URS Corp., Sr. Unsec. Gtd. Notes, 5.50%, 04/01/22(b) | 45,000 | 46,752 | ||||||
88,540 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.57% | ||||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 13,000 | 13,097 | ||||||
Deere & Co., Sr. Unsec. Notes, 3.90%, 06/09/42 | 65,000 | 59,652 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 5,000 | 5,500 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 13,000 | 12,838 |
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) | ||||||||
Terex Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | $ | 2,000 | $ | 2,040 | ||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | 25,000 | 26,312 | ||||||
119,439 | ||||||||
Construction Materials–0.50% | ||||||||
CRH America Inc. (Ireland), Sr. Unsec. Gtd. Notes, 4.13%, 01/15/16 | 80,000 | 84,189 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 19,000 | 20,520 | ||||||
104,709 | ||||||||
Consumer Finance–1.51% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 03/15/20 | 32,000 | 37,520 | ||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 4.25%, 09/20/22 | 200,000 | 196,317 | ||||||
SLM Corp., Sr. Unsec. Medium-Term Global Notes, 6.25%, 01/25/16 | 75,000 | 79,819 | ||||||
313,656 | ||||||||
Data Processing & Outsourced Services–0.56% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | 30,000 | 29,640 | ||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | 17,000 | 18,190 | ||||||
First Data Corp., | ||||||||
Sr. Sec. Gtd. Notes, | ||||||||
6.75%, 11/01/20(b) | 15,000 | 15,412 | ||||||
7.38%, 06/15/19(b) | 9,000 | 9,337 | ||||||
8.25%, 01/15/21(b) | 33,000 | 33,825 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 11.75%, 08/15/21(b) | 3,000 | 2,738 | ||||||
WEX Inc., Sr. Unsec. Gtd. Notes, 4.75%, 02/01/23(b) | 7,000 | 6,598 | ||||||
115,740 | ||||||||
Department Stores–0.07% | ||||||||
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | 15,000 | 14,213 | ||||||
Distillers & Vintners–0.06% | ||||||||
Constellation Brands Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 10,000 | 11,425 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | 2,000 | 2,155 | ||||||
13,580 | ||||||||
Distributors–0.02% | ||||||||
American Builders & Contractors Supply Co. Inc., Sr. Unsec. Notes, 5.63%, 04/15/21(b) | 5,000 | 4,913 | ||||||
Diversified Banks–3.97% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.88%, 04/25/14 | 25,000 | 25,316 |
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
ABN Amro Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.00%, 01/31/14(b) | $ | 200,000 | $ | 202,478 | ||||
Bank of Montreal (Canada), Sr. Unsec. Medium-Term Notes, 0.80%, 11/06/15 | 75,000 | 74,933 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 70,000 | 70,655 | ||||||
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/22 | 45,000 | 45,879 | ||||||
ING Bank N.V. (Netherlands), Unsec. Sub. Notes, 5.13%, 05/01/15(b) | 100,000 | 103,271 | ||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | 12,000 | 11,466 | ||||||
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(b) | 130,000 | 130,574 | ||||||
Standard Chartered PLC (Hong Kong), Sr. Unsec. Notes, 5.50%, 11/18/14(b) | 55,000 | 58,282 | ||||||
VTB Bank OJSC Via VTB Capital S.A. (Russia), Sr. Unsec. Loan Participation Notes, 6.55%, 10/13/20(b) | 100,000 | 103,823 | ||||||
826,677 | ||||||||
Diversified Chemicals–0.39% | ||||||||
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 3.00%, 11/15/22 | 85,000 | 78,849 | ||||||
Eagle Spinco Inc., Sr. Unsec. Gtd. Notes, 4.63%, 02/15/21(b) | 2,000 | 1,930 | ||||||
80,779 | ||||||||
Diversified Metals & Mining–2.09% | ||||||||
BHP Billition Finance USA Ltd. (Australia), Sr. Unsec. Gtd. Global Notes, 6.50%, 04/01/19 | 125,000 | 149,886 | ||||||
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, | ||||||||
6.38%, 02/01/16(b) | 7,000 | 7,000 | ||||||
6.88%, 04/01/22(b) | 6,000 | 5,865 | ||||||
8.25%, 11/01/19(b) | 16,000 | 16,480 | ||||||
Freeport-McMoran Copper & Gold Inc., Sr. Unsec. Notes, 3.88%, 03/15/23(b) | 75,000 | 68,245 | ||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 7.13%, 07/15/28 | 20,000 | 25,160 | ||||||
Rio Tinto Finance USA PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 3.50%, 03/22/22 | 80,000 | 76,731 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, 5.25%, 11/08/42 | 70,000 | 58,105 | ||||||
Walter Energy Inc., Sr. Unsec. Gtd. Notes, 8.50%, 04/15/21(b) | 8,000 | 6,400 | ||||||
Xstrata Finance Canada Ltd. (Canada), Sr. Unsec. Gtd. Notes, 5.55%, 10/25/42(b) | 25,000 | 20,735 | ||||||
434,607 | ||||||||
Drug Retail–1.14% | ||||||||
CVS Caremark Corp., Sr. Unsec. Global Notes, 2.75%, 12/01/22 | 60,000 | 56,368 |
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–(continued) | ||||||||
CVS Pass Through Trust, Sr. Sec. Mortgage Pass Through Ctfs., 5.77%, 01/10/33(b) | $ | 164,753 | $ | 180,620 | ||||
236,988 | ||||||||
Electric Utilities–2.98% | ||||||||
Appalachian Power Co., Sr. Unsec. Floating Rate Notes, 0.65%, 08/16/13(d) | 50,000 | 50,021 | ||||||
DCP Midstream LLC, Sr. Unsec. Notes, 9.70%, 12/01/13(b) | 100,000 | 103,730 | ||||||
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, | 100,000 | 102,657 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(e) | 25,000 | 0 | ||||||
Mississippi Power Co., Series 12, Class A, Sr. Unsec. Notes, 4.25%, 03/15/42 | 60,000 | 54,487 | ||||||
NextEra Energy Capital Holdings Inc., Sr. Unsec. Gtd. Notes, 1.20%, 06/01/15 | 25,000 | 25,126 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 100,000 | 115,563 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 45,000 | 55,175 | ||||||
System Energy Resources Inc., Sec. First Mortgage Bonds, 4.10%, 04/01/23 | 50,000 | 49,757 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 55,000 | 63,264 | ||||||
619,780 | ||||||||
Electrical Components & Equipment–0.05% | ||||||||
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | 5,000 | 4,975 | ||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 5,000 | 5,250 | ||||||
10,225 | ||||||||
Electronic Components–0.25% | ||||||||
Corning, Inc., Sr. Unsec. Notes, 4.75%, 03/15/42 | 55,000 | 52,866 | ||||||
Electronic Manufacturing Services–0.07% | ||||||||
Sanmina Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 15,000 | 15,675 | ||||||
Environmental & Facilities Services–0.34% | ||||||||
Clean Harbors Inc., Sr. Unsec. Gtd. Global Notes, 5.13%, 06/01/21 | 3,000 | 2,989 | ||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 65,000 | 66,901 | ||||||
69,890 | ||||||||
Forest Products–0.06% | ||||||||
Boise Cascade Co., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/01/20 | 2,000 | 2,030 | ||||||
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | 10,000 | 9,950 | ||||||
11,980 | ||||||||
Gas Utilities–0.20% | ||||||||
AmeriGas Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 05/20/22 | 7,000 | 7,210 |
Principal Amount | Value | |||||||
Gas Utilities–(continued) | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | $ | 8,000 | $ | 8,140 | ||||
Suburban Propane Partners, L.P./ | ||||||||
Sr. Unsec. Global Notes, 7.38%, 08/01/21 | 5,000 | 5,175 | ||||||
Sr. Unsec. Notes, 7.38%, 03/15/20 | 20,000 | 20,950 | ||||||
41,475 | ||||||||
General Merchandise Stores–0.58% | ||||||||
Dollar General Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
1.88%, 04/15/18 | 60,000 | 57,868 | ||||||
3.25%, 04/15/23 | 40,000 | 36,671 | ||||||
Sr. Unsec. Gtd. Global Notes, 4.13%, 07/15/17 | 25,000 | 26,497 | ||||||
121,036 | ||||||||
Gold–2.77% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, | ||||||||
2.90%, 05/30/16 | 65,000 | 64,275 | ||||||
3.85%, 04/01/22 | 35,000 | 29,677 | ||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | 50,000 | 40,946 | ||||||
Eldorado Gold Corp. (Canada), Sr. Unsec. Notes, 6.13%, 12/15/20(b) | 5,000 | 4,875 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(b) | 200,000 | 173,123 | ||||||
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Global Notes, | ||||||||
5.13%, 09/01/21 | 75,000 | 73,451 | ||||||
6.88%, 09/01/41 | 75,000 | 67,125 | ||||||
Newcrest Finance Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.75%, 11/15/41(b) | 35,000 | 27,806 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 110,000 | 94,114 | ||||||
575,392 | ||||||||
Health Care Distributors–0.58% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Gtd. Notes, 3.50%, 11/15/21 | 120,000 | 121,295 | ||||||
Health Care Equipment–0.39% | ||||||||
Biomet Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.50%, 08/01/20 | 2,000 | 2,070 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 6.50%, 10/01/20 | 7,000 | 7,035 | ||||||
DJO Finance LLC/Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/18 | 2,000 | 1,985 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | 10,000 | 10,250 | ||||||
Medtronic Inc., Sr. Unsec. Global Notes, 4.00%, 04/01/43 | 55,000 | 50,044 |
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 Equipment–(continued) | ||||||||
Universal Hospital Services Inc., Sr. Sec. Gtd. Global Notes, 7.63%, 08/15/20 | $ | 10,000 | $ | 10,500 | ||||
81,884 | ||||||||
Health Care Facilities–0.22% | ||||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/21 | 13,000 | 13,325 | ||||||
HCA, Inc., | ||||||||
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 10,000 | 10,300 | ||||||
Sr. Unsec. Gtd. Global Notes, 5.88%, 05/01/23 | 13,000 | 13,097 | ||||||
Tenet Healthcare Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 4.75%, 06/01/20 | 2,000 | 1,933 | ||||||
Sr. Unsec. Global Notes, 6.75%, 02/01/20 | 7,000 | 6,825 | ||||||
45,480 | ||||||||
Health Care Services–1.05% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.65%, 02/15/17 | 100,000 | 101,831 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Gtd. Notes, 2.75%, 09/15/15 | 35,000 | 36,017 | ||||||
Orlando Lutheran Towers Inc., Unsec. Bonds, 8.00%, 07/01/17 | 75,000 | 73,885 | ||||||
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | 7,000 | 7,420 | ||||||
219,153 | ||||||||
Health Care Technology–0.08% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | 15,000 | 16,013 | ||||||
Homebuilding–1.03% | ||||||||
Beazer Homes USA Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 8.13%, 06/15/16 | 15,000 | 16,425 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 02/01/23(b) | 2,000 | 2,040 | ||||||
9.13%, 06/15/18 | 4,000 | 4,185 | ||||||
DR Horton Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 02/15/23 | 5,000 | 4,825 | ||||||
K. Hovnanian Enterprises Inc., | ||||||||
Sr. Sec. Gtd. Notes, 7.25%, 10/15/20(b) | 9,000 | 9,765 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/16 | 12,000 | 12,360 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.50%, 05/15/16 | 3,000 | 3,094 | ||||||
11.88%, 10/15/15 | 2,000 | 2,290 | ||||||
Lennar Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 10,000 | 10,912 | ||||||
Sr. Unsec. Gtd. Notes, | 3,000 | 2,861 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 10,000 | 10,850 | ||||||
MDC Holdings Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 115,000 | 107,122 |
Principal Amount | Value | |||||||
Homebuilding–(continued) | ||||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/22 | $ | 5,000 | $ | 5,538 | ||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 7,000 | 6,851 | ||||||
Taylor Morrison Communities Inc./Monarch Communities Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.25%, 04/15/21(b) | 2,000 | 1,905 | ||||||
7.75%, 04/15/20(b) | 10,000 | 10,800 | ||||||
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | 3,000 | 3,165 | ||||||
214,988 | ||||||||
Hotels, Resorts & Cruise Lines–0.90% | ||||||||
Carnival Corp., Sr. Unsec. Gtd. Global Notes, 1.88%, 12/15/17 | 45,000 | 43,544 | ||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, | ||||||||
5.25%, 11/15/22 | 25,000 | 24,500 | ||||||
7.50%, 10/15/27 | 10,000 | 11,050 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 5.63%, 03/01/21 | 100,000 | 107,681 | ||||||
186,775 | ||||||||
Household Products–0.13% | ||||||||
Central Garden & Pet Co., Sr. Unsec. Gtd. Sub. Notes, 8.25%, 03/01/18 | 11,000 | 11,151 | ||||||
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC, Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 15,000 | 15,150 | ||||||
26,301 | ||||||||
Housewares & Specialties–0.03% | ||||||||
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | 5,000 | 5,075 | ||||||
Spectrum Brands Escrow Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/15/20(b) | 2,000 | 2,113 | ||||||
7,188 | ||||||||
Independent Power Producers & Energy Traders–0.09% | ||||||||
AES Corp. (The), | ||||||||
Sr. Unsec. Global Notes, 7.38%, 07/01/21 | 10,000 | 11,025 | ||||||
Sr. Unsec. Global Notes, 8.00%, 10/15/17 | 2,000 | 2,257 | ||||||
NRG Energy Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | 4,000 | 4,290 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 03/15/23(b) | 2,000 | 2,000 | ||||||
19,572 | ||||||||
Industrial Conglomerates–1.46% | ||||||||
General Electric Co., Sr. Unsec. Global Notes, 2.70%, 10/09/22 | 35,000 | 33,238 | ||||||
Hutchison Whampoa International Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, | ||||||||
5.75%, 09/11/19(b) | 100,000 | 111,941 | ||||||
7.63%, 04/09/19(b) | 130,000 | 158,299 | ||||||
303,478 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Industrial Machinery–1.31% | ||||||||
Actuant Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/15/22 | $ | 5,000 | $ | 5,088 | ||||
Ingersoll-Rand Global Holding Co. Ltd., Sr. Unsec. Gtd. Notes, 5.75%, 06/15/43(b) | 105,000 | 104,615 | ||||||
Pentair Finance S.A., Sr. Unsec. Gtd. Global Notes, | ||||||||
1.35%, 12/01/15 | 110,000 | 110,364 | ||||||
3.15%, 09/15/22 | 55,000 | 51,548 | ||||||
271,615 | ||||||||
Insurance Brokers–0.63% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 9.25%, 04/15/19 | 100,000 | 130,745 | ||||||
Integrated Telecommunication Services–2.14% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
1.70%, 06/01/17 | 60,000 | 59,390 | ||||||
2.50%, 08/15/15 | 60,000 | 61,595 | ||||||
2.95%, 05/15/16 | 35,000 | 36,615 | ||||||
4.45%, 05/15/21 | 15,000 | 16,229 | ||||||
Telefonica Emisiones S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Global Notes, 5.46%, 02/16/21 | 90,000 | 92,829 | ||||||
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 5.50%, 10/23/20(b) | 161,000 | 150,644 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, 4.75%, 11/01/41 | 30,000 | 28,552 | ||||||
445,854 | ||||||||
Internet Software & Services–0.16% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/15/22(b) | 10,000 | 10,250 | ||||||
Equinix Inc., Sr. Unsec. Notes, | ||||||||
5.38%, 04/01/23 | 15,000 | 14,775 | ||||||
7.00%, 07/15/21 | 5,000 | 5,450 | ||||||
VeriSign Inc., Sr. Unsec. Gtd. Notes, 4.63%, 05/01/23(b) | 2,000 | 1,957 | ||||||
32,432 | ||||||||
Investment Banking & Brokerage–6.04% | ||||||||
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(c) | 115,000 | 129,950 | ||||||
Goldman Sachs Group, Inc. (The), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.63%, 01/22/23 | 115,000 | 110,140 | ||||||
5.13%, 01/15/15 | 50,000 | 52,727 | ||||||
5.25%, 07/27/21 | 55,000 | 58,971 | ||||||
5.75%, 01/24/22 | 100,000 | 110,548 | ||||||
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | 45,000 | 46,938 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, | ||||||||
6.00%, 01/14/20(b) | 105,000 | 112,350 | ||||||
7.30%, 08/01/14(b) | 110,000 | 115,862 |
Principal Amount | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Morgan Stanley, | ||||||||
Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | $ | 230,000 | $ | 239,327 | ||||
Unsec. Sub. Medium-Term Notes, 4.10%, 05/22/23 | 110,000 | 102,016 | ||||||
Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | 130,000 | 139,999 | ||||||
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | 35,000 | 36,892 | ||||||
1,255,720 | ||||||||
Leisure Facilities–0.05% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Notes, 5.25%, 03/15/21(b) | 5,000 | 4,838 | ||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 5,000 | 5,250 | ||||||
10,088 | ||||||||
Life & Health Insurance–2.92% | ||||||||
MetLife Inc., | ||||||||
Sr. Unsec. Global Notes, 4.13%, 08/13/42 | 110,000 | 98,166 | ||||||
Sr. Unsec. Notes, 6.75%, 06/01/16 | 55,000 | 63,050 | ||||||
Nationwide Financial Services, Inc., Sr. Unsec. Notes, 5.38%, 03/25/21(b) | 165,000 | 177,277 | ||||||
Prudential Financial, Inc., | ||||||||
Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38 | 130,000 | 157,300 | ||||||
Sr. Unsec. Medium-Term Notes, 7.38%, 06/15/19 | 90,000 | 110,095 | ||||||
605,888 | ||||||||
Life Sciences Tools & Services–0.54% | ||||||||
Agilent Technologies Inc., Sr. Unsec. Notes, 3.88%, 07/15/23 | 115,000 | 111,496 | ||||||
Managed Health Care–1.05% | ||||||||
Cigna Corp., | ||||||||
Sr. Unsec. Global Notes, 5.38%, 02/15/42 | 40,000 | 43,126 | ||||||
Sr. Unsec. Notes, | ||||||||
4.50%, 03/15/21 | 45,000 | 48,325 | ||||||
5.88%, 03/15/41 | 35,000 | 39,644 | ||||||
Humana Inc., Sr. Unsec. Global Notes, 4.63%, 12/01/42 | 35,000 | 31,375 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Global Notes, 2.75%, 02/15/23 | 60,000 | 55,881 | ||||||
218,351 | ||||||||
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 | 3,083 | ||||||
Movies & Entertainment–0.25% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 15,000 | 16,162 | ||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 5.13%, 12/15/22 | 7,000 | 6,808 | ||||||
Live Nation Entertainment Inc., Sr. Unsec. Gtd. Notes, 7.00%, 09/01/20(b) | 18,000 | 19,035 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Movies & Entertainment–(continued) | ||||||||
Outerwall Inc., Sr. Unsec. Gtd. Notes, 6.00%, 03/15/19(b) | $ | 11,000 | $ | 11,055 | ||||
53,060 | ||||||||
Multi-Line Insurance–1.17% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 233,270 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 10,000 | 11,175 | ||||||
244,445 | ||||||||
Office Services & Supplies–0.01% | ||||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 2,000 | 2,110 | ||||||
Oil & Gas Drilling–0.28% | ||||||||
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | 2,000 | 2,098 | ||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | 13,000 | 13,357 | ||||||
Transocean Inc., Sr. Unsec. Gtd. Global Notes, 4.95%, 11/15/15 | 40,000 | 42,980 | ||||||
58,435 | ||||||||
Oil & Gas Equipment & Services–0.22% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | 7,000 | 7,210 | ||||||
Calfrac Holdings L.P. (Canada), Sr. Unsec. Gtd. Notes, 7.50%, 12/01/20(b) | 18,000 | 17,910 | ||||||
Exterran Partners L.P./EXLP Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/21(b) | 5,000 | 4,962 | ||||||
Gulfmark Offshore Inc., Sr. Unsec. Global Notes, 6.38%, 03/15/22 | 15,000 | 14,962 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 1,000 | 963 | ||||||
46,007 | ||||||||
Oil & Gas Exploration & Production–3.80% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Global Notes, | ||||||||
5.75%, 06/15/14 | 95,000 | 99,225 | ||||||
5.95%, 09/15/16 | 50,000 | 56,216 | ||||||
Apache Corp., Sr. Unsec. Global Notes, 4.75%, 04/15/43 | 60,000 | 57,276 | ||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.38%, 09/15/22 | 10,000 | 10,012 | ||||||
Bonanza Creek Energy Inc., Sr. Unsec. Gtd. Notes, 6.75%, 04/15/21(b) | 18,000 | 18,225 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.63%, 11/15/22 | 9,000 | 9,225 | ||||||
8.25%, 09/01/21 | 11,000 | 11,605 | ||||||
Chesapeake Energy Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 5,000 | 5,463 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.75%, 03/15/23 | 3,000 | 3,045 | ||||||
6.13%, 02/15/21 | 7,000 | 7,367 | ||||||
6.63%, 08/15/20 | 10,000 | 10,712 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | $ | 18,000 | $ | 18,720 | ||||
EOG Resources, Inc., Sr. Unsec. Notes, 4.10%, 02/01/21 | 45,000 | 47,890 | ||||||
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | 8,000 | 8,100 | ||||||
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 9,000 | 8,460 | ||||||
Halcon Resources Corp., Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/21 | 14,000 | 13,685 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | 2,000 | 2,120 | ||||||
Legacy Reserves LP/Legacy Reserves Finance Corp., Sr. Unsec. Gtd. Notes, 6.63%, 12/01/21(b) | 3,000 | 2,895 | ||||||
MEG Energy Corp. (Canada), Sr. Unsec. Gtd. Notes, | ||||||||
6.38%, 01/30/23(b) | 6,000 | 5,850 | ||||||
6.50%, 03/15/21(b) | 2,000 | 2,000 | ||||||
Memorial Production Partners L.P./Memorial Production Finance Corp., Sr. Unsec. Gtd. Notes, 7.63%, 05/01/21(b) | 15,000 | 14,850 | ||||||
Pemex Project Funding Master Trust (Mexico), Sr. Unsec. Gtd. Global Bonds, 6.63%, 06/15/35 | 65,000 | 68,427 | ||||||
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, | ||||||||
3.50%, 02/06/17 | 70,000 | 69,668 | ||||||
5.75%, 01/20/20 | 40,000 | 41,602 | ||||||
6.88%, 01/20/40 | 45,000 | 45,077 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | 65,000 | 69,876 | ||||||
QEP Resources Inc., | ||||||||
Sr. Unsec. Global Notes, 5.25%, 05/01/23 | 5,000 | 4,900 | ||||||
Sr. Unsec. Notes, 5.38%, 10/01/22 | 9,000 | 9,000 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, | ||||||||
5.00%, 08/15/22 | 2,000 | 1,960 | ||||||
5.75%, 06/01/21 | 20,000 | 20,800 | ||||||
SandRidge Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 03/15/21 | 14,000 | 13,440 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, | ||||||||
6.50%, 11/15/21 | 4,000 | 4,220 | ||||||
6.63%, 02/15/19 | 12,000 | 12,510 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | 15,000 | 15,262 | ||||||
789,683 | ||||||||
Oil & Gas Refining & Marketing–0.89% | ||||||||
Crosstex Energy L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 06/01/22 | 8,000 | 8,180 | ||||||
CVR Refining LLC/Coffeyville Finance Inc., Sr. Sec. Gtd. Notes, 6.50%, 11/01/22(b) | 13,000 | 12,837 | ||||||
Petronas Capital Ltd. (Malaysia), Sr. Unsec. Gtd. Notes, 5.25%, 08/12/19(b) | 100,000 | 108,887 |
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) | ||||||||
Rentech Nitrogen Partners L.P./Rentech Nitrogen Finance Corp., Sec. Gtd. Notes, 6.50%, 04/15/21(b) | $ | 5,000 | $ | 4,975 | ||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Notes, 5.88%, 10/01/20(b) | 10,000 | 9,950 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 6,000 | 6,690 | ||||||
Valero Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 06/15/37 | 30,000 | 34,613 | ||||||
186,132 | ||||||||
Oil & Gas Storage & Transportation–1.89% | ||||||||
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.88%, 04/15/21 | 9,000 | 9,090 | ||||||
6.13%, 07/15/22 | 2,000 | 2,035 | ||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.88%, 08/01/23(b) | 8,000 | 7,680 | ||||||
6.63%, 10/01/20(b) | 5,000 | 5,025 | ||||||
6.63%, 10/01/20(b) | 5,000 | 5,025 | ||||||
Eagle Rock Energy Partners L.P./Eagle Rock Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 06/01/19 | 19,000 | 19,475 | ||||||
El Paso Pipeline Partners Operating Co. LLC, Sr. Unsec. Gtd. Notes, 4.70%, 11/01/42 | 35,000 | 31,670 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 12,000 | 13,170 | ||||||
Energy Transfer Partners L.P., Sr. Unsec. Global Notes, 6.05%, 06/01/41 | 60,000 | 60,925 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 70,000 | 79,468 | ||||||
Inergy Midstream L.P./NRGM Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 12/15/20(b) | 13,000 | 12,610 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.50%, 02/15/23 | 15,000 | 14,850 | ||||||
6.50%, 08/15/21 | 10,000 | 10,300 | ||||||
Penn Virginia Resource Partners L.P./Penn Virginia Resource Finance Corp. II, Sr. Unsec. Gtd. Notes, 6.50%, 05/15/21(b) | 5,000 | 4,800 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 15,000 | 14,819 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.38%, 08/01/22 | 2,000 | 2,100 | ||||||
6.88%, 02/01/21 | 15,000 | 16,012 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 5,000 | 5,463 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, 3.80%, 02/15/15 | 75,000 | 78,293 | ||||||
392,810 |
Principal Amount | Value | |||||||
Other Diversified Financial Services–9.07% | ||||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.70%, 09/01/15 | $ | 25,000 | $ | 26,081 | ||||
4.50%, 04/01/15 | 240,000 | 251,716 | ||||||
6.50%, 08/01/16 | 130,000 | 146,566 | ||||||
Sr. Unsec. Medium-Term Notes, 3.30%, 01/11/23 | 105,000 | 99,422 | ||||||
Sr. Unsec. Notes, 5.88%, 01/05/21 | 35,000 | 39,374 | ||||||
Citigroup Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
6.01%, 01/15/15 | 150,000 | 160,340 | ||||||
6.13%, 05/15/18 | 65,000 | 74,302 | ||||||
Sr. Unsec. Notes, 6.38%, 08/12/14 | 255,000 | 269,166 | ||||||
Unsec. Sub. Global Notes, | ||||||||
3.50%, 05/15/23 | 95,000 | 85,619 | ||||||
4.05%, 07/30/22 | 50,000 | 48,137 | ||||||
Series A, Jr. Unsec. Sub. Global Notes, 5.95%(c) | 75,000 | 75,000 | ||||||
Compiler Finance Sub Inc., Sr. Unsec. Notes, 7.00%, 05/01/21(b) | 2,000 | 1,960 | ||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 111,517 | ||||||
General Electric Capital Corp., Sr. Unsec. Global Notes, 2.15%, 01/09/15 | 70,000 | 71,413 | ||||||
ING US Inc., | ||||||||
Jr. Unsec. Gtd. Sub. Notes, 5.65%, 05/15/53(b) | 80,000 | 75,874 | ||||||
Sr. Unsec. Gtd. Notes, 5.50%, 07/15/22(b) | 90,000 | 95,858 | ||||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.25%, 09/23/22 | 50,000 | 47,406 | ||||||
3.45%, 03/01/16 | 25,000 | 26,063 | ||||||
5.60%, 07/15/41 | 95,000 | 103,081 | ||||||
Series Q, Jr. Unsec. Sub. Global Notes, 5.15%(c) | 70,000 | 66,850 | ||||||
Oxford Finance LLC/Oxford Finance Co-Issuer Inc., Sr. Unsec. Notes, 7.25%, 01/15/18(b) | 10,000 | 10,500 | ||||||
1,886,245 | ||||||||
Packaged Foods & Meats–0.46% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | 7,000 | 7,210 | ||||||
Mondelez International Inc., Sr. Unsec. Global Notes, 6.50%, 02/09/40 | 50,000 | 60,079 | ||||||
Post Holdings Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 02/15/22 | 16,000 | 17,280 | ||||||
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | 10,000 | 10,550 | ||||||
95,119 | ||||||||
Paper Packaging–0.21% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 10,000 | 10,525 | ||||||
Rock-Tenn Co., Sr. Unsec. Gtd. Global Notes, 4.00%, 03/01/23 | 35,000 | 33,744 | ||||||
44,269 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Paper Products–0.27% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 4.75%, 02/15/22 | $ | 35,000 | $ | 36,894 | ||||
Neenah Paper Inc., Sr. Unsec. Gtd. Notes, 5.25%, 05/15/21(b) | 2,000 | 1,980 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 4,000 | 3,980 | ||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, 7.50%, 02/15/19(b) | 12,000 | 12,360 | ||||||
55,214 | ||||||||
Personal Products–0.65% | ||||||||
Avon Products Inc., Sr. Unsec. Global Notes, 5.00%, 03/15/23 | 75,000 | 74,196 | ||||||
Estee Lauder Cos. Inc. (The), Sr. Unsec. Global Notes, 3.70%, 08/15/42 | 60,000 | 52,288 | ||||||
First Quality Finance Co. Inc., Sr. Unsec. Notes, 4.63%, 05/15/21(b) | 3,000 | 2,865 | ||||||
Revlon Consumer Products Corp., Sr. Unsec. Gtd. Notes, 5.75%, 02/15/21(b) | 5,000 | 4,913 | ||||||
134,262 | ||||||||
Pharmaceuticals–0.72% | ||||||||
Actavis Inc., Sr. Unsec. Global Notes, 1.88%, 10/01/17 | 100,000 | 97,414 | ||||||
VPII Escrow Corp., Sr. Unsec. Notes, | ||||||||
6.75%, 08/15/18(b) | 5,000 | 5,144 | ||||||
7.50%, 07/15/21(b) | 5,000 | 5,212 | ||||||
Zoetic Inc., Sr. Unsec. Notes, 3.25%, 02/01/23(b) | 45,000 | 43,025 | ||||||
150,795 | ||||||||
Property & Casualty Insurance–1.55% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 160,000 | 194,102 | ||||||
Liberty Mutual Group Inc., | ||||||||
Sr. Unsec. Gtd. Notes, | 65,000 | 62,893 | ||||||
Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 15,000 | 17,550 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | 40,000 | 48,073 | ||||||
322,618 | ||||||||
Railroads–1.08% | ||||||||
Canadian Pacific Railway Co. (Canada), Sr. Unsec. Notes, 4.45%, 03/15/23 | 20,000 | 20,945 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | 55,000 | 58,965 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 4.00%, 02/01/21 | 135,000 | 144,649 | ||||||
224,559 | ||||||||
Real Estate Services–0.03% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 5,000 | 5,300 | ||||||
Regional Banks–1.14% | ||||||||
Fifth Third Bancorp, | ||||||||
Sr. Unsec. Notes, 3.50%, 03/15/22 | 70,000 | 69,605 | ||||||
Unsec. Sub. Notes, 4.50%, 06/01/18 | 55,000 | 59,456 |
Principal Amount | Value | |||||||
Regional Banks–(continued) | ||||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/21 | $ | 35,000 | $ | 40,358 | ||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 30,000 | 32,759 | ||||||
Synovus Financial Corp., | ||||||||
Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 5,000 | 5,600 | ||||||
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 20,000 | 19,800 | ||||||
Zions Bancorp., Series I, Jr. Unsec. Sub. Notes, 5.80%(c) | 10,000 | 9,425 | ||||||
237,003 | ||||||||
Research & Consulting Services–0.05% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 10,000 | 10,575 | ||||||
Residential REIT’s–0.54% | ||||||||
Essex Portfolio L.P., Sr. Unsec. Gtd. Global Notes, 3.63%, 08/15/22 | 115,000 | 112,239 | ||||||
Retail REIT’s–0.42% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/18 | 90,000 | 87,374 | ||||||
Semiconductor Equipment–0.23% | ||||||||
Amkor Technology Inc., | ||||||||
Sr. Unsec. Global Notes, 6.63%, 06/01/21 | 11,000 | 10,890 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/18 | 15,000 | 15,562 | ||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 20,000 | 21,300 | ||||||
47,752 | ||||||||
Semiconductors–0.08% | ||||||||
Freescale Semiconductor Inc., Sr. Unsec. Gtd. Global Notes, 8.05%, 02/01/20 | 17,000 | 17,340 | ||||||
Soft Drinks–0.16% | ||||||||
Dr. Pepper Snapple Group Inc., Sr. Unsec. Gtd. Global Notes, 2.00%, 01/15/20 | 35,000 | 33,216 | ||||||
Sovereign Debt–0.82% | ||||||||
Mexico Government International Bond (Mexico), Series A, Sr. Unsec. Medium-Term Global Notes, 6.05%, 01/11/40 | 60,000 | 65,910 | ||||||
Russian Foreign Bond (Russia), Sr. Unsec. Euro Notes, 3.63%, 04/29/15(b) | 100,000 | 103,750 | ||||||
169,660 | ||||||||
Specialized Finance–2.11% | ||||||||
Air Lease Corp., | ||||||||
Sr. Unsec. Global Notes, 6.13%, 04/01/17 | 11,000 | 11,467 | ||||||
Sr. Unsec. Gtd. Global Notes, 4.75%, 03/01/20 | 10,000 | 9,725 | ||||||
Aircastle Ltd., Sr. Unsec. Global Notes, | ||||||||
6.25%, 12/01/19 | 2,000 | 2,088 | ||||||
6.75%, 04/15/17 | 17,000 | 17,935 | ||||||
7.63%, 04/15/20 | 11,000 | 12,155 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Specialized Finance–(continued) | ||||||||
CIT Group Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.00%, 08/15/22 | $ | 12,000 | $ | 12,000 | ||||
5.25%, 03/15/18 | 13,000 | 13,390 | ||||||
Sr. Unsec. Notes, 5.50%, 02/15/19(b) | 12,000 | 12,390 | ||||||
International Lease Finance Corp., | ||||||||
Sr. Sec. Gtd. Notes, 6.50%, 09/01/14(b) | 115,000 | 120,132 | ||||||
Sr. Unsec. Global Notes, | ||||||||
4.88%, 04/01/15 | 45,000 | 45,703 | ||||||
5.88%, 04/01/19 | 10,000 | 10,119 | ||||||
5.88%, 08/15/22 | 10,000 | 9,962 | ||||||
8.75%, 03/15/17 | 27,000 | 30,078 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 10,000 | 11,250 | ||||||
Moody’s Corp., Sr. Unsec. Notes, 5.50%, 09/01/20 | 110,000 | 119,320 | ||||||
437,714 | ||||||||
Specialized REIT’s–2.93% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, | ||||||||
3.50%, 01/31/23 | 50,000 | 45,920 | ||||||
4.63%, 04/01/15 | 90,000 | 95,026 | ||||||
EPR Properties, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | 245,000 | 279,228 | ||||||
Geo Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.13%, 04/01/23(b) | 5,000 | 4,787 | ||||||
HCP, Inc., Sr. Unsec. Notes, 3.75%, 02/01/16 | 25,000 | 26,310 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | 7,000 | 7,455 | ||||||
RHP Hotel Properties L.P./RHP Finance Corp., Sr. Unsec. Gtd. Notes, 5.00%, 04/15/21(b) | 10,000 | 9,700 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 75,000 | 77,719 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 2.00%, 02/15/18 | 65,000 | 63,171 | ||||||
609,316 | ||||||||
Specialty Chemicals–0.08% | ||||||||
Magnetation LLC/ Mag Finance Corp., Sr. Sec. Gtd. Notes, 11.00%, 05/15/18(b) | 2,000 | 1,985 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 5.25%, 03/15/23(b) | 10,000 | 9,850 | ||||||
PQ Corp., Sr. Sec. Notes, 8.75%, 05/01/18(b) | 5,000 | 5,138 | ||||||
16,973 | ||||||||
Specialty Stores–0.05% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | 10,000 | 10,725 | ||||||
Steel–1.27% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | ||||||||
6.13%, 06/01/18 | 55,000 | 57,220 | ||||||
6.75%, 02/25/22 | 3,000 | 3,090 | ||||||
7.25%, 03/01/41 | 60,000 | 56,233 |
Principal Amount | Value | |||||||
Steel–(continued) | ||||||||
Commercial Metals Co., Sr. Unsec. Notes, 4.88%, 05/15/23 | $ | 2,000 | $ | 1,845 | ||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Notes, 6.13%, 08/15/19(b) | 9,000 | 9,607 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/20(b) | 14,000 | 14,350 | ||||||
United States Steel Corp., | ||||||||
Sr. Unsec. Global Notes, 7.50%, 03/15/22 | 5,000 | 4,925 | ||||||
Sr. Unsec. Notes, 7.00%, 02/01/18 | 6,000 | 6,315 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | 55,000 | 54,389 | ||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | 65,000 | 57,276 | ||||||
265,250 | ||||||||
Technology Distributors–0.01% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 2,000 | 2,095 | ||||||
Tobacco–0.49% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/05/21 | 95,000 | 101,993 | ||||||
Trading Companies & Distributors–0.04% | ||||||||
United Rentals North America Inc., | ||||||||
Sr. Sec. Gtd. Global Notes, 5.75%, 07/15/18 | 2,000 | 2,105 | ||||||
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 5,000 | 5,500 | ||||||
7,605 | ||||||||
Trucking–1.18% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.25%, 01/15/19 | 17,000 | 18,636 | ||||||
9.75%, 03/15/20 | 2,000 | 2,283 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, | ||||||||
6.75%, 04/15/19 | 15,000 | 15,937 | ||||||
7.38%, 01/15/21 | 10,000 | 10,800 | ||||||
Penske Truck Leasing Co. L.P./PTL Finance Corp., Sr. Unsec. Notes, 4.25%, 01/17/23(b) | 200,000 | 197,517 | ||||||
245,173 | ||||||||
Wireless Telecommunication Services–1.92% | ||||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 29,000 | 28,130 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | 120,000 | 131,777 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 04/01/21(b) | 12,000 | 12,270 | ||||||
6.63%, 11/15/20 | 15,000 | 15,637 | ||||||
6.63%, 04/01/23(b) | 7,000 | 7,157 | ||||||
7.88%, 09/01/18 | 5,000 | 5,338 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, | ||||||||
3.00%, 03/15/23 | 50,000 | 46,737 | ||||||
4.50%, 03/15/43 | 30,000 | 27,766 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
SBA Communications Corp., Sr. Unsec. Notes, 5.63%, 10/01/19(b) | $ | 5,000 | $ | 4,938 | ||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.88%, 11/15/28 | 16,000 | 15,460 | ||||||
6.90%, 05/01/19 | 5,000 | 5,219 | ||||||
Sprint Nextel Corp., | ||||||||
6.00%, 11/15/22 | 14,000 | 13,755 | ||||||
7.00%, 08/15/20 | 8,000 | 8,430 | ||||||
11.50%, 11/15/21 | 2,000 | 2,670 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 03/01/20(b) | 8,000 | 8,610 | ||||||
9.00%, 11/15/18(b) | 7,000 | 8,190 | ||||||
Sr. Unsec. Notes, 8.38%, 08/15/17 | 5,000 | 5,638 | ||||||
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 50,000 | 52,250 | ||||||
399,972 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes |
| 18,796,125 | ||||||
U.S. Treasury Securities–2.45% |
| |||||||
U.S. Treasury Bills–0.48% | ||||||||
0.18%, 11/14/13(f)(g) | 50,000 | 49,989 | ||||||
0.11%, 05/01/14(f)(g) | 50,000 | 49,951 | ||||||
99,940 | ||||||||
U.S. Treasury Bonds–1.97% | ||||||||
4.75%, 02/15/41 | 330,000 | 410,575 | ||||||
Total U.S. Treasury Securities |
| 510,515 | ||||||
Asset-Backed Securities–1.84% |
| |||||||
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 04/25/47 | 1,089 | 1,089 | ||||||
Credit Suisse Mortgage Capital Ctfs., Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., | 50,099 | 50,944 | ||||||
Santander Drive Auto Receivables Trust, Series 2011-1, Class D, Pass Through Ctfs., 4.01%, 02/15/17 | 80,000 | 82,848 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.41%, 10/15/44(d) | 110,000 | 116,552 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.62%, 12/25/34(b)(d) | 130,598 | 130,617 | ||||||
Total Asset-Backed Securities |
| 382,050 | ||||||
Shares | ||||||||
Preferred Stocks–1.70% |
| |||||||
Diversified Banks–1.01% | ||||||||
CoBank ACB, Series F, 6.25% Pfd.(b) | 2,000 | 206,437 | ||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | 135 | 3,235 | ||||||
209,672 |
Shares | Value | |||||||
Investment Banking & Brokerage–0.35% | ||||||||
Goldman Sachs Group, Inc. (The), Series J, 5.50% Pfd. | 3,000 | $ | 72,420 | |||||
Multi-Line Insurance–0.06% | ||||||||
Hartford Financial Services Group Inc. (The), 7.88% Jr. Sub. Pfd. | 440 | 12,971 | ||||||
Office REIT’s–0.01% | ||||||||
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | 95 | 2,418 | ||||||
Reinsurance–0.25% | ||||||||
Reinsurance Group of America, Inc., 6.20%, Sr. Unsec. Sub. Pfd. | 2,000 | 52,000 | ||||||
Tires & Rubber–0.02% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 75 | 3,695 | ||||||
Total Preferred Stocks |
| 353,176 | ||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.76% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.28% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 05/01/16 to 08/01/32 | $ | 5,530 | 6,251 | |||||
6.00%, 05/01/17 to 12/01/31 | 35,371 | 39,031 | ||||||
5.50%, 09/01/17 | 12,179 | 13,012 | ||||||
58,294 | ||||||||
Federal National Mortgage Association (FNMA)–0.39% | ||||||||
Pass Through Ctfs., | ||||||||
7.00%, 02/01/16 to 09/01/32 | 14,284 | 15,380 | ||||||
6.50%, 05/01/16 to 09/01/31 | 4,084 | 4,467 | ||||||
5.00%, 11/01/18 | 14,838 | 15,870 | ||||||
7.50%, 04/01/29 to 10/01/29 | 37,597 | 40,101 | ||||||
8.00%, 04/01/32 | 5,688 | 6,351 | ||||||
82,169 | ||||||||
Government National Mortgage Association (GNMA)–0.09% | ||||||||
Pass Through Ctfs., | ||||||||
7.50%, 06/15/23 | 6,881 | 7,748 | ||||||
8.50%, 11/15/24 | 1,842 | 1,887 | ||||||
7.00%, 07/15/31 to 08/15/31 | 1,734 | 2,027 | ||||||
6.50%, 11/15/31 to 03/15/32 | 4,248 | 4,878 | ||||||
6.00%, 11/15/32 | 1,834 | 2,061 | ||||||
18,601 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $148,724) |
| 159,064 | ||||||
Municipal Obligations–0.70% |
| |||||||
Florida (State of) Hurricane Catastrophe Fund Finance Corp., Series 2013 A, RB, 3.00%, 07/01/20 | 55,000 | 51,377 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 | $ | 65,000 | $ | 38,993 | ||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J); Series 2010 A, Taxable Build America RB, 6.64%, 04/01/57 | 50,000 | 55,289 | ||||||
Total Municipal Obligations |
| 145,659 | ||||||
Non-U.S. Dollar Denominated Bonds & Notes–0.06%(h) |
| |||||||
Casinos & Gaming–0.06% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22 (Cost $12,629)(b) | CAD | 12,000 | 11,837 |
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 | 122 | ||||||
824 | ||||||||
Paper Products–0.01% | ||||||||
NewPage Holdings Inc. (Acquired 07/21/11-08/29/11; | 28 | 2,240 | ||||||
Total Common Stocks & Other Equity Interests |
| 3,064 | ||||||
TOTAL INVESTMENTS–97.90% |
| 20,361,490 | ||||||
OTHER ASSETS LESS LIABILITIES–2.10% |
| 435,470 | ||||||
NET ASSETS–100.00% |
| $ | 20,796,960 |
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | - Convertible | |
Ctfs. | – Certificates | |
Deb. | - Debentures | |
Gtd. | – Guaranteed |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $5,253,026, which represented 25.26% of the Fund’s Net Assets. |
(c) | Perpetual bond with no specified maturity date. |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2013. |
(e) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2013 represented less than 1% of the Fund’s Net Assets. |
(f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(g) | 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. |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2013
U.S. Dollar Denominated Bonds and Notes | 90.4 | % | ||
U.S. Treasury Securities | 2.4 | |||
Asset-Backed Securities | 1.8 | |||
Preferred Stocks | 1.7 | |||
U.S. Government Sponsored Agency Mortgage-Backed Securities | 0.8 | |||
Municipal Obligations | 0.7 | |||
Non-U.S. Dollar Denominated Bonds & Notes | 0.1 | |||
Common Stocks & Other Equity Interests | 0.0 | |||
Other Assets Less Liabilities | 2.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $19,805,196) | $ | 20,361,490 | ||
Cash | 9,816 | |||
Foreign currencies, at value (Cost $7,162) | 6,993 | |||
Receivable for: | ||||
Investments sold | 235,927 | |||
Variation margin | 5,023 | |||
Dividends and interest | 278,431 | |||
Fund expenses absorbed | 8,214 | |||
Premiums paid on swap agreements | 15,587 | |||
Investment for trustee deferred compensation and retirement plans | 51,899 | |||
Other assets | 9,894 | |||
Total assets | 20,983,274 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 55,480 | |||
Fund shares reacquired | 15,625 | |||
Swap agreements | 77 | |||
Accrued fees to affiliates | 12,199 | |||
Accrued trustees’ and officers’ fees and benefits | 627 | |||
Accrued other operating expenses | 26,029 | |||
Trustee deferred compensation and retirement plans | 60,785 | |||
Unrealized depreciation on swap agreements | 15,492 | |||
Total liabilities | 186,314 | |||
Net assets applicable to shares outstanding | $ | 20,796,960 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 27,615,300 | ||
Undistributed net investment income | 1,358,079 | |||
Undistributed net realized gain (loss) | (8,726,064 | ) | ||
Unrealized appreciation | 549,645 | |||
$ | 20,796,960 | |||
Net Assets: |
| |||
Series I | $ | 20,591,148 | ||
Series II | $ | 205,812 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: |
| |||
Series I | 3,230,349 | |||
Series II | 32,516 | |||
Series I: | ||||
Net asset value per share | $ | 6.37 | ||
Series II: | ||||
Net asset value per share | $ | 6.33 |
Investment income: |
| |||
Interest | $ | 516,488 | ||
Dividends | 9,511 | |||
Dividends from affiliated money market funds | 18 | |||
Total investment income | 526,017 | |||
Expenses: | ||||
Advisory fees | 66,299 | |||
Administrative services fees | 47,562 | |||
Custodian fees | 5,556 | |||
Distribution fees — Series II | 323 | |||
Transfer agent fees | 4,343 | |||
Trustees’ and officers’ fees and benefits | 13,054 | |||
Professional services fees | 22,982 | |||
Other | 20,450 | |||
Total expenses | 180,569 | |||
Less: Fees waived and expenses reimbursed | (97,387 | ) | ||
Net expenses | 83,182 | |||
Net investment income | 442,835 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 375,745 | |||
Foreign currencies | 30 | |||
Foreign currency contracts | (539 | ) | ||
Futures contracts | (10,965 | ) | ||
Swap agreements | (3,087 | ) | ||
361,184 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,351,347 | ) | ||
Foreign currencies | (225 | ) | ||
Foreign currency contracts | 1,109 | |||
Futures contracts | 14,570 | |||
Swap agreements | 84 | |||
(1,335,809 | ) | |||
Net realized and unrealized gain (loss) | (974,625 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (531,790 | ) |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 442,835 | $ | 976,822 | ||||
Net realized gain | 361,184 | 454,590 | ||||||
Change in net unrealized appreciation (depreciation) | (1,335,809 | ) | 920,756 | |||||
Net increase (decrease) in net assets resulting from operations | (531,790 | ) | 2,352,168 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,073,630 | ) | |||||
Series ll | — | (11,794 | ) | |||||
Total distributions from net investment income | — | (1,085,424 | ) | |||||
Share transactions–net: | ||||||||
Series l | (1,623,770 | ) | (845,476 | ) | ||||
Series ll | (64,858 | ) | 36,977 | |||||
Net increase (decrease) in net assets resulting from share transactions | (1,688,628 | ) | (808,499 | ) | ||||
Net increase (decrease) in net assets | (2,220,418 | ) | 458,245 | |||||
Net assets: | ||||||||
Beginning of period | 23,017,378 | 22,559,133 | ||||||
End of period (includes undistributed net investment income of $1,358,079 and $915,244, respectively) | $ | 20,796,960 | $ | 23,017,378 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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”).
Invesco V.I. Diversified Income Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) 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 trades 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 of 1986, as amended (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. Diversified Income 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 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.
Invesco V.I. Diversified Income Fund
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 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Invesco V.I. Diversified Income Fund
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $66,299 and reimbursed Fund expenses of $31,088.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $22,767 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. 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 | $ | 146,860 | $ | 209,380 | $ | — | $ | 356,240 | ||||||||
U.S. Treasury Securities | — | 510,515 | — | 510,515 | ||||||||||||
Corporate Debt Securities | — | 18,626,465 | 0 | 18,626,465 | ||||||||||||
U.S. Government Sponsored Securities | — | 159,064 | — | 159,064 | ||||||||||||
Asset-Backed Securities | — | 382,050 | — | 382,050 | ||||||||||||
Municipal Obligations | — | 145,659 | — | 145,659 | ||||||||||||
Foreign Debt Securities | — | 181,497 | — | 181,497 | ||||||||||||
$ | 146,860 | $ | 20,214,630 | $ | — | $ | 20,361,490 | |||||||||
Futures* | 9,020 | — | — | 9,020 | ||||||||||||
Swap Agreements* | — | (15,492 | ) | — | (15,492 | ) | ||||||||||
Total Investments | $ | 155,880 | $ | 20,199,138 | $ | — | $ | 20,355,018 |
* | Unrealized appreciation (depreciation). |
Invesco V.I. Diversified Income Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Swap agreements(a) | $ | — | $ | (15,492 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | 39,818 | (30,798 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized depreciation on swap agreements. |
(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 Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||||||
Futures* | Foreign Currency Contracts* | Swap Agreements* | ||||||||||
Realized Gain (Loss) | ||||||||||||
Credit risk | $ | — | $ | — | $ | (3,087 | ) | |||||
Currency risk | — | (539 | ) | — | ||||||||
Interest rate risk | (10,965 | ) | — | — | ||||||||
Change in Unrealized Appreciation | ||||||||||||
Credit risk | $ | — | $ | — | $ | 84 | ||||||
Currency risk | — | 1,109 | — | |||||||||
Interest rate risk | 14,570 | — | — | |||||||||
Total | $ | 3,605 | $ | 570 | $ | (3,003 | ) |
* | The average notional value of futures contracts, foreign currency contracts and swap agreements outstanding during the period was $3,481,574, $39,313 and $250,000, respectively. |
Open Futures Contracts | ||||||||||||||||
Long Contracts | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
U.S. Treasury Ultra Bonds | 3 | September-2013 | $ | 441,937 | $ | 4,400 | ||||||||||
U.S. Treasury 5 Year Notes | 19 | September-2013 | 2,299,891 | (30,798 | ) | |||||||||||
Subtotal | $ | (26,398 | ) | |||||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 10 Year Notes | 13 | September-2013 | $ | (1,645,312 | ) | $ | 35,418 | |||||||||
Total | $ | 9,020 |
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 (Depreciation) | ||||||||||||||||||||||
Bank of America, N.A. | Citigroup Inc. | Buy | (1.00 | )% | 06/20/17 | 1.01 | % | $ | 250,000 | $ | 15,587 | $ | (15,492 | ) |
(a) | Implied credit spreads represent the current level as of June 30, 2013 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. |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Diversified Income Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of assets
| Collateral Received | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
Merrill Lynch & Co., Inc. | $ | 39,818 | $ | (30,798 | ) | $ | 9,020 | $ | — | $ | — | $ | — |
Liabilities: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of liabilities
| Collateral Pledged | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
Merrill Lynch & Co., Inc. | $ | 30,798 | $ | (30,798 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Bank of America, N.A. | 15,492 | — | 15,492 | — | — | — | ||||||||||||||||||
Total | $ | 46,290 | $ | (30,798 | ) | $ | 15,492 | $ | — | $ | — | $ | — |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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. |
Invesco V.I. Diversified Income Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $5,243,678 and $5,359,544, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $71,094 and $1,679,387, 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 | $ | 964,106 | ||
Aggregate unrealized (depreciation) of investment securities | (446,920 | ) | ||
Net unrealized appreciation of investment securities | $ | 517,186 |
Cost of investments for tax purposes is $19,844,304.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 77,453 | $ | 508,618 | 384,940 | $ | 2,485,982 | ||||||||||
Series II | 89 | 578 | 8,680 | 55,663 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 166,713 | 1,073,630 | ||||||||||||
Series II | — | — | 1,842 | 11,794 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (323,996 | ) | (2,132,388 | ) | (680,152 | ) | (4,405,088 | ) | ||||||||
Series II | (10,119 | ) | (65,436 | ) | (4,745 | ) | (30,480 | ) | ||||||||
Net increase (decrease) in share activity | (256,573 | ) | $ | (1,688,628 | ) | (122,722 | ) | $ | (808,499 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 85% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 6.54 | $ | 0.13 | $ | (0.30 | ) | $ | (0.17 | ) | $ | – | $ | 6.37 | (2.60 | )% | $ | 20,591 | 0.75 | %(d) | 1.63 | %(d) | 4.01 | %(d) | 24 | % | ||||||||||||||||||||||
Year ended 12/31/12 | 6.19 | 0.27 | 0.39 | 0.66 | (0.31 | ) | 6.54 | 10.71 | 22,741 | 0.75 | 1.49 | 4.19 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 6.50 | 0.12 | (0.29 | ) | (0.17 | ) | – | 6.33 | (2.62 | ) | 206 | 1.00 | (d) | 1.88 | (d) | 3.76 | (d) | 24 | ||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.16 | 0.25 | 0.38 | 0.63 | (0.29 | ) | 6.50 | 10.38 | 277 | 1.00 | 1.74 | 3.94 | 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 annualized and based on average daily net assets (000’s omitted) of $22,022 and $260 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 974.00 | $ | 3.67 | $ | 1,021.08 | $ | 3.76 | 0.75 | % | ||||||||||||
Series II | 1,000.00 | 973.80 | 4.89 | 1,019.84 | 5.01 | 1.00 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Diversified Income Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Diversified Income Fund |
performance universe and against the Lipper VA Underlying Funds – Corporate Debt Funds BBB-Rated Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one and three year periods and in the fifth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one and three year periods and below the Index for the five year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was the same as the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rates of two mutual funds with comparable investment strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and
redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least April 30, 2014 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from
managing the Fund as a result of expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
Invesco V.I. Diversified Income Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Equally-Weighted S&P 500 Fund |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.85 | % | |||
Series II Shares | 15.75 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
S&P 500 Equal Weight Index‚ (Style-Specific Index) | 16.17 | ||||
Lipper VUF Multi-Cap Core Funds Indexn (Peer Group Index) | 11.89 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc. |
|
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 multi-cap core variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
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 (renamed Invesco V.I. Equally-Weighted S&P 500 Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Equally-Weighted S&P 500 Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The 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 0.59% and 0.84%, 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (11/9/94) | 10.38 | % | |||
10 Years | 9.80 | ||||
5 Years | 9.96 | ||||
1 Year | 25.71 | ||||
Series II Shares | |||||
Inception (7/24/00) | 7.53 | % | |||
10 Years | 9.53 | ||||
5 Years | 9.68 | ||||
1 Year | 25.44 |
Invesco V.I. Equally-Weighted S&P 500 Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.81% |
| |||||||
Advertising–0.40% | ||||||||
Interpublic Group of Cos., Inc. (The) | 10,398 | $ | 151,291 | |||||
Omnicom Group Inc. | 2,404 | 151,139 | ||||||
302,430 | ||||||||
Aerospace & Defense–2.21% | ||||||||
Boeing Co. (The) | 1,481 | 151,714 | ||||||
General Dynamics Corp. | 1,933 | 151,412 | ||||||
Honeywell International Inc. | 1,929 | 153,047 | ||||||
L-3 Communications Holdings, Inc. | 1,753 | 150,302 | ||||||
Lockheed Martin Corp. | 1,400 | 151,844 | ||||||
Northrop Grumman Corp. | 1,819 | 150,613 | ||||||
Precision Castparts Corp. | 685 | 154,817 | ||||||
Raytheon Co. | 2,237 | 147,910 | ||||||
Rockwell Collins, Inc. | 2,340 | 148,379 | ||||||
Textron Inc. | 5,693 | 148,303 | ||||||
United Technologies Corp. | 1,604 | 149,076 | ||||||
1,657,417 | ||||||||
Agricultural Products–0.21% | ||||||||
Archer-Daniels-Midland Co. | 4,561 | 154,663 | ||||||
Air Freight & Logistics–0.80% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,670 | 150,348 | ||||||
Expeditors International of Washington, Inc. | 3,941 | 149,798 | ||||||
FedEx Corp. | 1,521 | 149,940 | ||||||
United Parcel Service, Inc.–Class B | 1,755 | 151,772 | ||||||
601,858 | ||||||||
Airlines–0.19% | ||||||||
Southwest Airlines Co. | 10,878 | 140,217 | ||||||
Aluminum–0.19% | ||||||||
Alcoa Inc. | 18,582 | 145,311 | ||||||
Apparel Retail–1.18% | ||||||||
Abercrombie & Fitch Co.–Class A | 3,094 | 140,003 | ||||||
Gap, Inc. (The) | 3,637 | 151,772 | ||||||
L Brands, Inc. | 2,970 | 146,272 | ||||||
Ross Stores, Inc. | 2,326 | 150,748 | ||||||
TJX Cos., Inc. (The) | 2,992 | 149,780 | ||||||
Urban Outfitters, Inc.(b) | 3,690 | 148,412 | ||||||
886,987 | ||||||||
Apparel, Accessories & Luxury Goods–1.01% | ||||||||
Coach, Inc. | 2,578 | 147,178 | ||||||
Fossil Group, Inc.(b) | 1,444 | 149,180 | ||||||
PVH Corp. | 1,223 | 152,936 | ||||||
Ralph Lauren Corp. | 871 | 151,328 | ||||||
VF Corp. | 805 | 155,413 | ||||||
756,035 |
Shares | Value | |||||||
Application Software–1.03% | ||||||||
Adobe Systems Inc.(b) | 3,521 | $ | 160,417 | |||||
Autodesk, Inc.(b) | 4,299 | 145,908 | ||||||
Citrix Systems, Inc.(b) | 2,464 | 148,653 | ||||||
Intuit Inc. | 2,624 | 160,143 | ||||||
Salesforce.com, Inc.(b) | 4,016 | 153,331 | ||||||
768,452 | ||||||||
Asset Management & Custody Banks–1.76% | ||||||||
Ameriprise Financial, Inc. | 1,842 | 148,981 | ||||||
Bank of New York Mellon Corp. (The) | 5,179 | 145,271 | ||||||
BlackRock, Inc. | 559 | 143,579 | ||||||
Franklin Resources, Inc. | 1,026 | 139,556 | ||||||
Invesco Ltd.(c) | 4,501 | 143,132 | ||||||
Legg Mason, Inc. | 4,625 | 143,421 | ||||||
Northern Trust Corp. | 2,641 | 152,914 | ||||||
State Street Corp. | 2,284 | 148,940 | ||||||
T. Rowe Price Group Inc. | 2,054 | 150,250 | ||||||
1,316,044 | ||||||||
Auto Parts & Equipment–0.60% | ||||||||
BorgWarner, Inc.(b) | 1,784 | 153,691 | ||||||
Delphi Automotive PLC (United Kingdom) | 2,945 | 149,282 | ||||||
Johnson Controls, Inc. | 4,015 | 143,697 | ||||||
446,670 | ||||||||
Automobile Manufacturers–0.40% | ||||||||
Ford Motor Co. | 9,817 | 151,869 | ||||||
General Motors Co.(b) | 4,399 | 146,531 | ||||||
298,400 | ||||||||
Automotive Retail–0.80% | ||||||||
AutoNation, Inc.(b) | 3,423 | 148,524 | ||||||
AutoZone, Inc.(b) | 356 | 150,834 | ||||||
CarMax, Inc.(b) | 3,250 | 150,020 | ||||||
O’Reilly Automotive, Inc.(b) | 1,351 | 152,149 | ||||||
601,527 | ||||||||
Biotechnology–1.19% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 1,635 | 150,812 | ||||||
Amgen Inc. | 1,542 | 152,134 | ||||||
Biogen Idec Inc.(b) | 711 | 153,007 | ||||||
Celgene Corp.(b) | 1,263 | 147,657 | ||||||
Gilead Sciences, Inc.(b) | 2,888 | 147,895 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 636 | 143,024 | ||||||
894,529 | ||||||||
Brewers–0.19% | ||||||||
Molson Coors Brewing Co.–Class B | 3,028 | 144,920 | ||||||
Broadcasting–0.61% | ||||||||
CBS Corp.–Class B | 3,161 | 154,478 |
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 | |||||||
Broadcasting–(continued) | ||||||||
Discovery Communications, Inc.–Class A(b) | 1,974 | $ | 152,412 | |||||
Scripps Networks Interactive Inc.–Class A | 2,267 | 151,345 | ||||||
458,235 | ||||||||
Building Products–0.19% | ||||||||
Masco Corp. | 7,294 | 142,160 | ||||||
Cable & Satellite–0.86% | ||||||||
Cablevision Systems Corp.–Class A | 10,234 | 172,136 | ||||||
Comcast Corp.–Class A | 3,796 | 158,976 | ||||||
DIRECTV(b) | 2,433 | 149,921 | ||||||
Time Warner Cable Inc. | 1,451 | 163,209 | ||||||
644,242 | ||||||||
Casinos & Gaming–0.39% | ||||||||
International Game Technology | 8,746 | 146,146 | ||||||
Wynn Resorts Ltd. | 1,116 | 142,848 | ||||||
288,994 | ||||||||
Coal & Consumable Fuels–0.35% | ||||||||
CONSOL Energy Inc. | 4,722 | 127,966 | ||||||
Peabody Energy Corp. | 8,992 | 131,643 | ||||||
259,609 | ||||||||
Commodity Chemicals–0.20% | ||||||||
LyondellBasell Industries N.V.–Class A | 2,237 | 148,224 | ||||||
Communications Equipment–1.40% | ||||||||
Cisco Systems, Inc. | 6,263 | 152,254 | ||||||
F5 Networks, Inc.(b) | 2,038 | 140,214 | ||||||
Harris Corp. | 3,028 | 149,129 | ||||||
JDS Uniphase Corp.(b) | 10,648 | 153,118 | ||||||
Juniper Networks, Inc.(b) | 7,920 | 152,935 | ||||||
Motorola Solutions, Inc. | 2,650 | 152,984 | ||||||
QUALCOMM, Inc. | 2,458 | 150,135 | ||||||
1,050,769 | ||||||||
Computer & Electronics Retail–0.42% | ||||||||
Best Buy Co., Inc. | 5,615 | 153,458 | ||||||
GameStop Corp.–Class A(d) | 3,867 | 162,530 | ||||||
315,988 | ||||||||
Computer Hardware–0.59% | ||||||||
Apple Inc. | 352 | 139,420 | ||||||
Dell Inc. | 11,269 | 150,441 | ||||||
Hewlett-Packard Co. | 6,098 | 151,231 | ||||||
441,092 | ||||||||
Computer Storage & Peripherals–1.01% | ||||||||
EMC Corp. | 6,093 | 143,917 | ||||||
NetApp, Inc.(b) | 3,980 | 150,364 | ||||||
SanDisk Corp.(b) | 2,565 | 156,721 | ||||||
Seagate Technology PLC | 3,450 | 154,664 | ||||||
Western Digital Corp. | 2,362 | 146,657 | ||||||
752,323 |
Shares | Value | |||||||
Construction & Engineering–0.60% | ||||||||
Fluor Corp. | 2,473 | $ | 146,674 | |||||
Jacobs Engineering Group, Inc.(b) | 2,702 | 148,961 | ||||||
Quanta Services, Inc.(b) | 5,743 | 151,960 | ||||||
447,595 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.97% | ||||||||
Caterpillar Inc. | 1,798 | 148,317 | ||||||
Cummins Inc. | 1,298 | 140,781 | ||||||
Deere & Co. | 1,776 | 144,300 | ||||||
Joy Global Inc. | 2,854 | 138,505 | ||||||
PACCAR Inc. | 2,843 | 152,555 | ||||||
724,458 | ||||||||
Construction Materials–0.18% | ||||||||
Vulcan Materials Co. | 2,810 | 136,032 | ||||||
Consumer Electronics–0.43% | ||||||||
Garmin Ltd. | 4,473 | 161,744 | ||||||
Harman International Industries, Inc. | 2,921 | 158,318 | ||||||
320,062 | ||||||||
Consumer Finance–0.82% | ||||||||
American Express Co. | 2,066 | 154,454 | ||||||
Capital One Financial Corp. | 2,473 | 155,329 | ||||||
Discover Financial Services | 3,187 | 151,829 | ||||||
SLM Corp. | 6,565 | 150,076 | ||||||
611,688 | ||||||||
Data Processing & Outsourced Services–1.82% | ||||||||
Automatic Data Processing, Inc. | 2,217 | 152,663 | ||||||
Computer Sciences Corp. | 3,363 | 147,198 | ||||||
Fidelity National Information Services, Inc. | 3,457 | 148,098 | ||||||
Fiserv, Inc.(b) | 1,734 | 151,569 | ||||||
MasterCard, Inc.–Class A | 264 | 151,668 | ||||||
Paychex, Inc. | 4,062 | 148,344 | ||||||
Total System Services, Inc. | 6,431 | 157,431 | ||||||
Visa Inc.–Class A | 833 | 152,231 | ||||||
Western Union Co. (The) | 8,864 | 151,663 | ||||||
1,360,865 | ||||||||
Department Stores–0.80% | ||||||||
J. C. Penney Co., Inc.(b) | 8,681 | 148,272 | ||||||
Kohl’s Corp. | 2,893 | 146,125 | ||||||
Macy’s, Inc. | 3,112 | 149,376 | ||||||
Nordstrom, Inc. | 2,560 | 153,446 | ||||||
597,219 | ||||||||
Distillers & Vintners–0.59% | ||||||||
Beam Inc. | 2,309 | 145,721 | ||||||
Brown-Forman Corp.–Class B | 2,156 | 145,638 | ||||||
Constellation Brands, Inc.–Class A(b) | 2,900 | 151,148 | ||||||
442,507 | ||||||||
Distributors–0.20% | ||||||||
Genuine Parts Co. | 1,917 | 149,660 |
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 Banks–0.63% | ||||||||
Comerica Inc. | 4,054 | $ | 161,471 | |||||
U.S. Bancorp | 4,309 | 155,770 | ||||||
Wells Fargo & Co. | 3,756 | 155,010 | ||||||
472,251 | ||||||||
Diversified Chemicals–0.98% | ||||||||
Dow Chemical Co. (The) | 4,435 | 142,674 | ||||||
E. I. du Pont de Nemours & Co. | 2,864 | 150,360 | ||||||
Eastman Chemical Co. | 2,123 | 148,631 | ||||||
FMC Corp. | 2,411 | 147,216 | ||||||
PPG Industries, Inc. | 980 | 143,482 | ||||||
732,363 | ||||||||
Diversified Metals & Mining–0.19% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 5,102 | 140,866 | ||||||
Diversified REIT’s–0.20% | ||||||||
Vornado Realty Trust | 1,820 | 150,787 | ||||||
Diversified Support Services–0.39% | ||||||||
Cintas Corp. | 3,310 | 150,738 | �� | |||||
Iron Mountain Inc. | 5,215 | 138,771 | ||||||
289,509 | ||||||||
Drug Retail–0.37% | ||||||||
CVS Caremark Corp. | 2,556 | 146,152 | ||||||
Walgreen Co. | 3,006 | 132,865 | ||||||
279,017 | ||||||||
Electric Utilities–2.61% | ||||||||
American Electric Power Co., Inc. | 3,315 | 148,446 | ||||||
Duke Energy Corp. | 2,229 | 150,457 | ||||||
Edison International | 3,199 | 154,064 | ||||||
Entergy Corp. | 2,202 | 153,435 | ||||||
Exelon Corp. | 4,926 | 152,115 | ||||||
FirstEnergy Corp. | 3,935 | 146,933 | ||||||
NextEra Energy, Inc. | 1,891 | 154,079 | ||||||
Northeast Utilities | 3,581 | 150,474 | ||||||
Pepco Holdings, Inc. | 7,440 | 149,990 | ||||||
Pinnacle West Capital Corp. | 2,621 | 145,387 | ||||||
PPL Corp. | 5,179 | 156,717 | ||||||
Southern Co. (The) | 3,391 | 149,645 | ||||||
Xcel Energy, Inc. | 5,128 | 145,327 | ||||||
1,957,069 | ||||||||
Electrical Components & Equipment–0.80% | ||||||||
Eaton Corp. PLC | 2,336 | 153,732 | ||||||
Emerson Electric Co. | 2,687 | 146,549 | ||||||
Rockwell Automation, Inc. | 1,739 | 144,581 | ||||||
Roper Industries, Inc. | 1,251 | 155,399 | ||||||
600,261 | ||||||||
Electronic Components–0.40% | ||||||||
Amphenol Corp.–Class A | 1,979 | 154,243 |
Shares | Value | |||||||
Electronic Components–(continued) | ||||||||
Corning Inc. | 10,113 | $ | 143,908 | |||||
298,151 | ||||||||
Electronic Equipment & Instruments–0.22% | ||||||||
FLIR Systems, Inc. | 6,173 | 166,486 | ||||||
Electronic Manufacturing Services–0.61% | ||||||||
Jabil Circuit, Inc. | 7,769 | 158,332 | ||||||
Molex Inc. | 5,116 | 150,104 | ||||||
TE Connectivity Ltd. (Switzerland) | 3,321 | 151,238 | ||||||
459,674 | ||||||||
Environmental & Facilities Services–0.61% | ||||||||
Republic Services, Inc. | 4,429 | 150,320 | ||||||
Stericycle, Inc.(b) | 1,417 | 156,479 | ||||||
Waste Management, Inc. | 3,786 | 152,690 | ||||||
459,489 | ||||||||
Fertilizers & Agricultural Chemicals–0.56% | ||||||||
CF Industries Holdings, Inc. | 817 | 140,115 | ||||||
Monsanto Co. | 1,427 | 140,988 | ||||||
Mosaic Co. (The) | 2,607 | 140,283 | ||||||
421,386 | ||||||||
Food Distributors–0.20% | ||||||||
Sysco Corp. | 4,376 | 149,484 | ||||||
Food Retail–0.60% | ||||||||
Kroger Co. (The) | 4,336 | 149,766 | ||||||
Safeway Inc. | 6,193 | 146,526 | ||||||
Whole Foods Market, Inc. | 2,936 | 151,145 | ||||||
447,437 | ||||||||
Footwear–0.21% | ||||||||
NIKE, Inc.–Class B | 2,438 | 155,252 | ||||||
Gas Utilities–0.39% | ||||||||
AGL Resources Inc. | 3,519 | 150,824 | ||||||
ONEOK, Inc. | 3,402 | 140,537 | ||||||
291,361 | ||||||||
General Merchandise Stores–0.81% | ||||||||
Dollar General Corp.(b) | 2,948 | 148,668 | ||||||
Dollar Tree, Inc.(b) | 3,071 | 156,129 | ||||||
Family Dollar Stores, Inc. | 2,386 | 148,672 | ||||||
Target Corp. | 2,184 | 150,390 | ||||||
603,859 | ||||||||
Gold–0.18% | ||||||||
Newmont Mining Corp. | 4,546 | 136,153 | ||||||
Health Care Distributors–0.80% | ||||||||
AmerisourceBergen Corp. | 2,746 | 153,309 | ||||||
Cardinal Health, Inc. | 3,154 | 148,869 | ||||||
McKesson Corp. | 1,319 | 151,025 | ||||||
Patterson Cos. Inc. | 3,893 | 146,377 | ||||||
599,580 |
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–2.76% | ||||||||
Abbott Laboratories | 4,098 | $ | 142,938 | |||||
Baxter International Inc. | 2,136 | 147,961 | ||||||
Becton, Dickinson & Co. | 1,529 | 151,111 | ||||||
Boston Scientific Corp.(b) | 15,866 | 147,078 | ||||||
C.R. Bard, Inc. | 1,358 | 147,588 | ||||||
CareFusion Corp.(b) | 3,991 | 147,068 | ||||||
Covidien PLC(b) | 2,525 | 144,430 | ||||||
Edwards Lifesciences Corp.(b) | 2,154 | 144,749 | ||||||
Intuitive Surgical, Inc.(b) | 302 | 152,987 | ||||||
Medtronic, Inc. | 2,851 | 146,741 | ||||||
St. Jude Medical, Inc. | 3,348 | 152,769 | ||||||
Stryker Corp. | 2,244 | 145,142 | ||||||
Varian Medical Systems, Inc.(b) | 2,189 | 147,648 | ||||||
Zimmer Holdings, Inc. | 1,937 | 145,159 | ||||||
2,063,369 | ||||||||
Health Care Facilities–0.20% | ||||||||
Tenet Healthcare Corp.(b) | 3,220 | 148,442 | ||||||
Health Care Services–0.79% | ||||||||
DaVita HealthCare Partners Inc.(b) | 1,170 | 141,336 | ||||||
Express Scripts Holding Co.(b) | 2,439 | 150,462 | ||||||
Laboratory Corp. of America Holdings(b) | 1,503 | 150,450 | ||||||
Quest Diagnostics Inc. | 2,409 | 146,058 | ||||||
588,306 | ||||||||
Health Care Supplies–0.20% | ||||||||
DENTSPLY International Inc. | 3,678 | 150,651 | ||||||
Health Care Technology–0.20% | ||||||||
Cerner Corp.(b) | 1,535 | 147,498 | ||||||
Home Entertainment Software–0.21% | ||||||||
Electronic Arts Inc.(b) | 6,918 | 158,906 | ||||||
Home Furnishings–0.19% | ||||||||
Leggett & Platt, Inc. | 4,674 | 145,315 | ||||||
Home Improvement Retail–0.40% | ||||||||
Home Depot, Inc. (The) | 1,969 | 152,538 | ||||||
Lowe’s Cos., Inc. | 3,650 | 149,285 | ||||||
301,823 | ||||||||
Homebuilding–0.55% | ||||||||
D.R. Horton, Inc. | 6,315 | 134,383 | ||||||
Lennar Corp.–Class A | 3,865 | 139,295 | ||||||
PulteGroup Inc.(b) | 7,233 | 137,210 | ||||||
410,888 | ||||||||
Homefurnishing Retail–0.20% | ||||||||
Bed Bath & Beyond Inc.(b) | 2,122 | 150,450 | ||||||
Hotels, Resorts & Cruise Lines–0.79% | ||||||||
Carnival Corp. | 4,458 | 152,865 | ||||||
Marriott International Inc.–Class A | 3,700 | 149,369 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 2,273 | 143,631 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Wyndham Worldwide Corp. | 2,566 | $ | 146,852 | |||||
592,717 | ||||||||
Household Appliances–0.18% | ||||||||
Whirlpool Corp. | 1,167 | 133,458 | ||||||
Household Products–0.79% | ||||||||
Clorox Co. (The) | 1,766 | 146,825 | ||||||
Colgate-Palmolive Co. | 2,565 | 146,949 | ||||||
Kimberly-Clark Corp. | 1,541 | 149,693 | ||||||
Procter & Gamble Co. (The) | 1,932 | 148,744 | ||||||
592,211 | ||||||||
Housewares & Specialties–0.19% | ||||||||
Newell Rubbermaid Inc. | 5,553 | 145,766 | ||||||
Human Resource & Employment Services–0.20% | ||||||||
Robert Half International, Inc. | 4,492 | 149,269 | ||||||
Hypermarkets & Super Centers–0.40% | ||||||||
Costco Wholesale Corp. | 1,358 | 150,154 | ||||||
Wal-Mart Stores, Inc. | 2,014 | 150,023 | ||||||
300,177 | ||||||||
Independent Power Producers & Energy Traders–0.39% | ||||||||
AES Corp. (The) | 12,207 | 146,362 | ||||||
NRG Energy, Inc. | 5,588 | 149,200 | ||||||
295,562 | ||||||||
Industrial Conglomerates–0.60% | ||||||||
3M Co. | 1,356 | 148,278 | ||||||
Danaher Corp. | 2,417 | 152,996 | ||||||
General Electric Co.(e) | 6,414 | 148,741 | ||||||
450,015 | ||||||||
Industrial Gases–0.59% | ||||||||
Air Products & Chemicals, Inc. | 1,565 | 143,307 | ||||||
Airgas, Inc. | 1,572 | 150,063 | ||||||
Praxair, Inc. | 1,279 | 147,290 | ||||||
440,660 | ||||||||
Industrial Machinery–1.97% | ||||||||
Dover Corp. | 1,918 | 148,952 | ||||||
Flowserve Corp. | 2,730 | 147,447 | ||||||
Illinois Tool Works Inc. | 2,147 | 148,508 | ||||||
Ingersoll-Rand PLC | 2,673 | 148,405 | ||||||
Pall Corp. | 2,208 | 146,678 | ||||||
Parker Hannifin Corp. | 1,548 | 147,679 | ||||||
Pentair Ltd. | 2,526 | 145,725 | ||||||
Snap-on Inc. | 1,650 | 147,477 | ||||||
Stanley Black & Decker Inc. | 1,899 | 146,793 | ||||||
Xylem, Inc. | 5,563 | 149,867 | ||||||
1,477,531 | ||||||||
Industrial REIT’s–0.20% | ||||||||
Prologis, Inc. | 3,920 | 147,862 |
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 | |||||||
Insurance Brokers–0.40% | ||||||||
Aon PLC | 2,325 | $ | 149,614 | |||||
Marsh & McLennan Cos., Inc. | 3,776 | 150,738 | ||||||
300,352 | ||||||||
Integrated Oil & Gas–0.99% | ||||||||
Chevron Corp. | 1,253 | 148,280 | ||||||
Exxon Mobil Corp. | 1,665 | 150,433 | ||||||
Hess Corp. | 2,287 | 152,063 | ||||||
Murphy Oil Corp. | 2,404 | 146,379 | ||||||
Occidental Petroleum Corp. | 1,641 | 146,426 | ||||||
743,581 | ||||||||
Integrated Telecommunication Services–0.97% | ||||||||
AT&T Inc. | 4,201 | 148,716 | ||||||
CenturyLink Inc. | 4,172 | 147,480 | ||||||
Frontier Communications Corp.(d) | 35,756 | 144,812 | ||||||
Verizon Communications Inc. | 2,954 | 148,704 | ||||||
Windstream Corp.(d) | 18,158 | 139,998 | ||||||
729,710 | ||||||||
Internet Retail–1.01% | ||||||||
Amazon.com, Inc.(b) | 550 | 152,730 | ||||||
Expedia, Inc. | 2,601 | 156,450 | ||||||
Netflix Inc.(b) | 704 | 148,607 | ||||||
Priceline.com Inc.(b) | 184 | 152,192 | ||||||
TripAdvisor Inc.(b) | 2,366 | 144,018 | ||||||
753,997 | ||||||||
Internet Software & Services–1.00% | ||||||||
Akamai Technologies, Inc.(b) | 3,544 | 150,797 | ||||||
eBay Inc.(b) | 2,941 | 152,109 | ||||||
Google Inc.–Class A(b) | 172 | 151,424 | ||||||
VeriSign, Inc.(b) | 3,350 | 149,611 | ||||||
Yahoo! Inc.(b) | 5,741 | 144,156 | ||||||
748,097 | ||||||||
Investment Banking & Brokerage–0.82% | ||||||||
Charles Schwab Corp. (The) | 7,655 | 162,516 | ||||||
E*TRADE Financial Corp.(b) | 13,189 | 166,973 | ||||||
Goldman Sachs Group, Inc. (The) | 925 | 139,906 | ||||||
Morgan Stanley | 5,841 | 142,695 | ||||||
612,090 | ||||||||
IT Consulting & Other Services–0.96% | ||||||||
Accenture PLC–Class A | 1,872 | 134,709 | ||||||
Cognizant Technology Solutions Corp.– | 2,395 | 149,951 | ||||||
International Business Machines Corp. | 745 | 142,377 | ||||||
SAIC, Inc. | 11,061 | 154,080 | ||||||
Teradata Corp.(b) | 2,690 | 135,118 | ||||||
716,235 | ||||||||
Leisure Products–0.41% | ||||||||
Hasbro, Inc. | 3,421 | 153,363 | ||||||
Mattel, Inc. | 3,363 | 152,378 | ||||||
305,741 |
Shares | Value | |||||||
Life & Health Insurance–1.45% | ||||||||
Aflac, Inc. | 2,623 | $ | 152,449 | |||||
Lincoln National Corp. | 4,369 | 159,337 | ||||||
MetLife, Inc. | 3,431 | 157,003 | ||||||
Principal Financial Group, Inc. | 3,965 | 148,489 | ||||||
Prudential Financial, Inc. | 2,140 | 156,284 | ||||||
Torchmark Corp. | 2,333 | 151,972 | ||||||
Unum Group | 5,412 | 158,950 | ||||||
1,084,484 | ||||||||
Life Sciences Tools & Services–1.00% | ||||||||
Agilent Technologies, Inc. | 3,434 | 146,838 | ||||||
Life Technologies Corp.(b) | 2,033 | 150,462 | ||||||
PerkinElmer, Inc. | 4,567 | 148,428 | ||||||
Thermo Fisher Scientific, Inc. | 1,771 | 149,880 | ||||||
Waters Corp.(b) | 1,529 | 152,976 | ||||||
748,584 | ||||||||
Managed Health Care–1.05% | ||||||||
Aetna Inc. | 2,492 | 158,342 | ||||||
Cigna Corp. | 2,212 | 160,348 | ||||||
Humana Inc. | 1,863 | 157,200 | ||||||
UnitedHealth Group Inc. | 2,365 | 154,860 | ||||||
WellPoint, Inc. | 1,929 | 157,869 | ||||||
788,619 | ||||||||
Metal & Glass Containers–0.39% | ||||||||
Ball Corp. | 3,481 | 144,601 | ||||||
Owens-Illinois, Inc.(b) | 5,416 | 150,510 | ||||||
295,111 | ||||||||
Motorcycle Manufacturers–0.21% | ||||||||
Harley-Davidson, Inc. | 2,839 | 155,634 | ||||||
Movies & Entertainment–0.63% | ||||||||
Time Warner Inc. | 2,625 | 151,778 | ||||||
Twenty-First Century Fox, Inc. | 648 | 18,675 | ||||||
Viacom Inc.–Class B | 2,259 | 153,725 | ||||||
Walt Disney Co. (The) | 2,365 | 149,350 | ||||||
473,528 | ||||||||
Multi-Line Insurance–1.03% | ||||||||
American International Group, Inc.(b) | 3,324 | 148,583 | ||||||
Assurant, Inc. | 2,984 | 151,915 | ||||||
Genworth Financial Inc.–Class A(b) | 13,717 | 156,511 | ||||||
Hartford Financial Services Group, Inc. (The) | 5,167 | 159,764 | ||||||
Loews Corp. | 3,392 | 150,605 | ||||||
767,378 | ||||||||
Multi-Sector Holdings–0.19% | ||||||||
Leucadia National Corp. | 5,435 | 142,506 | ||||||
Multi-Utilities–2.83% | ||||||||
Ameren Corp. | 4,424 | 152,363 | ||||||
CenterPoint Energy, Inc. | 6,363 | 149,467 | ||||||
CMS Energy Corp. | 5,506 | 149,598 | ||||||
Consolidated Edison, Inc. | 2,609 | 152,131 |
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 | |||||||
Multi-Utilities–(continued) | ||||||||
Dominion Resources, Inc. | 2,692 | $ | 152,959 | |||||
DTE Energy Co. | 2,256 | 151,175 | ||||||
Integrys Energy Group, Inc. | 2,624 | 153,583 | ||||||
NiSource Inc. | 5,183 | 148,441 | ||||||
PG&E Corp. | 3,353 | 153,333 | ||||||
Public Service Enterprise Group Inc. | 4,624 | 151,020 | ||||||
SCANA Corp. | 3,050 | 149,755 | ||||||
Sempra Energy | 1,877 | 153,463 | ||||||
TECO Energy, Inc. | 8,706 | 149,656 | ||||||
Wisconsin Energy Corp. | 3,663 | 150,146 | ||||||
2,117,090 | ||||||||
Office Electronics–0.20% | ||||||||
Xerox Corp. | 16,581 | 150,390 | ||||||
Office REIT’s–0.19% | ||||||||
Boston Properties, Inc. | 1,370 | 144,494 | ||||||
Office Services & Supplies–0.40% | ||||||||
Avery Dennison Corp. | 3,505 | 149,874 | ||||||
Pitney Bowes Inc.(d) | 10,341 | 151,806 | ||||||
301,680 | ||||||||
Oil & Gas Drilling–1.22% | ||||||||
Diamond Offshore Drilling, Inc. | 2,246 | 154,502 | ||||||
Ensco PLC–Class A | 2,597 | 150,938 | ||||||
Helmerich & Payne, Inc. | 2,480 | 154,876 | ||||||
Nabors Industries Ltd. | 9,490 | 145,292 | ||||||
Noble Corp. | 4,002 | 150,395 | ||||||
Rowan Cos. PLC–Class A(b) | 4,512 | 153,724 | ||||||
909,727 | ||||||||
Oil & Gas Equipment & Services–1.20% | ||||||||
Baker Hughes Inc. | 3,277 | 151,168 | ||||||
Cameron International Corp.(b) | 2,429 | 148,558 | ||||||
FMC Technologies, Inc.(b) | 2,712 | 151,004 | ||||||
Halliburton Co. | 3,514 | 146,604 | ||||||
National Oilwell Varco Inc. | 2,167 | 149,306 | ||||||
Schlumberger Ltd. | 2,106 | 150,916 | ||||||
897,556 | ||||||||
Oil & Gas Exploration & Production–3.42% | ||||||||
Anadarko Petroleum Corp. | 1,751 | 150,463 | ||||||
Apache Corp. | 1,776 | 148,882 | ||||||
Cabot Oil & Gas Corp. | 2,168 | 153,971 | ||||||
Chesapeake Energy Corp. | 7,296 | 148,693 | ||||||
ConocoPhillips | 2,472 | 149,556 | ||||||
Denbury Resources Inc.(b) | 8,466 | 146,631 | ||||||
Devon Energy Corp. | 2,777 | 144,071 | ||||||
EOG Resources, Inc. | 1,144 | 150,642 | ||||||
EQT Corp. | 1,892 | 150,168 | ||||||
Marathon Oil Corp. | 4,388 | 151,737 | ||||||
Newfield Exploration Co.(b) | 6,705 | 160,182 | ||||||
Noble Energy, Inc. | 2,605 | 156,404 | ||||||
Pioneer Natural Resources Co. | 1,028 | 148,803 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
QEP Resources Inc. | 5,155 | $ | 143,206 | |||||
Range Resources Corp. | 2,055 | 158,893 | ||||||
Southwestern Energy Co.(b) | 4,128 | 150,796 | ||||||
WPX Energy Inc.(b) | 7,941 | 150,403 | ||||||
2,563,501 | ||||||||
Oil & Gas Refining & Marketing–0.73% | ||||||||
Marathon Petroleum Corp. | 1,894 | 134,588 | ||||||
Phillips 66 | 2,364 | 139,263 | ||||||
Tesoro Corp. | 2,639 | 138,072 | ||||||
Valero Energy Corp. | 3,969 | 138,002 | ||||||
549,925 | ||||||||
Oil & Gas Storage & Transportation–0.60% | ||||||||
Kinder Morgan Inc. | 3,940 | 150,311 | ||||||
Spectra Energy Corp. | 4,393 | 151,383 | ||||||
Williams Cos., Inc. (The) | 4,530 | 147,089 | ||||||
448,783 | ||||||||
Other Diversified Financial Services–0.60% | ||||||||
Bank of America Corp. | 11,545 | 148,468 | ||||||
Citigroup Inc. | 3,073 | 147,412 | ||||||
JPMorgan Chase & Co. | 2,839 | 149,871 | ||||||
445,751 | ||||||||
Packaged Foods & Meats–2.39% | ||||||||
Campbell Soup Co. | 3,367 | 150,808 | ||||||
ConAgra Foods, Inc. | 4,425 | 154,565 | ||||||
General Mills, Inc. | 3,061 | 148,550 | ||||||
Hershey Co. (The) | 1,691 | 150,973 | ||||||
Hormel Foods Corp. | 3,759 | 145,022 | ||||||
JM Smucker Co. (The) | 1,464 | 151,012 | ||||||
Kellogg Co. | 2,348 | 150,812 | ||||||
Kraft Foods Group, Inc. | 2,709 | 151,352 | ||||||
McCormick & Co., Inc. | 2,087 | 146,841 | ||||||
Mead Johnson Nutrition Co. | 1,854 | 146,893 | ||||||
Mondelez International Inc.–Class A | 5,061 | 144,390 | ||||||
Tyson Foods, Inc.–Class A | 5,878 | 150,947 | ||||||
1,792,165 | ||||||||
Paper Packaging–0.60% | ||||||||
Bemis Co., Inc. | 3,836 | 150,141 | ||||||
MeadWestvaco Corp. | 4,223 | 144,047 | ||||||
Sealed Air Corp. | 6,318 | 151,316 | ||||||
445,504 | ||||||||
Paper Products–0.20% | ||||||||
International Paper Co. | 3,326 | 147,375 | ||||||
Personal Products–0.38% | ||||||||
Avon Products, Inc. | 6,599 | 138,777 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 2,204 | 144,957 | ||||||
283,734 |
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 | |||||||
Pharmaceuticals–2.56% | ||||||||
AbbVie Inc. | 3,491 | $ | 144,318 | |||||
Actavis Inc.(b) | 1,192 | 150,454 | ||||||
Allergan, Inc. | 1,491 | 125,602 | ||||||
Bristol-Myers Squibb Co. | 3,223 | 144,036 | ||||||
Eli Lilly & Co. | 2,898 | 142,350 | ||||||
Forest Laboratories, Inc.(b) | 3,672 | 150,552 | ||||||
Hospira, Inc.(b) | 4,162 | 159,446 | ||||||
Johnson & Johnson | 1,776 | 152,487 | ||||||
Mallinckrodt PLC(b) | 1 | 29 | ||||||
Merck & Co., Inc. | 3,146 | 146,132 | ||||||
Mylan Inc.(b) | 4,770 | 148,013 | ||||||
Perrigo Co. | 1,271 | 153,791 | ||||||
Pfizer Inc. | 5,382 | 150,750 | ||||||
Zoetis Inc. | 4,710 | 145,484 | ||||||
1,913,444 | ||||||||
Property & Casualty Insurance–1.61% | ||||||||
ACE Ltd. | 1,703 | 152,385 | ||||||
Allstate Corp. (The) | 3,219 | 154,898 | ||||||
Berkshire Hathaway Inc.–Class B(b) | 1,321 | 147,846 | ||||||
Chubb Corp. (The) | 1,747 | 147,884 | ||||||
Cincinnati Financial Corp. | 3,267 | 149,955 | ||||||
Progressive Corp. (The) | 6,108 | 155,265 | ||||||
Travelers Cos., Inc. (The) | 1,836 | 146,733 | ||||||
XL Group PLC | 4,837 | 146,658 | ||||||
1,201,624 | ||||||||
Publishing–0.75% | ||||||||
Gannett Co., Inc. | 6,037 | 147,665 | ||||||
News Corp.–Class A | 4,822 | 157,197 | ||||||
News Corp.–Class A(b) | 6,786 | 103,487 | ||||||
Washington Post Co. (The)–Class B | 311 | 150,452 | ||||||
558,801 | ||||||||
Railroads–0.77% | ||||||||
CSX Corp. | 6,049 | 140,276 | ||||||
Kansas City Southern | 1,363 | 144,424 | ||||||
Norfolk Southern Corp. | 1,980 | 143,847 | ||||||
Union Pacific Corp. | 960 | 148,109 | ||||||
576,656 | ||||||||
Real Estate Services–0.21% | ||||||||
CBRE Group, Inc.–Class A(b) | 6,655 | 155,461 | ||||||
Regional Banks–1.89% | ||||||||
BB&T Corp. | 4,603 | 155,950 | ||||||
Fifth Third Bancorp | 8,240 | 148,732 | ||||||
Huntington Bancshares Inc. | 20,038 | 157,899 | ||||||
KeyCorp | 14,453 | 159,561 | ||||||
M&T Bank Corp.(d) | 1,471 | 164,384 | ||||||
PNC Financial Services Group, Inc. | 2,124 | 154,882 | ||||||
Regions Financial Corp. | 16,803 | 160,133 | ||||||
SunTrust Banks, Inc. | 4,853 | 153,209 | ||||||
Zions Bancorp. | 5,569 | 160,833 | ||||||
1,415,583 |
Shares | Value | |||||||
Research & Consulting Services–0.39% | ||||||||
Dun & Bradstreet Corp. (The) | 1,527 | $ | 148,806 | |||||
Equifax Inc. | 2,481 | 146,205 | ||||||
295,011 | ||||||||
Residential REIT’s–0.62% | ||||||||
Apartment Investment & Management Co.–Class A | 5,215 | 156,658 | ||||||
AvalonBay Communities, Inc. | 1,120 | 151,099 | ||||||
Equity Residential | 2,678 | 155,485 | ||||||
463,242 | ||||||||
Restaurants–0.99% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 409 | 149,019 | ||||||
Darden Restaurants, Inc. | 2,871 | 144,928 | ||||||
McDonald’s Corp. | 1,532 | 151,668 | ||||||
Starbucks Corp. | 2,300 | 150,627 | ||||||
Yum! Brands, Inc. | 2,118 | 146,862 | ||||||
743,104 | ||||||||
Retail REIT’s–0.59% | ||||||||
Kimco Realty Corp. | 6,855 | 146,903 | ||||||
Macerich Co. (The) | 2,423 | 147,730 | ||||||
Simon Property Group, Inc. | 908 | 143,391 | ||||||
438,024 | ||||||||
Security & Alarm Services–0.40% | ||||||||
ADT Corp. (The)(b) | 3,828 | 152,546 | ||||||
Tyco International Ltd. | 4,530 | 149,263 | ||||||
301,809 | ||||||||
Semiconductor Equipment–0.79% | ||||||||
Applied Materials, Inc. | 9,791 | 145,984 | ||||||
KLA-Tencor Corp. | 2,708 | 150,917 | ||||||
Lam Research Corp.(b) | 3,204 | 142,065 | ||||||
Teradyne, Inc.(b) | 8,701 | 152,877 | ||||||
591,843 | ||||||||
Semiconductors–2.65% | ||||||||
Advanced Micro Devices, Inc.(b)(d) | 38,298 | 156,256 | ||||||
Altera Corp. | 4,673 | 154,162 | ||||||
Analog Devices, Inc. | 3,356 | 151,221 | ||||||
Broadcom Corp.–Class A | 4,464 | 150,705 | ||||||
First Solar, Inc.(b)(d) | 3,374 | 150,919 | ||||||
Intel Corp.(e) | 6,054 | 146,628 | ||||||
Linear Technology Corp. | 4,145 | 152,702 | ||||||
LSI Corp.(b) | 20,636 | 147,341 | ||||||
Microchip Technology Inc. | 4,073 | 151,719 | ||||||
Micron Technology, Inc.(b) | 11,825 | 169,452 | ||||||
NVIDIA Corp. | 10,514 | 147,512 | ||||||
Texas Instruments Inc. | 4,252 | 148,267 | ||||||
Xilinx, Inc. | 3,880 | 153,687 | ||||||
1,980,571 | ||||||||
Soft Drinks–1.00% | ||||||||
Coca-Cola Co. (The) | 3,758 | 150,733 | ||||||
Coca-Cola Enterprises, Inc. | 4,174 | 146,758 |
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 | |||||||
Soft Drinks–(continued) | ||||||||
Dr Pepper Snapple Group, Inc. | 3,214 | $ | 147,619 | |||||
Monster Beverage Corp.(b) | 2,546 | 154,720 | ||||||
PepsiCo, Inc. | 1,836 | 150,167 | ||||||
749,997 | ||||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 5,260 | 145,965 | ||||||
Specialized Finance–1.21% | ||||||||
CME Group Inc. | 2,030 | 154,239 | ||||||
IntercontinentalExchange Inc.(b) | 871 | 154,829 | ||||||
McGraw Hill Financial, Inc. | 2,756 | 146,592 | ||||||
Moody’s Corp. | 2,425 | 147,755 | ||||||
NASDAQ OMX Group, Inc. (The) | 4,628 | 151,752 | ||||||
NYSE Euronext | 3,726 | 154,257 | ||||||
909,424 | ||||||||
Specialized REIT’s–1.59% | ||||||||
American Tower Corp. | 1,960 | 143,413 | ||||||
HCP, Inc. | 3,283 | 149,180 | ||||||
Health Care REIT, Inc. | 2,238 | 150,013 | ||||||
Host Hotels & Resorts Inc. | 8,761 | 147,798 | ||||||
Plum Creek Timber Co., Inc. | 3,191 | 148,924 | ||||||
Public Storage | 993 | 152,257 | ||||||
Ventas, Inc. | 2,141 | 148,714 | ||||||
Weyerhaeuser Co. | 5,333 | 151,937 | ||||||
1,192,236 | ||||||||
Specialty Chemicals–0.79% | ||||||||
Ecolab Inc. | 1,794 | 152,831 | ||||||
International Flavors & Fragrances Inc. | 1,922 | 144,458 | ||||||
Sherwin–Williams Co. (The) | 823 | 145,342 | ||||||
Sigma–Aldrich Corp. | 1,851 | 148,746 | ||||||
591,377 | ||||||||
Specialty Stores–0.59% | ||||||||
PetSmart, Inc. | 2,178 | 145,904 | ||||||
Staples, Inc. | 9,407 | 149,195 | ||||||
Tiffany & Co. | 1,998 | 145,535 | ||||||
440,634 | ||||||||
Steel–0.77% | ||||||||
Allegheny Technologies, Inc. | 5,456 | 143,547 | ||||||
Cliffs Natural Resources Inc.(d) | 8,505 | 138,206 | ||||||
Nucor Corp. | 3,375 | 146,205 | ||||||
United States Steel Corp.(d) | 8,433 | 147,831 | ||||||
575,789 | ||||||||
Systems Software–1.20% | ||||||||
BMC Software, Inc.(b) | 3,343 | 150,903 | ||||||
CA, Inc. | 5,339 | 152,856 | ||||||
Microsoft Corp. | 4,385 | 151,414 | ||||||
Oracle Corp. | 4,467 | 137,226 | ||||||
Red Hat, Inc.(b) | 3,293 | 157,471 | ||||||
Symantec Corp. | 6,748 | 151,628 | ||||||
901,498 |
Shares | Value | |||||||
Thrifts & Mortgage Finance–0.44% | ||||||||
Hudson City Bancorp, Inc. | 18,202 | $ | 166,730 | |||||
People’s United Financial Inc.(d) | 10,965 | 163,379 | ||||||
330,109 | ||||||||
Tires & Rubber–0.20% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 9,855 | 150,683 | ||||||
Tobacco–0.79% | ||||||||
Altria Group, Inc. | 4,220 | 147,658 | ||||||
Lorillard, Inc. | 3,437 | 150,128 | ||||||
Philip Morris International Inc. | 1,637 | 141,797 | ||||||
Reynolds American Inc. | 3,116 | 150,721 | ||||||
590,304 | ||||||||
Trading Companies & Distributors–0.39% | ||||||||
Fastenal Co. | 3,163 | 145,023 | ||||||
W.W. Grainger, Inc. | 592 | 149,291 | ||||||
294,314 | ||||||||
Trucking–0.20% | ||||||||
Ryder System, Inc. | 2,437 | 148,145 | ||||||
Wireless Telecommunication Services–0.40% | ||||||||
Crown Castle International Corp.(b) | 2,144 | 155,204 | ||||||
Sprint Communications Inc.(b) | 20,613 | 144,703 | ||||||
299,907 | ||||||||
Total Common Stocks & Other Equity Interests |
| 74,727,370 | ||||||
Money Market Funds–0.18% |
| |||||||
Liquid Assets Portfolio–Institutional Class(f) | 67,281 | 67,281 | ||||||
Premier Portfolio–Institutional Class(f) | 67,281 | 67,281 | ||||||
Total Money Market Funds | 134,562 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.99% (Cost $32,561,202) |
| 74,861,932 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–1.41% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $1,055,870)(f)(g) | 1,055,870 | 1,055,870 | ||||||
TOTAL INVESTMENTS–101.40% |
| 75,917,802 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.40)% |
| (1,044,830 | ) | |||||
NET ASSETS–100.00% |
| $ | 74,872,972 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | 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 June 30, 2013. |
(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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Consumer Discretionary | 17.0 | % | ||
Financials | 16.2 | |||
Information Technology | 13.9 | |||
Industrials | 12.1 | |||
Health Care | 10.8 | |||
Energy | 8.5 | |||
Consumer Staples | 7.9 | |||
Utilities | 6.2 | |||
Materials | 5.8 | |||
Telecommunication Services | 1.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.2 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $32,353,621)* | $ | 74,584,238 | ||
Investments in affiliates, at value (Cost $1,263,451) | 1,333,564 | |||
Total investments, at value (Cost $33,617,072) | 75,917,802 | |||
Receivable for: | ||||
Investments sold | 140,053 | |||
Fund shares sold | 34,274 | |||
Dividends | 93,526 | |||
Investment for trustee deferred compensation and retirement plans | 12,454 | |||
Total assets | 76,198,109 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 135,424 | |||
Fund shares reacquired | 3,026 | |||
Collateral upon return of securities loaned | 1,055,870 | |||
Variation margin | 750 | |||
Accrued fees to affiliates | 63,007 | |||
Accrued trustees’ and officers’ fees and benefits | 594 | |||
Accrued other operating expenses | 48,469 | |||
Trustee deferred compensation and retirement plans | 17,997 | |||
Total liabilities | 1,325,137 | |||
Net assets applicable to shares outstanding | $ | 74,872,972 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 18,354,503 | ||
Undistributed net investment income | 1,640,811 | |||
Undistributed net realized gain | 12,581,477 | |||
Unrealized appreciation | 42,296,181 | |||
$ | 74,872,972 | |||
Net Assets: |
| |||
Series I | $ | 36,387,314 | ||
Series II | $ | 38,485,658 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 1,722,955 | |||
Series II | 1,850,420 | |||
Series I: | ||||
Net asset value per share | $ | 21.12 | ||
Series II: | ||||
Net asset value per share | $ | 20.80 |
* | At June 30, 2013, securities with an aggregate value of $1,028,504 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $326) | $ | 716,204 | ||
Dividends from affiliates (includes securities lending income of $9,592) | 11,919 | |||
Total investment income | 728,123 | |||
Expenses: | ||||
Advisory fees | 45,319 | |||
Administrative services fees | 99,480 | |||
Custodian fees | 27,683 | |||
Distribution fees — Series II | 48,124 | |||
Transfer agent fees | 1,469 | |||
Trustees’ and officers’ fees and benefits | 14,115 | |||
Professional services fees | 21,790 | |||
Other | 17,948 | |||
Total expenses | 275,928 | |||
Less: Fees waived | (397 | ) | ||
Net expenses | 275,531 | |||
Net investment income | 452,592 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 4,683,456 | |||
Futures contracts | 71,941 | |||
4,755,397 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 5,811,212 | |||
Futures contracts | (6,873 | ) | ||
5,804,339 | ||||
Net realized and unrealized gain | 10,559,736 | |||
Net increase in net assets resulting from operations | $ | 11,012,328 |
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 six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 452,592 | $ | 1,173,030 | ||||
Net realized gain | 4,755,397 | 9,683,974 | ||||||
Change in net unrealized appreciation | 5,804,339 | 1,169,229 | ||||||
Net increase in net assets resulting from operations | 11,012,328 | 12,026,233 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (624,483 | ) | |||||
Series ll | — | (555,223 | ) | |||||
Total distributions from net investment income | — | (1,179,706 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (4,763,390 | ) | |||||
Series ll | — | (5,162,134 | ) | |||||
Total distributions from net realized gains | — | (9,925,524 | ) | |||||
Share transactions–net: | ||||||||
Series l | (3,952,659 | ) | (1,430,456 | ) | ||||
Series ll | (3,462,991 | ) | (5,735,184 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (7,415,650 | ) | (7,165,640 | ) | ||||
Net increase (decrease) in net assets | 3,596,678 | (6,244,637 | ) | |||||
Net assets: | ||||||||
Beginning of period | 71,276,294 | 77,520,931 | ||||||
End of period (includes undistributed net investment income of $1,640,811 and $1,188,219, respectively) | $ | 74,872,972 | $ | 71,276,294 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. 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-four 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”).
Invesco V.I. Equally-Weighted S&P 500 Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (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 trades 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Equally-Weighted S&P 500 Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
J. | 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).
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 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive
Invesco V.I. Equally-Weighted S&P 500 Fund
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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $397.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $74,685 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. 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 | $ | 75,917,802 | $ | — | $ | — | $ | 75,917,802 | ||||||||
Futures* | (4,549 | ) | — | — | (4,549 | ) | ||||||||||
Total Investments | $ | 75,913,253 | $ | — | $ | — | $ | 75,913,253 |
* | 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 six months ended June 30, 2013.
Value 12/31/12 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain | Value 06/30/13 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 143,130 | $ | 2,942 | $ | (34,436 | ) | $ | 22,531 | $ | 8,965 | $ | 143,132 | $ | 2,102 |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 5—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | — | $ | (4,549 | ) |
(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 Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Equity risk | $ | 71,941 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Equity risk | (6,873 | ) | ||
Total | $ | 65,068 |
* | The average notional value of futures outstanding during the period was $468,956. |
Open Futures Contracts | ||||||||||||||||
Long Contracts | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
E-Mini S&P 500 Index | 2 | September-2013 | $ | 159,930 | $ | (4,549 | ) |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | 4,549 | $ | — | $ | — | $ | (4,549 | ) | $ | — | $ | — |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did not have a 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 six months ended June 30, 2013 was $6,642,479 and $13,240,342, 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 | $ | 41,166,605 | ||
Aggregate unrealized (depreciation) of investment securities | (483,060 | ) | ||
Net unrealized appreciation of investment securities | $ | 40,683,545 |
Cost of investments for tax purposes is $35,234,257.
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 72,601 | $ | 1,450,720 | 20,002 | $ | 390,107 | ||||||||||
Series II | 81,109 | 1,605,357 | 58,484 | 1,111,155 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 302,180 | 5,387,873 | ||||||||||||
Series II | — | — | 325,034 | 5,717,357 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (264,677 | ) | (5,403,379 | ) | (371,514 | ) | (7,208,436 | ) | ||||||||
Series II | (253,388 | ) | (5,068,348 | ) | (655,598 | ) | (12,563,696 | ) | ||||||||
Net increase (decrease) in share activity | (364,355 | ) | $ | (7,415,650 | ) | (321,412 | ) | $ | (7,165,640 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 99% 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 | 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 with fee waivers | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 18.23 | $ | 0.13 | $ | 2.76 | $ | 2.89 | $ | — | $ | — | $ | — | $ | 21.12 | 15.85 | % | $ | 36,387 | 0.60 | %(d) | 0.60 | %(d) | 1.33 | %(d) | 9 | % | ||||||||||||||||||||||||||||
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 | 0.59 | 1.69 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 17.98 | 0.11 | 2.71 | 2.82 | — | — | — | 20.80 | 15.68 | 38,486 | 0.85 | (d) | 0.85 | (d) | 1.08 | (d) | 9 | |||||||||||||||||||||||||||||||||||||||
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 | 0.84 | 1.44 | 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 annualized and based on average daily net assets (000’s omitted) of $37,340 and $38,818 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
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,158.50 | $ | 3.21 | $ | 1,021.82 | $ | 3.01 | 0.60 | % | ||||||||||||
Series II | 1,000.00 | 1,157.50 | 4.55 | 1,020.58 | 4.26 | 0.85 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equally-Weighted S&P 500 Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Equally-Weighted S&P 500 Fund |
performance universe and against the Lipper VA Underlying Funds – Multi-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee rate waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was the same as the effective advisory fee rate of one mutual fund with comparable investment strategies
Other than the mutual fund described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements.
The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Equally-Weighted S&P 500 Fund |
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Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. Equity and Income Fund Effective April 29, 2013, Invesco Van Kampen V.I. Equity and Income Fund |
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 12.93 | % | |||
Series II Shares | 12.76 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 15.90 | ||||
Barclays U.S. Government/Credit Indexn (Style-Specific Index) | -2.67 |
Source(s): ‚Invesco, Russell via FactSet Research Systems Inc.; nLipper Inc.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays U.S. Government/Credit Index includes Treasuries and agencies that represent the government portion of the index, and includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Effective June 1, 2010, Class II shares of the predecessor fund, Universal Institutional Funds Equity and Income Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series II shares of Invesco Van Kampen V.I. Equity and Income Fund (renamed Invesco V.I. Equity and Income Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco 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 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.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
10 Years | 7.51 | % | |||
5 Years | 7.86 | ||||
1 Year | 19.43 | ||||
Series II Shares | |||||
Inception (4/30/03) | 7.91 | % | |||
10 Years | 7.47 | ||||
5 Years | 7.76 | ||||
1 Year | 19.12 |
The most recent month-end performance 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. Equity and Income Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–66.01% |
| |||||||
Aerospace & Defense–0.39% | ||||||||
General Dynamics Corp. | 58,496 | $ | 4,581,992 | |||||
Agricultural Products–0.88% | ||||||||
Archer-Daniels-Midland Co. | 301,450 | 10,222,169 | ||||||
Application Software–1.00% | ||||||||
Adobe Systems Inc.(b) | 254,460 | 11,593,198 | ||||||
Asset Management & Custody Banks–1.54% | ||||||||
Northern Trust Corp. | 137,140 | 7,940,406 | ||||||
State Street Corp. | 153,958 | 10,039,601 | ||||||
17,980,007 | ||||||||
Biotechnology–1.05% | ||||||||
Amgen Inc. | 123,729 | 12,207,103 | ||||||
Cable & Satellite–2.83% | ||||||||
Comcast Corp.–Class A | 374,468 | 15,682,720 | ||||||
Time Warner Cable Inc. | 153,415 | 17,256,119 | ||||||
32,938,839 | ||||||||
Diversified Banks–1.63% | ||||||||
Comerica Inc. | 200,504 | 7,986,075 | ||||||
Wells Fargo & Co. | 265,501 | 10,957,226 | ||||||
18,943,301 | ||||||||
Diversified Chemicals–1.24% | ||||||||
Dow Chemical Co. (The) | 251,983 | 8,106,293 | ||||||
PPG Industries, Inc. | 43,238 | 6,330,476 | ||||||
14,436,769 | ||||||||
Diversified Support Services–0.19% | ||||||||
Cintas Corp. | 47,398 | 2,158,505 | ||||||
Electric Utilities–1.24% | ||||||||
Edison International | 85,951 | 4,139,400 | ||||||
FirstEnergy Corp. | 72,719 | 2,715,327 | ||||||
Pinnacle West Capital Corp. | 136,927 | 7,595,341 | ||||||
14,450,068 | ||||||||
Electronic Components–0.45% | ||||||||
Corning Inc. | 371,627 | 5,288,252 | ||||||
Food Distributors–0.91% | ||||||||
Sysco Corp. | 310,144 | 10,594,519 | ||||||
Health Care Equipment–1.07% | ||||||||
Medtronic, Inc. | 243,271 | 12,521,158 | ||||||
Home Improvement Retail–0.52% | ||||||||
Home Depot, Inc. (The) | 78,514 | 6,082,480 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.71% | ||||||||
Carnival Corp. | 241,949 | $ | 8,296,431 | |||||
Household Products–0.97% | ||||||||
Procter & Gamble Co. (The) | 147,430 | 11,350,636 | ||||||
Industrial Conglomerates–2.00% | ||||||||
General Electric Co. | 1,006,419 | 23,338,857 | ||||||
Industrial Machinery–0.70% | ||||||||
Ingersoll-Rand PLC | 147,724 | 8,201,636 | ||||||
Insurance Brokers–2.59% | ||||||||
Aon PLC | 111,500 | 7,175,025 | ||||||
Marsh & McLennan Cos., Inc. | 438,517 | 17,505,599 | ||||||
Willis Group Holdings PLC | 134,318 | 5,477,488 | ||||||
30,158,112 | ||||||||
Integrated Oil & Gas–2.45% | ||||||||
Chevron Corp. | 119,744 | 14,170,505 | ||||||
Exxon Mobil Corp. | 94,795 | 8,564,728 | ||||||
Occidental Petroleum Corp. | 65,533 | 5,847,510 | ||||||
28,582,743 | ||||||||
Integrated Telecommunication Services–0.43% | ||||||||
Verizon Communications Inc. | 98,750 | 4,971,075 | ||||||
Internet Software & Services–1.38% | ||||||||
eBay Inc.(b)(c) | 311,670 | 16,119,572 | ||||||
Investment Banking & Brokerage–3.02% | ||||||||
Charles Schwab Corp. (The) | 566,109 | 12,018,494 | ||||||
Goldman Sachs Group, Inc. (The) | 42,564 | 6,437,805 | ||||||
Morgan Stanley | 686,275 | 16,765,698 | ||||||
35,221,997 | ||||||||
IT Consulting & Other Services–0.67% | ||||||||
Amdocs Ltd. | 208,906 | 7,748,324 | ||||||
Managed Health Care–2.59% | ||||||||
Cigna Corp. | 114,962 | 8,333,595 | ||||||
UnitedHealth Group Inc. | 134,543 | 8,809,876 | ||||||
WellPoint, Inc. | 158,540 | 12,974,914 | ||||||
30,118,385 | ||||||||
Movies & Entertainment–2.16% | ||||||||
Time Warner Inc. | 89,033 | 5,147,888 | ||||||
Viacom Inc.–Class B | 294,083 | 20,012,348 | ||||||
25,160,236 | ||||||||
Oil & Gas Equipment & Services–1.18% | ||||||||
Baker Hughes Inc. | 165,105 | 7,616,293 | ||||||
Halliburton Co. | 148,351 | 6,189,204 | ||||||
13,805,497 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Oil & Gas Exploration & Production–1.79% | ||||||||
Anadarko Petroleum Corp. | 137,623 | $ | 11,825,944 | |||||
Canadian Natural Resources Ltd. (Canada) | 321,636 | 9,066,845 | ||||||
20,892,789 | ||||||||
Oil & Gas Storage & Transportation–0.46% | ||||||||
Williams Cos., Inc. (The) | 164,874 | 5,353,459 | ||||||
Other Diversified Financial Services–6.39% | ||||||||
Bank of America Corp. | 459,249 | 5,905,942 | ||||||
Citigroup Inc. | 577,576 | 27,706,321 | ||||||
ING U.S. Inc.(b) | 152,372 | 4,123,186 | ||||||
JPMorgan Chase & Co. | 696,205 | 36,752,662 | ||||||
74,488,111 | ||||||||
Packaged Foods & Meats–1.74% | ||||||||
Mondelez International Inc.–Class A | 476,673 | 13,599,481 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 168,371 | 6,618,664 | ||||||
20,218,145 | ||||||||
Personal Products–1.79% | ||||||||
Avon Products, Inc.(c) | 988,974 | 20,798,123 | ||||||
Pharmaceuticals–5.09% | ||||||||
Bristol-Myers Squibb Co. | 215,786 | 9,643,476 | ||||||
Eli Lilly & Co. | 203,995 | 10,020,234 | ||||||
Merck & Co., Inc. | 331,298 | 15,388,792 | ||||||
Novartis AG (Switzerland) | 116,535 | 8,259,204 | ||||||
Novartis AG–ADR (Switzerland) | 11,820 | 835,792 | ||||||
Pfizer Inc. | 391,849 | 10,975,691 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 105,374 | 4,130,661 | ||||||
59,253,850 | ||||||||
Property & Casualty Insurance–0.54% | ||||||||
Chubb Corp. (The) | 74,378 | 6,296,098 | ||||||
Publishing–0.35% | ||||||||
Thomson Reuters Corp. (Canada) | 124,594 | 4,065,474 | ||||||
Railroads–0.55% | ||||||||
CSX Corp. | 274,439 | 6,364,240 | ||||||
Regional Banks–2.86% | ||||||||
BB&T Corp. | 251,234 | 8,511,808 | ||||||
Fifth Third Bancorp | 415,756 | 7,504,396 | ||||||
PNC Financial Services Group, Inc. | 237,358 | 17,308,145 | ||||||
33,324,349 | ||||||||
Security & Alarm Services–1.66% | ||||||||
ADT Corp. (The) | 172,409 | 6,870,499 | ||||||
Tyco International Ltd. | 376,793 | 12,415,329 | ||||||
19,285,828 | ||||||||
Semiconductor Equipment–1.29% | ||||||||
Applied Materials, Inc. | 1,006,704 | 15,009,957 |
Shares | Value | |||||||
Semiconductors–0.49% | ||||||||
Texas Instruments Inc. | 162,801 | $ | 5,676,871 | |||||
Soft Drinks–1.16% | ||||||||
Coca-Cola Co. (The) | 196,671 | 7,888,474 | ||||||
PepsiCo, Inc. | 69,101 | 5,651,771 | ||||||
13,540,245 | ||||||||
Specialized Finance–0.61% | ||||||||
CME Group Inc.–Class A | 93,110 | 7,074,498 | ||||||
Systems Software–2.34% | ||||||||
Microsoft Corp. | 507,068 | 17,509,058 | ||||||
Symantec Corp. | 432,605 | 9,720,634 | ||||||
27,229,692 | ||||||||
Wireless Telecommunication Services–1.11% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 451,953 | 12,989,129 | ||||||
Total Common Stocks & Other Equity Interests (Cost $578,941,641) |
| 768,932,719 | ||||||
Principal Amount | ||||||||
Bonds and Notes–17.37% |
| |||||||
Advertising–0.07% | ||||||||
Interpublic Group of Cos. Inc. (The), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
2.25%, 11/15/17 | $ | 370,000 | 363,016 | |||||
10.00%, 07/15/17 | 285,000 | 299,606 | ||||||
WPP Finance (United Kingdom), Sr. Unsec. Gtd. Global Notes, | 100,000 | 107,994 | ||||||
770,616 | ||||||||
Aerospace & Defense–0.03% | ||||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, 2.50%, 01/15/23 | 365,000 | 341,546 | ||||||
Agricultural Products–0.03% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 255,000 | 291,455 | ||||||
Air Freight & Logistics–0.02% | ||||||||
United Parcel Service Inc., Sr. Unsec. Global Notes, 2.45%, 10/01/22 | 295,000 | 278,869 | ||||||
Airlines–0.09% | ||||||||
Continental Airlines Pass Through Trust, | ||||||||
Series 2010-1, Class A, | 290,805 | 308,617 | ||||||
Series 2012-1, Class A, | 510,000 | 502,031 | ||||||
Delta Air Lines Pass Through Trust, | 201,139 | 216,665 | ||||||
1,027,313 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Airport Services–0.05% | ||||||||
Heathrow Funding Ltd. (United Kingdom), Sr. Sec. Notes, | $ | 535,000 | $ | 543,332 | ||||
Application Software–0.02% | ||||||||
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | 185,000 | 203,373 | ||||||
Asset Management & Custody Banks–0.10% | ||||||||
Bank of New York Mellon (The), | 755,000 | 709,700 | ||||||
Prospect Capital Corp., Sr. Unsec. Global Notes, 5.88%, 03/15/23 | 450,000 | 427,445 | ||||||
1,137,145 | ||||||||
Automobile Manufacturers–0.18% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, | ||||||||
1.88%, 09/15/14(d) | 700,000 | 707,298 | ||||||
1.88%, 01/11/18(d) | 555,000 | 544,784 | ||||||
Ford Motor Co., Sr. Unsec. Global Notes, 4.75%, 01/15/43 | 1,000,000 | 886,336 | ||||||
2,138,418 | ||||||||
Automotive Retail–0.11% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 585,000 | 621,860 | ||||||
AutoZone, Inc., Sr. Unsec. Global Notes, | ||||||||
2.88%, 01/15/23 | 290,000 | 265,199 | ||||||
6.50%, 01/15/14 | 395,000 | 407,202 | ||||||
1,294,261 | ||||||||
Biotechnology–0.89% | ||||||||
Dendreon Corp., Sr. Unsec. Conv. Notes, 2.88%, 01/15/16 | 1,894,000 | 1,429,970 | ||||||
Gilead Sciences Inc.,Series D, Sr. Unsec. Conv. Notes, 1.63%, 05/01/16 | 3,926,000 | 8,892,410 | ||||||
10,322,380 | ||||||||
Brewers–0.09% | ||||||||
Anheuser-Busch InBev Worldwide, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | ||||||||
0.80%, 07/15/15 | 325,000 | 324,782 | ||||||
3.63%, 04/15/15 | 395,000 | 414,620 | ||||||
FBG Financial Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(d) | 325,000 | 349,419 | ||||||
1,088,821 | ||||||||
Broadcasting–0.06% | ||||||||
COX Communications Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.45%, 12/15/14 | 142,000 | 151,621 | ||||||
Sr. Unsec. Notes, | ||||||||
4.70%, 12/15/42(d) | 440,000 | 394,485 | ||||||
8.38%, 03/01/39(d) | 80,000 | 107,907 | ||||||
654,013 |
Principal Amount | Value | |||||||
Cable & Satellite–0.45% | ||||||||
Comcast Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
4.25%, 01/15/33 | $ | 755,000 | $ | 725,337 | ||||
5.70%, 05/15/18 | 445,000 | 517,815 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.45%, 03/15/37 | 305,000 | 366,665 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
2.40%, 03/15/17 | 225,000 | 226,180 | ||||||
5.15%, 03/15/42 | 370,000 | 329,663 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
1.75%, 01/15/18 | 390,000 | 376,706 | ||||||
NBC Universal Media LLC, Sr. Unsec. Gtd. Global Notes, | ||||||||
2.10%, 04/01/14 | 230,000 | 232,858 | ||||||
5.15%, 04/30/20 | 175,000 | 199,440 | ||||||
5.95%, 04/01/41 | 215,000 | 246,312 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/40 | 470,000 | 432,292 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | 1,470,000 | 1,521,736 | ||||||
5,175,004 | ||||||||
Casinos & Gaming–0.82% | ||||||||
International Game Technology, Sr. Unsec. Conv. Notes, 3.25%, 05/01/14 | 2,063,000 | 2,202,253 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 6,500,000 | 7,292,187 | ||||||
9,494,440 | ||||||||
Catalog Retail–0.07% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Notes, 0.75%, 03/30/23(d)(f) | 745,000 | 821,363 | ||||||
Communications Equipment–0.36% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(d) | 3,177,000 | 4,159,884 | ||||||
Computer Hardware–0.04% | ||||||||
Hewlett-Packard Co., Sr. Unsec. Global Notes, 2.63%, 12/09/14 | 420,000 | 428,398 | ||||||
Computer Storage & Peripherals–0.86% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Notes, | 7,469,000 | 9,994,456 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.10% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/22 | 1,275,000 | 1,213,037 | ||||||
Construction Materials–0.52% | ||||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | 5,300,000 | 6,075,125 | ||||||
Consumer Finance–0.12% | ||||||||
Capital One Financial Corp., Sr. Unsec. Notes, 6.75%, 09/15/17 | 50,000 | 58,571 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Consumer Finance–(continued) | ||||||||
Ford Motor Credit Co. LLC., Sr. Unsec. Global Notes, 2.50%, 01/15/16 | $ | 450,000 | $ | 453,752 | ||||
SLM Corp., Sr. Unsec. Medium-Term Notes, 3.88%, 09/10/15 | 920,000 | 931,099 | ||||||
1,443,422 | ||||||||
Distillers & Vintners–0.03% | ||||||||
Brown-Forman Corp., Sr. Unsec. Notes, 2.25%, 01/15/23 | 310,000 | 286,191 | ||||||
Diversified Banks–0.80% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
2.88%, 04/25/14 | 155,000 | 156,957 | ||||||
Sr. Unsec. Gtd. Medium-Term Euro Notes, 3.88%, 11/10/14(d) | 675,000 | 693,952 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 395,000 | 398,695 | ||||||
Barclays Bank PLC (United Kingdom), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
2.75%, 02/23/15 | 200,000 | 204,639 | ||||||
6.75%, 05/22/19 | 510,000 | 608,502 | ||||||
Unsec. Sub. Global Notes, | ||||||||
5.14%, 10/14/20 | 275,000 | 277,962 | ||||||
BPCE S.A. (France), Sr. Unsec. Notes, 2.38%, 10/04/13(d) | 390,000 | 391,002 | ||||||
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(d) | 565,000 | 593,346 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/18(d) | 325,000 | 346,375 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Unsec. Notes, 4.13%, 08/12/20(d) | 565,000 | 599,060 | ||||||
ING Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.75%, 03/07/17(d) | 755,000 | 787,927 | ||||||
Korea Development Bank (The) (South Korea), Sr. Unsec. Global Notes, 4.38%, 08/10/15 | 200,000 | 210,616 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(d) | 190,000 | 199,030 | ||||||
Nordea Bank AB (Sweden), Sr. Unsec. Notes, 4.88%, 01/27/20(d) | 245,000 | 265,043 | ||||||
Rabobank Nederland N.V. (Netherlands), Sr. Unsec. Medium-Term Global Notes, 4.75%, 01/15/20(d) | 490,000 | 530,826 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(d) | 200,000 | 199,729 | ||||||
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(d) | 705,000 | 708,114 | ||||||
Standard Chartered PLC (Hong Kong), | ||||||||
Sr. Unsec. Notes, | ||||||||
3.85%, 04/27/15(d) | 255,000 | 267,038 | ||||||
5.50%, 11/18/14(d) | 100,000 | 105,967 |
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
U.S. Bank N.A., Unsec. Sub. Notes, 3.78%, 04/29/20 | $ | 450,000 | $ | 470,648 | ||||
Wells Fargo & Co., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
1.50%, 01/16/18 | 180,000 | 175,457 | ||||||
3.63%, 04/15/15 | 50,000 | 52,406 | ||||||
Sr. Unsec. Notes, 5.63%, 12/11/17 | 580,000 | 662,615 | ||||||
Westpac Banking Corp. (Australia), Sr. Unsec. Global Notes, 2.10%, 08/02/13 | 440,000 | 440,632 | ||||||
9,346,538 | ||||||||
Diversified Capital Markets–0.03% | ||||||||
UBS AG (Switzerland), | ||||||||
Sr. Unsec. Global Bank Notes, | ||||||||
5.88%, 12/20/17 | 146,000 | 168,049 | ||||||
Sr. Unsec. Medium-Term Global Bank Notes, 5.75%, 04/25/18 | 103,000 | 119,063 | ||||||
287,112 | ||||||||
Diversified Chemicals–0.03% | ||||||||
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 4.38%, 11/15/42 | 370,000 | 325,502 | ||||||
Diversified Metals & Mining–0.23% | ||||||||
Anglo American Capital PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 9.38%, 04/08/19(d) | 200,000 | 252,273 | ||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Global Notes, 1.40%, 02/13/15 | 455,000 | 453,101 | ||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.13%, 07/15/28 | 200,000 | 251,596 | ||||||
9.00%, 05/01/19 | 295,000 | 383,997 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, | ||||||||
5.25%, 11/08/42 | 645,000 | 535,398 | ||||||
5.38%, 04/16/20 | 5,000 | 5,311 | ||||||
6.75%, 04/16/40 | 10,000 | 9,931 | ||||||
Xstrata Finance Canada Ltd. (Canada), | ||||||||
Sr. Unsec. Gtd. Notes, | ||||||||
2.05%, 10/23/15(d) | 420,000 | 419,776 | ||||||
2.70%, 10/25/17(d) | 420,000 | 406,917 | ||||||
2,718,300 | ||||||||
Diversified REIT’s–0.11% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(d) | 1,155,000 | 1,261,109 | ||||||
Diversified Support Services–0.03% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | 380,000 | 396,719 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Drug Retail–0.07% | ||||||||
CVS Pass Through Trust, Sec. Global Pass Through Ctfs., 6.04%, 12/10/28 | $ | 763,288 | $ | 842,315 | ||||
Electric Utilities–0.18% | ||||||||
Baltimore Gas & Electric Co., Sr. Unsec. Notes, 3.35%, 07/01/23 | 615,000 | 599,617 | ||||||
Electricite de France S.A. (France), Sr. Unsec. Notes, 4.60%, 01/27/20(d) | 150,000 | 163,081 | ||||||
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, 5.13%, 10/07/19(d) | 425,000 | 441,725 | ||||||
Iberdrola Finance Ireland Ltd. (Spain), Sr. Unsec. Gtd. Notes, 3.80%, 09/11/14(d) | 200,000 | 205,244 | ||||||
Louisville Gas & Electric Co., Sr. Sec. First Mortgage Global Bonds, 1.63%, 11/15/15 | 405,000 | 414,322 | ||||||
Ohio Power Co.,Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 200,000 | 231,127 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 61,306 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 17,254 | ||||||
2,133,676 | ||||||||
Electrical Components & Equipment–0.06% | ||||||||
Eaton Corp. PLC, Sr. Unsec. Gtd. Notes, 0.95%, 11/02/15(d) | 740,000 | 738,752 | ||||||
Environmental & Facilities Services–0.04% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 395,000 | 406,552 | ||||||
Fertilizers & Agricultural Chemicals–0.03% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 3.60%, 07/15/42 | 365,000 | 317,079 | ||||||
General Merchandise Stores–0.06% | ||||||||
Target Corp., Sr. Unsec. Global Notes, 2.90%, 01/15/22 | 760,000 | 745,838 | ||||||
Gold–0.21% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, | ||||||||
2.90%, 05/30/16 | 425,000 | 420,261 | ||||||
3.85%, 04/01/22 | 285,000 | 241,658 | ||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | 500,000 | 409,458 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(d) | 665,000 | 575,633 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 855,000 | 731,525 | ||||||
2,378,535 |
Principal Amount | Value | |||||||
Health Care Equipment–0.75% | ||||||||
Medtronic Inc., Sr. Unsec. Global Notes, 4.00%, 04/01/43 | $ | 525,000 | $ | 477,697 | ||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 1,104,000 | 1,094,340 | ||||||
Teleflex Inc., Sr. Unsec. Sub. Conv. Notes, 3.88%, 08/01/17 | 3,089,000 | 4,187,526 | ||||||
Volcano Corp., Sr. Unsec. Conv. Notes, 1.75%, 12/01/17 | 3,297,000 | 3,024,997 | ||||||
8,784,560 | ||||||||
Health Care Facilities–0.61% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | 2,241,000 | 2,649,983 | ||||||
LifePoint Hospitals Inc., Sr. Unsec. Sub. Conv. Notes, 3.50%, 05/15/14 | 4,141,000 | 4,498,161 | ||||||
7,148,144 | ||||||||
Health Care Services–0.48% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | 300,000 | 312,640 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Gtd. Notes, 2.75%, 09/15/15 | 220,000 | 226,394 | ||||||
Omnicare Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Conv. Notes, | ||||||||
3.75%, 04/01/42 | 2,681,000 | 3,341,196 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(f) | 1,625,000 | 1,681,875 | ||||||
5,562,105 | ||||||||
Homebuilding–0.08% | ||||||||
MDC Holdings Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 1,050,000 | 978,071 | ||||||
Hotels, Resorts & Cruise Lines–0.08% | ||||||||
Wyndham Worldwide Corp., | ||||||||
2.95%, 03/01/17 | 335,000 | 339,286 | ||||||
5.63%, 03/01/21 | 580,000 | 624,549 | ||||||
963,835 | ||||||||
Housewares & Specialties–0.10% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/21 | 1,160,000 | 1,178,258 | ||||||
Hypermarkets & Super Centers–0.01% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Global Notes, 6.50%, 08/15/37 | 50,000 | 63,317 | ||||||
Industrial Conglomerates–0.05% | ||||||||
General Electric Co., Sr. Unsec. Global Notes, 5.25%, 12/06/17 | 485,000 | 548,329 | ||||||
Industrial Machinery–0.06% | ||||||||
Pentair Finance S.A., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/15/21 | 690,000 | 741,414 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Integrated Oil & Gas–0.10% | ||||||||
Cheveron Corp., Sr. Unsec. Global Notes, 1.72%, 06/24/18 | $ | 520,000 | $ | 516,482 | ||||
Hess Corp., Sr. Unsec. Global Notes, 5.60%, 02/15/41 | 195,000 | 200,105 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/22 | 300,000 | 305,553 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | 115,000 | 120,623 | ||||||
1,142,763 | ||||||||
Integrated Telecommunication Services–0.22% | ||||||||
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | 4,000 | 5,579 | ||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
1.60%, 02/15/17 | 455,000 | 450,862 | ||||||
2.50%, 08/15/15 | 20,000 | 20,532 | ||||||
3.00%, 02/15/22 | 555,000 | 531,275 | ||||||
5.35%, 09/01/40 | 101,000 | 102,409 | ||||||
6.15%, 09/15/34 | 140,000 | 156,323 | ||||||
Deutsche Telekom International Finance B.V. (Germany), Sr. Unsec. Gtd. Global Bonds, 8.75%, 06/15/30 | 155,000 | 214,838 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, | ||||||||
3.00%, 04/01/16 | 230,000 | 240,349 | ||||||
4.75%, 11/01/41 | 210,000 | 199,866 | ||||||
6.35%, 04/01/19 | 260,000 | 307,273 | ||||||
6.40%, 02/15/38 | 300,000 | 348,607 | ||||||
Windstream Georgia Communications Corp., Sr. Unsec. Notes, 6.50%, 11/15/13 | 20,000 | 20,216 | ||||||
2,598,129 | ||||||||
Investment Banking & Brokerage–0.76% | ||||||||
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | 510,000 | 556,496 | ||||||
Goldman Sachs Group, Inc. (The), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.25%, 07/27/21 | 400,000 | 428,882 | ||||||
6.15%, 04/01/18 | 550,000 | 622,003 | ||||||
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | 65,000 | 67,799 | ||||||
Unsec. Sub. Global Notes, | ||||||||
6.75%, 10/01/37 | 385,000 | 396,111 | ||||||
Series C, Exchangeable Basket-Linked Conv. Medium-Term Notes, | ||||||||
1.00%, 03/15/17(d)(g) | 3,328,000 | 3,639,800 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(d) | 50,000 | 53,500 |
Principal Amount | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Morgan Stanley, | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.80%, 04/29/16 | $ | 700,000 | $ | 725,894 | ||||
6.38%, 07/24/42 | 705,000 | 792,776 | ||||||
Sr. Unsec. Medium-Term Global Notes, 4.00%, 07/24/15 | 610,000 | 635,799 | ||||||
Sr. Unsec. Notes, | ||||||||
3.45%, 11/02/15 | 715,000 | 737,904 | ||||||
5.75%, 01/25/21 | 220,000 | 239,428 | ||||||
8,896,392 | ||||||||
Life & Health Insurance–0.14% | ||||||||
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | 275,000 | 296,196 | ||||||
MetLife, Inc., Sr. Unsec. Global Notes, 4.75%, 02/08/21 | 410,000 | 447,327 | ||||||
Pacific LifeCorp., Sr. Unsec. Notes, 6.00%, 02/10/20(d) | 215,000 | 238,929 | ||||||
Prudential Financial, Inc., Series D, Sr. Unsec. Medium-Term Notes, | ||||||||
3.88%, 01/14/15 | 50,000 | 52,082 | ||||||
4.75%, 09/17/15 | 255,000 | 274,564 | ||||||
6.63%, 12/01/37 | 110,000 | 130,234 | ||||||
7.38%, 06/15/19 | 105,000 | 128,444 | ||||||
1,567,776 | ||||||||
Managed Health Care–0.51% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, | ||||||||
3.95%, 09/01/20 | 605,000 | 621,679 | ||||||
4.13%, 11/15/42 | 295,000 | 258,933 | ||||||
Humana Inc., Sr. Unsec. Global Notes, 4.63%, 12/01/42 | 350,000 | 313,748 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Global Notes, 1.63%, 03/15/19 | 535,000 | 516,055 | ||||||
WellPoint Inc., Sr. Unsec. Conv. Notes, 2.75%, 10/15/42(d) | 3,398,000 | 4,247,500 | ||||||
5,957,915 | ||||||||
Movies & Entertainment–0.01% | ||||||||
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | 130,000 | 147,937 | ||||||
Multi-Line Insurance–0.03% | ||||||||
CNA Financial Corp., Sr. Unsec. Global Bonds, 5.88%, 08/15/20 | 325,000 | 368,302 | ||||||
Office Electronics–0.00% | ||||||||
Xerox Corp., Sr. Unsec. Notes, 4.25%, 02/15/15 | 40,000 | 41,826 | ||||||
Office REIT’s–0.03% | ||||||||
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | 335,000 | 352,680 | ||||||
Oil & Gas Drilling–0.01% | ||||||||
Noble Holding International Ltd., Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/17 | 150,000 | 150,681 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Oil & Gas Equipment & Services–0.12% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(f) | $ | 1,126,000 | $ | 1,408,907 | ||||
Oil & Gas Exploration & Production–0.85% | ||||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/19 | 4,246,000 | 4,508,721 | ||||||
Petrobras Global Finance B.V. (Brazil), Sr. Unsec. Gtd. Global Notes, 5.63%, 05/20/43 | 645,000 | 562,558 | ||||||
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | 15,000 | 15,025 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, | ||||||||
4.88%, 01/24/22 | 570,000 | 583,565 | ||||||
5.50%, 01/21/21 | 665,000 | 714,887 | ||||||
Southwestern Energy Co., Sr. Unsec. Gtd. Global Notes, 4.10%, 03/15/22 | 675,000 | 672,979 | ||||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17 | 3,053,000 | 2,839,290 | ||||||
9,897,025 | ||||||||
Oil & Gas Refining & Marketing–0.03% | ||||||||
Phillips 66, Sr. Unsec. Gtd. Global Notes, 1.95%, 03/05/15 | 385,000 | 391,865 | ||||||
Oil & Gas Storage & Transportation–0.11% | ||||||||
Enterprise Products Operating LLC, | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
5.25%, 01/31/20 | 155,000 | 172,320 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.45%, 09/01/40 | 25,000 | 28,382 | ||||||
Series N, Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 01/31/19 | 245,000 | 291,447 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 355,000 | 350,716 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/38 | 120,000 | 152,004 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/32 | 185,000 | 229,414 | ||||||
1,224,283 | ||||||||
Other Diversified Financial Services–0.88% | ||||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.75%, 12/01/17 | 975,000 | 1,083,026 | ||||||
Sr. Unsec. Medium-Term Notes, | ||||||||
1.25%, 01/11/16 | 600,000 | 593,144 | ||||||
Series L, Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | 350,000 | 389,453 | ||||||
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | 340,000 | 404,156 |
Principal Amount | Value | |||||||
Other Diversified Financial Services–(continued) | ||||||||
Citigroup Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
6.01%, 01/15/15 | $ | 65,000 | $ | 69,481 | ||||
6.13%, 11/21/17 | 495,000 | 562,520 | ||||||
8.50%, 05/22/19 | 455,000 | 572,396 | ||||||
Unsec. Sub. Global Notes, | ||||||||
3.50%, 05/15/23 | 775,000 | 698,474 | ||||||
4.05%, 07/30/22 | 500,000 | 481,368 | ||||||
Citigroup, Inc., Sr. Unsec. Notes, 4.75%, 05/19/15 | 75,000 | 79,354 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.75%, 07/01/13(d) | 340,000 | 340,022 | ||||||
General Electric Capital Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
5.90%, 05/13/14 | 75,000 | 78,557 | ||||||
Sr. Unsec. Medium-Term Global Notes, 4.65%, 10/17/21 | 430,000 | 455,266 | ||||||
Class C, Jr. Unsec. Sub. Global Notes, 5.25%(e) | 900,000 | 865,080 | ||||||
Series G, Sr. Unsec. Medium-Term Global Notes, 6.00%, 08/07/19 | 300,000 | 348,310 | ||||||
ING US Inc., Sr. Unsec. Gtd. Notes, 5.50%, 07/15/22(d) | 765,000 | 814,790 | ||||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.40%, 07/22/20 | 400,000 | 419,881 | ||||||
4.50%, 01/24/22 | 80,000 | 84,084 | ||||||
Sr. Unsec. Notes, | ||||||||
6.00%, 01/15/18 | 615,000 | 701,441 | ||||||
Unsec. Sub. Global Notes, | ||||||||
5.13%, 09/15/14 | 70,000 | 73,229 | ||||||
Series Q, Jr. Unsec. Sub. Global Notes, 5.15%(e) | 710,000 | 678,050 | ||||||
Merrill Lynch & Co., Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | 410,000 | 472,207 | ||||||
10,264,289 | ||||||||
Packaged Foods & Meats–0.08% | ||||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, 4.88%, 06/30/20(d) | 270,000 | 281,867 | ||||||
Mondelez International Inc., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
7.00%, 08/11/37 | 305,000 | 374,808 | ||||||
Sr. Unsec. Notes, 6.88%, 01/26/39 | 200,000 | 246,228 | ||||||
902,903 | ||||||||
Paper Products–0.02% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/41 | 245,000 | 261,895 | ||||||
Personal Products–0.01% | ||||||||
Avon Products Inc., Sr. Unsec. Global Notes, 2.38%, 03/15/16 | 155,000 | 156,295 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Pharmaceuticals–0.59% | ||||||||
AbbVie Inc., Sr. Unsec. Gtd. Notes, 1.20%, 11/06/15(d) | $ | 1,620,000 | $ | 1,631,108 | ||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | ||||||||
5.65%, 05/15/18 | 75,000 | 87,100 | ||||||
6.38%, 05/15/38 | 70,000 | 86,422 | ||||||
Merck & Co. Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 06/30/19 | 280,000 | 320,386 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(d) | 1,045,000 | 1,145,581 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19 | 2,467,000 | 2,955,774 | ||||||
Teva Pharmaceutical Finance Co. B.V. (Israel), Sr. Unsec. Gtd. Global Notes, 2.95%, 12/18/22 | 345,000 | 322,910 | ||||||
Zoetis Inc., Sr. Unsec. Notes, 4.70%, 02/01/43(d) | 315,000 | 297,424 | ||||||
6,846,705 | ||||||||
Property & Casualty Insurance–0.07% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 30,328 | ||||||
Markel Corp., Sr. Unsec. Notes, 5.00%, 03/30/43 | 385,000 | 364,145 | ||||||
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/22 | 420,000 | 435,955 | ||||||
830,428 | ||||||||
Railroads–0.06% | ||||||||
CSX Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
6.15%, 05/01/37 | 80,000 | 92,528 | ||||||
Sr. Unsec. Notes, 5.50%, 04/15/41 | 380,000 | 407,393 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 6.13%, 02/15/20 | 110,000 | 132,458 | ||||||
632,379 | ||||||||
Regional Banks–0.08% | ||||||||
Nationwide Building Society (United Kingdom), Sr. Unsec. Notes, 6.25%, 02/25/20(d) | 485,000 | 541,778 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 02/08/20 | 360,000 | 395,840 | ||||||
937,618 | ||||||||
Retail REIT’s–0.05% | ||||||||
Simon Property Group L.P., Sr. Unsec. Notes, 4.75%, 03/15/42 | 230,000 | 224,267 | ||||||
WEA Finance LLC (Australia), Sr. Unsec. Gtd. Notes, | 270,000 | 323,918 | ||||||
548,185 |
Principal Amount | Value | |||||||
Semiconductor Equipment–0.46% | ||||||||
Lam Research Corp.,Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | $ | 3,026,000 | $ | 3,372,099 | ||||
Novellus Systems Inc., Sr. Unsec. Gtd. Conv. Notes, 2.63%, 05/15/41 | 1,399,000 | 1,978,710 | ||||||
5,350,809 | ||||||||
Semiconductors–1.05% | ||||||||
Linear Technology Corp., | ||||||||
Sr. Unsec. Conv. Notes, | ||||||||
3.00%, 05/01/14(d)(f) | 1,193,000 | 1,248,176 | ||||||
Series A, Sr. Unsec. Conv. Global Notes, 3.00%, 05/01/14(f) | 4,600,000 | 4,812,750 | ||||||
Micron Technology Inc., | ||||||||
Series A, Sr. Unsec. Conv. Notes, 1.50%, 08/01/18(f) | 263,000 | 405,020 | ||||||
Series E, Sr. Unsec. Conv. Notes, 1.63%, 02/15/18(d) | 2,126,000 | 3,078,714 | ||||||
Xilinx Inc., Jr. Unsec. Sub. Conv. Notes, | ||||||||
3.13%, 03/15/37 | 635,000 | 879,475 | ||||||
3.13%, 03/15/37(d) | 1,302,000 | 1,803,270 | ||||||
12,227,405 | ||||||||
Soft Drinks–0.03% | ||||||||
Fomento Economico Mexicano S.A.B. de C.V. (Mexico), Sr. Unsec. Global Notes, 4.38%, 05/10/43 | 390,000 | 343,818 | ||||||
Sovereign Debt–0.01% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | 100,000 | 112,600 | ||||||
Peruvian Government International Bond (Peru), Sr. Unsec. Global Notes, 7.13%, 03/30/19 | 10,000 | 12,138 | ||||||
124,738 | ||||||||
Specialized Finance–0.08% | ||||||||
International Lease Finance Corp., Sr. Unsec. Global Notes, 5.88%, 08/15/22 | 300,000 | 298,875 | ||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/22 | 485,000 | 487,484 | ||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 3.05%, 02/15/22 | 195,000 | 191,932 | ||||||
978,291 | ||||||||
Specialized REIT’s–0.20% | ||||||||
American Tower Corp., | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.63%, 04/01/15 | 170,000 | 179,493 | ||||||
Sr. Unsec. Notes, 4.50%, 01/15/18 | 950,000 | 1,012,837 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 495,000 | 512,944 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Specialized REIT’s–(continued) | ||||||||
Ventas Realty L.P./VentasCapital Corp., Sr. Unsec. Gtd. Notes, | ||||||||
2.70%, 04/01/20 | $ | 430,000 | $ | 407,720 | ||||
4.25%, 03/01/22 | 200,000 | 202,295 | ||||||
2,315,289 | ||||||||
Specialty Properties–0.03% | ||||||||
EPR Properties, Sr. Unsec. Gtd. Notes, 5.25%, 07/15/23 | 375,000 | 364,978 | ||||||
Steel–0.40% | ||||||||
ArcelorMittal (Luxembourg), | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
10.35%, 06/01/19 | 446,000 | 530,187 | ||||||
Sr. Unsec. Global Notes, | ||||||||
4.25%, 08/05/15 | 585,000 | 591,405 | ||||||
6.13%, 06/01/18 | 15,000 | 15,606 | ||||||
7.25%, 03/01/41 | 115,000 | 107,780 | ||||||
United States Steel Corp., Sr. Unsec. Conv. Notes, 2.75%, 04/01/19 | 2,481,000 | 2,460,842 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, | ||||||||
4.63%, 09/15/20 | 20,000 | 19,778 | ||||||
5.63%, 09/15/19 | 660,000 | 708,217 | ||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | 185,000 | 163,015 | ||||||
4,596,830 | ||||||||
Thrifts & Mortgage Finance–0.80% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
2.00%, 04/01/20 | 414,000 | 470,925 | ||||||
5.00%, 05/01/17 | 5,337,000 | 5,493,774 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
2.25%, 03/01/19 | 412,000 | 527,618 | ||||||
3.00%, 11/15/17 | 2,275,000 | 2,855,125 | ||||||
9,347,442 | ||||||||
Tobacco–0.00% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 35,000 | 37,336 | ||||||
Trucking–0.08% | ||||||||
Penske Truck Leasing Co., L.P./PTL Finance Corp., Sr. Unsec. Notes, 2.50%, 03/15/16(d) | 670,000 | 680,086 | ||||||
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | 280,000 | 289,513 | ||||||
969,599 | ||||||||
Wireless Telecommunication Services–0.26% | ||||||||
Alltel Corp., Sr. Unsec. Notes, 7.00%, 03/15/16 | 1,000,000 | 1,146,558 |
Principal Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
America Movil S.A.B. de C.V. (Mexico), | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.38%, 07/16/42 | $ | 600,000 | $ | 521,801 | ||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
2.38%, 09/08/16 | 255,000 | 258,521 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, | ||||||||
3.21%, 08/15/15(d) | 370,000 | 381,952 | ||||||
6.11%, 01/15/20(d) | 370,000 | 430,125 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 4.50%, 03/15/43 | 315,000 | 291,546 | ||||||
3,030,503 | ||||||||
Total Bonds and Notes |
| 202,263,138 | ||||||
U.S. Treasury Securities–9.57% |
| |||||||
U.S. Treasury Bills–0.04% | ||||||||
0.18%, 11/14/13(h)(i) | 200,000 | 199,954 | ||||||
0.11%, 05/01/14(h) | 200,000 | 199,806 | ||||||
399,760 | ||||||||
U.S. Treasury Notes–7.39% | ||||||||
1.50%, 12/31/13 | 1,085,000 | 1,092,487 | ||||||
0.25%, 02/28/14 | 4,000,000 | 4,003,258 | ||||||
1.75%, 03/31/14 | 2,300,000 | 2,327,399 | ||||||
2.63%, 07/31/14 | 1,100,000 | 1,128,764 | ||||||
2.38%, 10/31/14 | 15,720,000 | 16,168,103 | ||||||
2.13%, 11/30/14 | 5,250,000 | 5,389,831 | ||||||
2.25%, 01/31/15 | 6,000,000 | 6,186,108 | ||||||
2.50%, 03/31/15 | 275,000 | 285,466 | ||||||
2.13%, 05/31/15 | 680,000 | 703,016 | ||||||
2.25%, 03/31/16 | 2,000,000 | 2,089,897 | ||||||
2.63%, 04/30/16 | 14,000,000 | 14,782,458 | ||||||
0.63%, 05/31/17 | 380,000 | 373,879 | ||||||
0.75%, 06/30/17 | 9,000,000 | 8,885,559 | ||||||
0.75%, 02/28/18 | 7,000,000 | 6,825,779 | ||||||
4.00%, 08/15/18 | 3,055,000 | 3,448,735 | ||||||
1.25%, 01/31/19 | 9,000,000 | 8,853,532 | ||||||
3.63%, 08/15/19 | 1,525,000 | 1,697,989 | ||||||
3.38%, 11/15/19 | 300,000 | 329,954 | ||||||
3.63%, 02/15/20 | 46,000 | 51,290 | ||||||
2.63%, 11/15/20 | 600,000 | 624,948 | ||||||
2.13%, 08/15/21 | 175,000 | 174,212 | ||||||
2.00%, 11/15/21 | 240,000 | 235,733 | ||||||
1.75%, 05/15/22 | 485,000 | 462,208 | ||||||
86,120,605 | ||||||||
U.S. Treasury Bonds–2.14% | ||||||||
8.13%, 08/15/21 | 2,700,000 | 3,918,161 | ||||||
6.63%, 02/15/27 | 2,500,000 | 3,559,859 | ||||||
5.38%, 02/15/31 | 8,995,000 | 11,717,779 | ||||||
4.50%, 08/15/39 | 40,000 | 47,872 | ||||||
4.63%, 02/15/40 | 250,000 | 304,945 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
U.S. Treasury Bonds–(continued) | ||||||||
4.38%, 05/15/40 | $ | 80,000 | $ | 93,932 | ||||
3.88%, 08/15/40 | 20,000 | 21,645 | ||||||
4.25%, 11/15/40 | 2,000,000 | 2,302,362 | ||||||
3.13%, 11/15/41 | 3,000,000 | 2,816,428 | ||||||
3.00%, 05/15/42 | 210,000 | 191,703 | ||||||
24,974,686 | ||||||||
Total U.S. Treasury Securities |
| 111,495,051 | ||||||
Shares | ||||||||
Preferred Stocks–1.26% |
| |||||||
Health Care Facilities–0.28% | ||||||||
HealthSouth Corp., Series A, $65.00 Conv. Pfd. | 2,785 | 3,283,515 | ||||||
Health Care Services–0.13% | ||||||||
Omnicare Capital Trust II, Series B, $2.00 Conv. Pfd. | 26,407 | 1,556,165 | ||||||
Oil & Gas Storage & Transportation–0.48% | ||||||||
El Paso Energy Capital Trust I, $2.38, Jr. Unsec. Sub. Gtd. Conv. Pfd. | 95,499 | 5,585,737 | ||||||
Regional Banks–0.33% | ||||||||
KeyCorp, Series A, $7.75 Conv. Pfd. | 30,290 | 3,772,619 | ||||||
Trucking–0.04% | ||||||||
2010 Swift Mandatory Common Exchange Security Trust, $0.66 Conv. Pfd.(d) | 32,370 | 454,737 | ||||||
Total Preferred Stocks |
| 14,652,773 | ||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.44% | ||||||||
Sr. Unsec. Global Notes, | ||||||||
3.00%, 07/28/14 | $ | 1,020,000 | 1,050,505 | |||||
5.00%, 04/18/17 | 1,500,000 | 1,715,319 | ||||||
5.50%, 08/23/17 | 140,000 | 163,681 | ||||||
6.75%, 03/15/31 | 750,000 | 1,033,547 | ||||||
Unsec. Global Notes, 4.88%, 06/13/18 | 1,000,000 | 1,155,539 | ||||||
5,118,591 | ||||||||
Federal National Mortgage Association (FNMA)–0.17% | ||||||||
Sr. Unsec. Global Notes, | ||||||||
4.38%, 10/15/15 | 1,700,000 | 1,848,075 | ||||||
Unsec. Global Notes, 2.63%, 11/20/14 | 130,000 | 134,218 | ||||||
1,982,293 | ||||||||
Total U.S. Government Sponsored Agency Securities |
| 7,100,884 |
Principal Amount | Value | |||||||
Municipal Obligations–0.02% |
| |||||||
Texas (State of) Transportation Commission; Series 2010 B, Taxable First Tier Build America RB, 5.03%, 04/01/26 (Cost $240,000) | $ | 240,000 | $ | 267,377 | ||||
Asset-Backed Securities–0.00% |
| |||||||
Countrywide Asset-Backed Ctfs., | 617 | 617 | ||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.00% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 02/01/26 | 3,089 | 3,405 | ||||||
5.50%, 02/01/37 | 264 | 284 | ||||||
3,689 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., | ||||||||
6.00%, 01/01/17 | 704 | 739 | ||||||
5.50%, 03/01/21 | 327 | 354 | ||||||
8.00%, 08/01/21 | 2,848 | 3,123 | ||||||
9.50%, 04/01/30 | 7,790 | 9,284 | ||||||
13,500 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 17,189 | ||||||
Shares | ||||||||
Money Market Funds–4.60% |
| |||||||
Liquid Assets Portfolio–Institutional Class(j) | 26,783,131 | 26,783,131 | ||||||
Premier Portfolio–Institutional Class(j) | 26,783,131 | 26,783,131 | ||||||
Total Money Market Funds |
| 53,566,262 | ||||||
TOTAL INVESTMENTS–99.44% |
| 1,158,296,010 | ||||||
OTHER ASSETS LESS LIABILITIES–0.56% |
| 6,532,641 | ||||||
NET ASSETS–100.00% |
| $ | 1,164,828,651 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
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) | A portion of this security is subject to call options written. See Note 1L and Note 4. |
(d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $39,413,668, which represented 3.38% of the Fund’s Net Assets. |
(e) | Perpetual bond with no specified maturity date. |
(f) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
(g) | Exchangeable for a basket of four common stocks and one ordinary share. |
(h) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(i) | 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. |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2013
Common Stocks & Other Equity Interests | 66.0 | % | ||
U.S. Dollar Denominated Bonds and Notes | 17.4 | |||
U.S. Treasury Securities | 9.6 | |||
Preferred Stocks | 1.2 | |||
U.S. Government Sponsored Agency Securities | 0.6 | |||
Security types each less than 1% of portfolio | 0.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.2 |
Invesco V.I. Equity and Income Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $887,612,870) | $ | 1,104,729,748 | ||
Investments in affiliated money market funds, at value and cost | 53,566,262 | |||
Total investments, at value (Cost $941,179,132) | 1,158,296,010 | |||
Cash | 7,029 | |||
Receivable for: | ||||
Investments sold | 6,186,813 | |||
Fund shares sold | 923,869 | |||
Dividends and interest | 4,065,619 | |||
Foreign currency contracts outstanding | 832,279 | |||
Investment for trustee deferred compensation and retirement plans | 57,014 | |||
Other assets | 21,894 | |||
Total assets | 1,170,390,527 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 3,751,050 | |||
Fund shares reacquired | 289,661 | |||
Options written, at value (premiums received $124,519) | 12,574 | |||
Variation margin | 5,516 | |||
Accrued fees to affiliates | 1,375,172 | |||
Accrued trustees’ and officers’ fees and benefits | 1,100 | |||
Trustee deferred compensation and retirement plans | 126,803 | |||
Total liabilities | 5,561,876 | |||
Net assets applicable to shares outstanding | $ | 1,164,828,651 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 921,738,793 | ||
Undistributed net investment income | 23,348,379 | |||
Undistributed net realized gain | 1,391,369 | |||
Unrealized appreciation | 218,350,110 | |||
$ | 1,164,828,651 | |||
Net Assets: |
| |||
Series I | $ | 57,253,178 | ||
Series II | $ | 1,107,575,473 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,362,262 | |||
Series II | 65,259,034 | |||
Series I: | ||||
Net asset value per share | $ | 17.03 | ||
Series II: | ||||
Net asset value per share | $ | 16.97 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $76,221) | $ | 8,715,658 | ||
Dividends from affiliated money market funds | 23,345 | |||
Interest | 4,281,499 | |||
Total investment income | 13,020,502 | |||
Expenses: | ||||
Advisory fees | 2,129,767 | |||
Administrative services fees | 1,452,166 | |||
Custodian fees | 13,568 | |||
Distribution fees — Series II | 1,316,944 | |||
Transfer agent fees | 12,819 | |||
Trustees’ and officers’ fees and benefits | 33,793 | |||
Other | 69,782 | |||
Total expenses | 5,028,839 | |||
Less: Fees waived | (41,907 | ) | ||
Net expenses | 4,986,932 | |||
Net investment income | 8,033,570 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $21,092) | 30,433,619 | |||
Foreign currencies | 814 | |||
Foreign currency contracts | 54,308 | |||
Futures contracts | 323,255 | |||
30,811,996 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 90,391,311 | |||
Foreign currencies | (2,525 | ) | ||
Foreign currency contracts | 1,159,316 | |||
Futures contracts | 189,653 | |||
Option contracts written | 111,945 | |||
91,849,700 | ||||
Net realized and unrealized gain | 122,661,696 | |||
Net increase in net assets resulting from operations | $ | 130,695,266 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 8,033,570 | $ | 16,756,158 | ||||
Net realized gain | 30,811,996 | 31,173,860 | ||||||
Change in net unrealized appreciation | 91,849,700 | 65,057,984 | ||||||
Net increase in net assets resulting from operations | 130,695,266 | 112,988,002 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,018,320 | ) | |||||
Series II | — | (16,905,532 | ) | |||||
Total distributions from net investment income | — | (17,923,852 | ) | |||||
Share transactions-net: | ||||||||
Series I | (3,639,349 | ) | (7,678,749 | ) | ||||
Series II | 20,844,419 | 8,773,622 | ||||||
Net increase in net assets resulting from share transactions | 17,205,070 | 1,094,873 | ||||||
Net increase in net assets | 147,900,336 | 96,159,023 | ||||||
Net assets: | ||||||||
Beginning of period | 1,016,928,315 | 920,769,292 | ||||||
End of period (includes undistributed net investment income of $23,348,379 and $15,314,809, respectively) | $ | 1,164,828,651 | $ | 1,016,928,315 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Equity and Income Fund (the “Fund”), formerly Invesco Van Kampen V.I. Equity and Income 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-four 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”).
Invesco V.I. Equity and Income Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) 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 trades 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 of 1986, as amended (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. Equity and Income 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. | 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 covered call options. A covered call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written covered 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 covered call 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 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).
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 1.50% and Series II shares to 1.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $41,907.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $130,215 for accounting and fund administrative services and reimbursed $1,321,951 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are shown in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $1,698 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. |
Invesco V.I. Equity and Income Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2013. 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 | $ | 825,154,298 | $ | 11,997,456 | $ | — | $ | 837,151,754 | ||||||||
U.S. Treasury Securities | — | 111,495,051 | — | 111,495,051 | ||||||||||||
U.S Government Sponsored Agency Securities | — | 7,118,073 | — | 7,118,073 | ||||||||||||
Corporate Debt Securities | — | 202,138,400 | — | 202,138,400 | ||||||||||||
Asset-Backed Securities | — | 617 | — | 617 | ||||||||||||
Municipal Obligations | — | 267,377 | — | 267,377 | ||||||||||||
Foreign Government Debt Securities | — | 124,738 | — | 124,738 | ||||||||||||
$ | 825,154,298 | $ | 333,141,712 | $ | — | $ | 1,158,296,010 | |||||||||
Foreign Currency Contracts* | — | 832,279 | — | 832,279 | ||||||||||||
Futures* | 290,669 | — | — | 290,669 | ||||||||||||
Options | (12,574 | ) | — | — | (12,574 | ) | ||||||||||
Total Investments | $ | 825,432,393 | $ | 333,973,991 | $ | — | $ | 1,159,406,384 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 889,786 | $ | (57,507 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | 290,669 | — | ||||||
Equity risk | ||||||||
Option contracts(a) | — | (12,574 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding and Options written, at value, respectively. |
(b) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations | ||||||||||||
Futures* | Foreign Currency Contracts* | Options* | ||||||||||
Realized Gain | ||||||||||||
Currency risk | $ | — | $ | 54,308 | $ | — | ||||||
Interest rate risk | 323,255 | — | — | |||||||||
Change in Unrealized Appreciation | ||||||||||||
Currency risk | $ | — | $ | 1,159,316 | $ | — | ||||||
Interest rate risk | 189,653 | — | — | |||||||||
Equity risk | — | — | 111,945 | |||||||||
Total | $ | 512,908 | $ | 1,213,624 | $ | 111,945 |
* | The average notional value of futures contracts, foreign currency contracts and option contracts outstanding during the period was $17,780,599, $31,695,243 and $2,794,867, respectively. |
Invesco V.I. Equity and Income Fund
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/22/13 | Bank of New York | CAD | 4,936,340 | USD | 4,831,733 | $ | 4,690,662 | $ | 141,071 | |||||||||||||||||
07/22/13 | State Street CA | CAD | 6,060,265 | USD | 5,932,770 | 5,758,650 | 174,120 | |||||||||||||||||||
07/22/13 | Bank of New York | CHF | 4,152,291 | USD | 4,506,282 | 4,397,037 | 109,245 | |||||||||||||||||||
07/22/13 | State Street CA | CHF | 2,769,020 | USD | 3,004,545 | 2,932,232 | 72,313 | |||||||||||||||||||
07/22/13 | Bank of New York | EUR | 4,144,351 | USD | 5,537,641 | 5,394,984 | 142,657 | |||||||||||||||||||
07/22/13 | State Street CA | GBP | 6,738,458 | USD | 10,497,575 | 10,247,195 | 250,380 | |||||||||||||||||||
$ | 889,786 | |||||||||||||||||||||||||
Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | |||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/22/13 | Bank of New York | USD | 562,984 | CAD | 575,172 | $ | 546,547 | $ | (16,437 | ) | ||||||||||||||||
07/22/13 | Bank of New York | USD | 432,613 | CHF | 398,629 | 422,125 | (10,488 | ) | ||||||||||||||||||
07/22/13 | Bank of New York | USD | 376,955 | EUR | 282,112 | 367,244 | (9,711 | ) | ||||||||||||||||||
07/22/13 | State Street CA | USD | 875,050 | GBP | 561,700 | 854,179 | (20,871 | ) | ||||||||||||||||||
$ | (57,507 | ) | ||||||||||||||||||||||||
Total foreign currency contracts |
| $ | 832,279 |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||
Short Contracts | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation | ||||||||||||
U.S. Treasury 5 Year Notes | 54 | September-2013 | $ | (6,536,531 | ) | $ | 81,308 | |||||||||
U.S. Treasury 10 Year Notes | 32 | September-2013 | (4,050,000 | ) | 89,183 | |||||||||||
U.S. Treasury Long Bond | 27 | September-2013 | (3,667,781 | ) | 120,178 | |||||||||||
Total | $ | 290,669 |
Open Options Written | ||||||||||||||||||||||||
Calls | Contract Month | Strike Price | Number of Contracts | Premiums Received | Value | Unrealized Appreciation | ||||||||||||||||||
Avon Products, Inc. | July-2013 | $ | 24 | 1,483 | $ | 89,679 | $ | 3,708 | $ | 85,971 | ||||||||||||||
eBay Inc. | October-2013 | 65 | 286 | 34,840 | 8,866 | 25,974 | ||||||||||||||||||
1,769 | $ | 124,519 | $ | 12,574 | $ | 111,945 |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 1,769 | 124,519 | ||||||
Expired | — | — | ||||||
End of period | 1,769 | $ | 124,519 |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Equity and Income Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | As of June 30, 2013 | |||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York | $ | 392,973 | $ | (36,636 | ) | $ | 356,337 | $ | — | $ | — | $ | 356,337 | |||||||||||
Goldman Sachs & Co. | 290,669 | — | 290,669 | — | — | 290,669 | ||||||||||||||||||
State Street CA | 496,813 | (20,871 | ) | 475,942 | — | — | 475,942 | |||||||||||||||||
Total | $ | 1,180,455 | $ | (57,507 | ) | $ | 1,122,948 | $ | — | $ | — | $ | 1,122,948 | |||||||||||
Liabilities: | As of June 30, 2013 | |||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York | $36,636 | $ | (36,636 | ) | $— | $ | — | $ | — | $— | ||||||||||||||
State Street CA | 20,871 | (20,871 | ) | — | — | — | — | |||||||||||||||||
Total | $57,507 | $ | (57,507 | ) | $— | $ | — | $ | — | $— |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities purchases of $963,330 and securities sales of $61,841, which resulted in net realized gains of $21,092.
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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. Equity and Income Fund
The Fund had 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 six months ended June 30, 2013 was $145,866,733 and $131,732,541, 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 | $ | 219,776,478 | ||
Aggregate unrealized (depreciation) of investment securities | (6,338,540 | ) | ||
Net unrealized appreciation of investment securities | $ | 213,437,938 |
Cost of investments for tax purposes is $944,858,072.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 165,425 | $ | 2,718,867 | 199,037 | $ | 2,889,571 | ||||||||||
Series II | 3,709,050 | 60,986,818 | 5,864,350 | 85,627,285 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 67,782 | 1,018,096 | ||||||||||||
Series II | — | — | 1,127,035 | 16,905,532 | ||||||||||||
Issued in connection with acquisitions: | ||||||||||||||||
Reacquired: | ||||||||||||||||
Series I | (383,703 | ) | (6,358,216 | ) | (793,562 | ) | (11,586,416 | ) | ||||||||
Series II | (2,441,886 | ) | (40,142,399 | ) | (6,423,479 | ) | (93,759,195 | ) | ||||||||
Net increase in share activity | 1,048,886 | $ | 17,205,070 | 41,163 | $ | 1,094,873 |
(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. |
Invesco V.I. Equity and Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
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 to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 15.08 | $ | 0.14 | $ | 1.81 | $ | 1.95 | $ | — | $ | — | $ | — | $ | 17.03 | 12.93 | % | $ | 57,253 | 0.66 | %(d) | 0.67 | %(d) | 1.68 | %(d) | 13 | % | ||||||||||||||||||||||||||||
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 | 0.67 | 1.85 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 15.05 | 0.12 | 1.80 | 1.92 | — | — | — | 16.97 | 12.76 | 1,107,575 | 0.91 | (d) | 0.92 | (d) | 1.43 | (d) | 13 | |||||||||||||||||||||||||||||||||||||||
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 | 0.92 | 1.70 | 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) | 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) | 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 year 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 annualized and based on average daily net assets (000’s omitted) of $57,666 and $1,062,286 for Series I and Series II shares, respectively. |
(e) | Commencement date of June 1, 2010. |
(f) | Annualized. |
(g) | The ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate was 0.01% and 0.01% for the years ended December 31, 2009 and December 31, 2008, respectively. |
(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)%. |
Invesco V.I. Equity and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,129.30 | $ | 3.48 | $ | 1,021.52 | $ | 3.31 | 0.66 | % | ||||||||||||
Series II | 1,000.00 | 1,127.60 | 4.80 | 1,020.28 | 4.56 | 0.91 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equity and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equity and Income Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Equity and Income Fund |
performance universe and against the Lipper VA Underlying Funds – Mixed-Asset Target Allocation Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the fourth quintile of the performance universe for the one year and three year periods and the first quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers with investment strategies comparable to those of the Fund.
Other than the mutual funds described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that although Invesco Advisers made a profit on advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing the Fund because of expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Equity and Income Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Global Core Equity Fund |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.37 | % | |||
Series II Shares | 6.25 | ||||
MSCI World Index ND‚ (Broad Market/Style-Specific Index) | 8.43 | ||||
Lipper VUF Global Core Funds Indexn (Peer Group Index) | 8.28 | ||||
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nLipper Inc. |
|
The MSCI World IndexSM ND is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return which withholds applicable taxes for non-resident investors.
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Effective June 1, 2010, Class I shares of the predecessor fund, Universal Funds Global Value Equity Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I shares of Invesco Van Kampen V.I. Global Value Equity Fund (renamed Invesco V.I. Global Core Equity on April 30, 2012). Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco V.I. Global Core Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II 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 1.08% 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 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.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (1/2/97) | 4.39 | % | |||
10 Years | 4.51 | ||||
5 Years | -0.37 | ||||
1 Year | 19.58 | ||||
Series II Shares | |||||
10 Years | 4.25 | % | |||
5 Years | -0.63 | ||||
1 Year | 19.27 |
The most recent month-end performance 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
Schedule of Investments
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.77% |
| |||||||
Australia–2.67% | ||||||||
Australia & New Zealand Banking Group Ltd. | 30,173 | $ | 783,034 | |||||
Macquarie Group Ltd. | 30,994 | 1,175,286 | ||||||
Telstra Corp. Ltd. | 132,571 | 577,057 | ||||||
2,535,377 | ||||||||
Brazil–0.80% | ||||||||
Banco do Brasil S.A. | 10,200 | 100,907 | ||||||
Companhia de Saneamento de Minas Gerais–Copasa MG | 3,500 | 56,558 | ||||||
Companhia Paranaense de Energia–Copel–Class B–Preference Shares | 8,200 | 101,338 | ||||||
Itau Unibanco Holding S.A.–Preference Shares | 8,140 | 104,537 | ||||||
PDG Realty S.A. Empreendimentos e Participacoes(a) | 39,600 | 36,921 | ||||||
Petroleo Brasileiro S.A.–ADR | 9,341 | 125,356 | ||||||
Telefonica Brasil S.A.–Preference Shares | 5,300 | 119,903 | ||||||
Vale S.A.–ADR(b) | 8,649 | 113,734 | ||||||
759,254 | ||||||||
Canada–2.22% | ||||||||
Rogers Communications, Inc.–Class B | 32,731 | 1,282,104 | ||||||
Toronto-Dominion Bank (The) | 10,239 | 822,294 | ||||||
2,104,398 | ||||||||
China–0.95% | ||||||||
China Agri-Industries Holdings Ltd. | 168,000 | 73,151 | ||||||
China Communications Construction Co. Ltd.–Class H | 113,000 | 88,107 | ||||||
China Construction Bank Corp.–Class H | 226,000 | 158,747 | ||||||
China Mobile Ltd. | 33,000 | 342,965 | ||||||
CNOOC Ltd. | 97,000 | 162,942 | ||||||
KWG Property Holding Ltd. | 138,500 | 71,943 | ||||||
897,855 | ||||||||
France–5.95% | ||||||||
BNP Paribas S.A. | 20,232 | 1,105,368 | ||||||
Bouygues S.A. | 30,451 | 775,090 | ||||||
Sanofi | 11,460 | 1,180,989 | ||||||
Total S.A. | 34,089 | 1,662,267 | ||||||
Vallourec S.A. | 18,024 | 912,009 | ||||||
5,635,723 | ||||||||
Germany–2.27% | ||||||||
Deutsche Lufthansa AG(a) | 44,121 | 893,272 | ||||||
Porsche Automobil Holding SE–Preference Shares | 9,857 | 761,543 | ||||||
Salzgitter AG | 15,089 | 495,612 | ||||||
2,150,427 | ||||||||
Hong Kong–1.95% | ||||||||
Cheung Kong (Holdings) Ltd. | 51,000 | 689,249 | ||||||
First Pacific Co. Ltd. | 50,000 | 53,359 |
Shares | Value | |||||||
Hong Kong–(continued) | ||||||||
Haier Electronics Group Co. Ltd. | 42,000 | $ | 66,931 | |||||
Standard Chartered PLC | 48,203 | 1,040,728 | ||||||
1,850,267 | ||||||||
India–0.49% | ||||||||
Tata Motors Ltd.–ADR(b) | 6,641 | 155,665 | ||||||
WisdomTree India Earnings Fund–ETF(b) | 19,000 | 307,040 | ||||||
462,705 | ||||||||
Indonesia–0.28% | ||||||||
PT Bank Rakyat Indonesia (Persero) Tbk | 122,000 | 93,774 | ||||||
PT Telekomunikasi Indonesia Persero Tbk | 73,000 | 80,451 | ||||||
PT United Tractors Tbk | 50,500 | 91,253 | ||||||
265,478 | ||||||||
Italy–0.76% | ||||||||
Eni S.p.A. | 34,975 | 718,360 | ||||||
Japan–10.46% | ||||||||
Asahi Group Holdings, Ltd.(b) | 76,800 | 1,909,663 | ||||||
DeNA Co., Ltd.(b) | 46,300 | 903,261 | ||||||
JSR Corp. | 66,500 | 1,345,019 | ||||||
Mitsubishi Corp. | 40,700 | 697,210 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 274,200 | 1,701,540 | ||||||
Nippon Telegraph & Telephone Corp. | 22,900 | 1,195,189 | ||||||
Nissan Motor Co., Ltd. | 134,200 | 1,359,861 | ||||||
Yamada Denki Co., Ltd.(b) | 19,870 | 806,380 | ||||||
9,918,123 | ||||||||
Mexico–0.16% | ||||||||
America Movil S.A.B. de C.V.–Series L | 139,300 | 151,577 | ||||||
Norway–1.69% | ||||||||
Statoil ASA | 31,577 | 651,346 | ||||||
Yara International ASA | 23,781 | 948,186 | ||||||
1,599,532 | ||||||||
Poland–0.07% | ||||||||
KGHM Polska Miedz S.A. | 1,907 | 69,018 | ||||||
Russia–0.60% | ||||||||
Gazprom OAO–ADR | 12,365 | 81,362 | ||||||
Magnitogorsk Iron & Steel Works–REGS–GDR(c) | 19,078 | 56,215 | ||||||
Rosneft Oil Co.–REGS–GDR(c) | 18,958 | 129,009 | ||||||
Sberbank of Russia–ADR | 15,058 | 171,511 | ||||||
Sistema JSFC–REGS–GDR(c) | 6,727 | 132,858 | ||||||
570,955 | ||||||||
South Africa–0.41% | ||||||||
Sasol Ltd. | 2,328 | 101,137 | ||||||
Standard Bank Group Ltd. | 7,416 | 83,367 | ||||||
Steinhoff International Holdings Ltd.(a) | 48,085 | 119,281 | ||||||
Tiger Brands Ltd. | 2,842 | 84,770 | ||||||
388,555 |
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–1.36% | ||||||||
Dongbu Insurance Co., Ltd. | 3,566 | $ | 150,133 | |||||
Hyundai Department Store Co., Ltd. | 693 | 90,612 | ||||||
Hyundai Mipo Dockyard Co., Ltd. | 862 | 94,554 | ||||||
Hyundai Mobis | 785 | 186,899 | ||||||
KT&G Corp. | 2,274 | 147,495 | ||||||
POSCO | 370 | 96,440 | ||||||
Samsung Electronics Co., Ltd. | 246 | 289,067 | ||||||
Shinhan Financial Group Co., Ltd. | 3,984 | 130,773 | ||||||
SK Telecom Co., Ltd.–ADR(b) | 5,237 | 106,468 | ||||||
1,292,441 | ||||||||
Spain–1.44% | ||||||||
Iberdrola S.A. | 134,186 | 704,237 | ||||||
Telefonica S.A.(a) | 51,329 | 660,432 | ||||||
1,364,669 | ||||||||
Sweden–1.12% | ||||||||
Autoliv, Inc.(b) | 13,712 | 1,061,172 | ||||||
Switzerland–2.75% | ||||||||
ABB Ltd. | 40,656 | 877,762 | ||||||
Swisscom AG | 2,023 | 884,099 | ||||||
Zurich Insurance Group AG | 3,242 | 840,237 | ||||||
2,602,098 | ||||||||
Taiwan–0.42% | ||||||||
Hon Hai Precision Industry Co., Ltd. | 52,000 | 127,781 | ||||||
TPK Holding Co. Ltd. | 6,000 | 95,453 | ||||||
Unimicron Technology Corp. | 97,000 | 92,276 | ||||||
Wistron Corp. | 78,750 | 79,093 | ||||||
394,603 | ||||||||
Thailand–0.30% | ||||||||
Bangkok Bank PCL–NVDR | 25,100 | 163,898 | ||||||
PTT PCL | 11,500 | 123,307 | ||||||
287,205 | ||||||||
Turkey–0.13% | ||||||||
Asya Katilim Bankasi AS(a) | 93,818 | 86,858 | ||||||
Tofas Turk Otomobil Fabrikasi AS | 6,394 | 39,857 | ||||||
126,715 | ||||||||
United Arab Emirates–0.15% | ||||||||
Dragon Oil PLC | 16,464 | 143,364 | ||||||
United Kingdom–9.44% | ||||||||
Barclays PLC | 363,748 | 1,559,348 | ||||||
BHP Billiton PLC | 38,069 | 977,815 | ||||||
GlaxoSmithKline PLC | 32,823 | 821,154 | ||||||
Imperial Tobacco Group PLC | 40,100 | 1,393,327 | ||||||
National Grid PLC | 72,186 | 816,558 | ||||||
Rio Tinto PLC | 20,018 | 820,496 | ||||||
Royal Dutch Shell PLC–Class A | 43,259 | 1,380,492 | ||||||
Tesco PLC | 235,498 | 1,183,467 | ||||||
8,952,657 |
Shares | Value | |||||||
United States–47.93% | ||||||||
3M Co. | 9,751 | $ | 1,066,273 | |||||
ACE Ltd. | 25,007 | 2,237,626 | ||||||
AGCO Corp. | 17,342 | 870,395 | ||||||
Apache Corp. | 8,480 | 710,878 | ||||||
Archer-Daniels-Midland Co. | 44,629 | 1,513,369 | ||||||
Avago Technologies Ltd. | 25,187 | 941,490 | ||||||
Bank of America Corp. | 79,780 | 1,025,971 | ||||||
Best Buy Co., Inc. | 35,864 | 980,163 | ||||||
Chevron Corp. | 11,024 | 1,304,580 | ||||||
Cisco Systems, Inc. | 75,100 | 1,825,681 | ||||||
Coach, Inc. | 28,626 | 1,634,258 | ||||||
ConocoPhillips | 19,620 | 1,187,010 | ||||||
Corning Inc. | 203,528 | 2,896,203 | ||||||
Energen Corp. | 16,597 | 867,359 | ||||||
Energizer Holdings, Inc. | 10,060 | 1,011,131 | ||||||
GameStop Corp.–Class A | 22,183 | 932,351 | ||||||
General Dynamics Corp. | 19,807 | 1,551,482 | ||||||
Gilead Sciences, Inc.(a) | 26,123 | 1,337,759 | ||||||
Hewlett-Packard Co. | 41,393 | 1,026,546 | ||||||
Johnson & Johnson | 19,957 | 1,713,508 | ||||||
JPMorgan Chase & Co. | 34,071 | 1,798,608 | ||||||
Kohl’s Corp. | 20,115 | 1,016,009 | ||||||
Medtronic, Inc. | 18,928 | 974,224 | ||||||
Merck & Co., Inc. | 45,328 | 2,105,486 | ||||||
Microsoft Corp. | 28,265 | 975,990 | ||||||
NASDAQ OMX Group, Inc. (The) | 61,889 | 2,029,340 | ||||||
Oracle Corp. | 57,956 | 1,780,408 | ||||||
Phillips 66 | 11,758 | 692,664 | ||||||
PNC Financial Services Group, Inc. | 16,555 | 1,207,191 | ||||||
QUALCOMM, Inc. | 22,682 | 1,385,417 | ||||||
Stryker Corp. | 13,823 | 894,072 | ||||||
Valero Energy Corp. | 35,783 | 1,244,175 | ||||||
Wal-Mart Stores, Inc. | 12,522 | 932,764 | ||||||
WellPoint, Inc. | 21,489 | 1,758,660 | ||||||
45,429,041 | ||||||||
Total Common Stocks & Other Equity Interests |
| 91,731,569 | ||||||
Money Market Funds–0.68% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 323,450 | 323,450 | ||||||
Premier Portfolio–Institutional Class(d) | 323,450 | 323,450 | ||||||
Total Money Market Funds |
| 646,900 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–97.45% |
| 92,378,469 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–4.44% |
| |||||||
Liquid Asset Portfolio–Institutional Class (Cost $4,203,876)(d)(e) | 4,203,876 | 4,203,876 | ||||||
TOTAL INVESTMENTS–101.89% (Cost $87,249,169) | 96,582,345 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.89)% | (1,790,973 | ) | ||||||
NET ASSETS–100.00% | $ | 94,791,372 |
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) | Non-income producing security. |
(b) | All or a portion of this security was out on loan at June 30, 2013. |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $318,082, which represented less than 1% of the Fund’s Net Assets. |
(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. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2013
United States | 47.9 | % | ||
Japan | 10.5 | |||
United Kingdom | 9.4 | |||
France | 6.0 | |||
Australia | 2.7 | |||
Switzerland | 2.7 | |||
Germany | 2.3 | |||
Canada | 2.2 | |||
Countries each less than 2.0% of portfolio | 13.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.2 |
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
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $82,398,393)* | $ | 91,731,569 | ||
Investments in affiliated money market funds, at value and cost | 4,850,776 | |||
Total investments, at value (Cost $87,249,169) | 96,582,345 | |||
Foreign currencies, at value (Cost $172,319) | 173,928 | |||
Receivable for: | ||||
Investments sold | 3,412,234 | |||
Fund shares sold | 22,291 | |||
Dividends | 300,177 | |||
Investment for trustee deferred compensation and retirement plans | 15,038 | |||
Total assets | 100,506,013 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 1,339,804 | |||
Fund shares reacquired | 36,761 | |||
Collateral upon return of securities loaned | 4,203,876 | |||
Accrued fees to affiliates | 61,610 | |||
Accrued trustees’ and officers’ fees and benefits | 663 | |||
Accrued other operating expenses | 49,926 | |||
Trustee deferred compensation and retirement plans | 22,001 | |||
Total liabilities | 5,714,641 | |||
Net assets applicable to shares outstanding | $ | 94,791,372 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 106,933,161 | ||
Undistributed net investment income | 2,897,031 | |||
Undistributed net realized gain (loss) | (24,361,332 | ) | ||
Unrealized appreciation | 9,322,512 | |||
$ | 94,791,372 | |||
Net Assets: |
| |||
Series I | $ | 74,589,854 | ||
Series II | $ | 20,201,518 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 9,304,364 | |||
Series II | 2,528,171 | |||
Series I: | ||||
Net asset value per share | $ | 8.02 | ||
Series II: | ||||
Net asset value per share | $ | 7.99 |
* | At June 30, 2013, securities with an aggregate value of $4,049,692 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $107,100) | $ | 1,569,365 | ||
Dividends from affiliated money market funds (includes securities lending income of $41,911) | 42,463 | |||
Total investment income | 1,611,828 | |||
Expenses: | ||||
Advisory fees | 324,449 | |||
Administrative services fees | 117,027 | |||
Custodian fees | 18,598 | |||
Distribution fees — Series II | 26,035 | |||
Transfer agent fees | 5,500 | |||
Trustees’ and officers’ fees and benefits | 14,501 | |||
Professional services fees | 28,444 | |||
Other | 17,182 | |||
Total expenses | 551,736 | |||
Less: Fees waived | (1,024 | ) | ||
Net expenses | 550,712 | |||
Net investment income | 1,061,116 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (net of tax on sale of foreign investments of $4,368) | 4,558,401 | |||
Foreign currencies | (17,207 | ) | ||
4,541,194 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes on holdings of $5,532) | 375,294 | |||
Foreign currencies | (13,087 | ) | ||
362,207 | ||||
Net realized and unrealized gain | 4,903,401 | |||
Net increase in net assets resulting from operations | $ | 5,964,517 |
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 six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 1,061,116 | $ | 1,862,116 | ||||
Net realized gain | 4,541,194 | 2,640,131 | ||||||
Change in net unrealized appreciation | 362,207 | 7,890,201 | ||||||
Net increase in net assets resulting from operations | 5,964,517 | 12,392,448 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,863,526 | ) | |||||
Series ll | — | (494,180 | ) | |||||
Total distributions from net investment income | — | (2,357,706 | ) | |||||
Share transactions–net: | ||||||||
Series l | (4,604,931 | ) | (11,435,424 | ) | ||||
Series ll | (2,086,094 | ) | (2,948,706 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (6,691,025 | ) | (14,384,130 | ) | ||||
Net increase (decrease) in net assets | (726,508 | ) | (4,349,388 | ) | ||||
Net assets: | ||||||||
Beginning of period | 95,517,880 | 99,867,268 | ||||||
End of period (includes undistributed net investment income of $2,897,031 and $1,835,915, respectively) | $ | 94,791,372 | $ | 95,517,880 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global 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-four 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), individual
Invesco V.I. Global 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 trades 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 of 1986, as amended (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).
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
Invesco V.I. Global Core Equity Fund
below) of Series I shares to 2.25% and Series II shares to 2.50% 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $1,024.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $92,233 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2013, there were transfers from Level 1 to Level 2 of $4,605,412 and from Level 2 to Level 1 of $7,606,887, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 2,535,377 | $ | — | $ | 2,535,377 | ||||||||
Brazil | 759,254 | — | — | 759,254 | ||||||||||||
Canada | 2,104,398 | — | — | 2,104,398 | ||||||||||||
China | — | 897,855 | — | 897,855 | ||||||||||||
France | 2,017,377 | 3,618,346 | — | 5,635,723 | ||||||||||||
Germany | — | 2,150,427 | — | 2,150,427 | ||||||||||||
Hong Kong | 66,931 | 1,783,336 | — | 1,850,267 | ||||||||||||
India | 462,705 | — | — | 462,705 | ||||||||||||
Indonesia | — | 265,478 | — | 265,478 | ||||||||||||
Italy | 718,360 | — | — | 718,360 | ||||||||||||
Japan | 4,208,470 | 5,709,653 | — | 9,918,123 |
Invesco V.I. Global Core Equity Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Mexico | $ | 151,577 | $ | — | $ | — | $ | 151,577 | ||||||||
Norway | 1,599,532 | — | — | 1,599,532 | ||||||||||||
Poland | — | 69,018 | — | 69,018 | ||||||||||||
Russia | 385,731 | 185,224 | — | 570,955 | ||||||||||||
South Africa | 119,281 | 269,274 | — | 388,555 | ||||||||||||
South Korea | 395,535 | 896,906 | — | 1,292,441 | ||||||||||||
Spain | — | 1,364,669 | — | 1,364,669 | ||||||||||||
Sweden | 1,061,172 | — | — | 1,061,172 | ||||||||||||
Switzerland | — | 2,602,098 | — | 2,602,098 | ||||||||||||
Taiwan | — | 394,603 | — | 394,603 | ||||||||||||
Thailand | — | 287,205 | — | 287,205 | ||||||||||||
Turkey | — | 126,715 | — | 126,715 | ||||||||||||
United Arab Emirates | 143,364 | — | — | 143,364 | ||||||||||||
United Kingdom | — | 8,952,657 | — | 8,952,657 | ||||||||||||
United States | 50,279,817 | — | — | 50,279,817 | ||||||||||||
$ | 64,473,504 | $ | 32,108,841 | $ | — | $ | 96,582,345 |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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. |
Invesco V.I. Global Core Equity Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $14,812,301 and $21,599,745, 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 | $ | 15,140,597 | ||
Aggregate unrealized (depreciation) of investment securities | (5,981,996 | ) | ||
Net unrealized appreciation of investment securities | $ | 9,158,601 |
Cost of investments for tax purposes is $87,423,744.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 419,002 | $ | 3,351,880 | 379,696 | $ | 2,734,062 | ||||||||||
Series II | 9,988 | 78,639 | 17,582 | 121,039 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 258,823 | 1,863,526 | ||||||||||||
Series II | — | — | 68,695 | 493,916 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (998,991 | ) | (7,956,811 | ) | (2,247,672 | ) | (16,033,012 | ) | ||||||||
Series II | (273,150 | ) | (2,164,733 | ) | (497,808 | ) | (3,563,661 | ) | ||||||||
Net increase (decrease) in share activity | (843,151 | ) | $ | (6,691,025 | ) | (2,020,684 | ) | $ | (14,384,130 | ) |
(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. |
Invesco V.I. Global Core Equity Fund
NOTE 9—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 to average | Ratio of assets without fee waivers | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 7.54 | $ | 0.09 | $ | 0.39 | $ | 0.48 | $ | — | $ | — | $ | — | $ | 8.02 | 6.37 | % | $ | 74,590 | 1.09 | %(d) | 1.09 | %(d) | 2.25 | %(d) | 16 | % | ||||||||||||||||||||||||||||
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 | 1.08 | 1.98 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 7.52 | 0.08 | 0.39 | 0.47 | — | — | — | 7.99 | 6.25 | 20,202 | 1.34 | (d) | 1.34 | (d) | 2.00 | (d) | 16 | |||||||||||||||||||||||||||||||||||||||
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 | 1.33 | 1.73 | 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 ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $68,458,544 and sold of $8,561,566 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dividend Growth into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $76,653 and $21,001 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 (loss) 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. |
(h) | Annualized. |
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 January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,063.70 | $ | 5.58 | $ | 1,019.39 | $ | 5.46 | 1.09 | % | ||||||||||||
Series II | 1,000.00 | 1,062.50 | 6.85 | 1,018.15 | 6.71 | 1.34 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Core Equity Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Global Core Equity Fund |
performance universe and against the Lipper VA Underlying Funds – Global Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the Fund’s performance was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that performance continues to be affected by the high-quality, large-cap bias of the Fund, as well as stock selection. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale
through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with
other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Core Equity Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Global Health Care Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 18.38 | % | |||
Series II Shares | 18.20 | ||||
MSCI World Index ND‚ (Broad Market Index) | 8.43 | ||||
MSCI World Health Care Index NDn (Style-Specific Index) | 17.33 | ||||
Lipper VUF Health/Biotechnology Funds Classification Averagen (Peer Group) | 20.18 |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nLipper Inc.
The MSCI World IndexSM ND is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The MSCI World Health Care Index ND is an unmanaged index considered representative of health care stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Lipper VUF Health/Biotechnology Funds Classification Average represents an average of the 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (5/21/97) | 8.20 | % | |||
10 Years | 7.97 | ||||
5 Years | 9.52 | ||||
1 Year | 26.90 | ||||
Series II Shares | |||||
10 Years | 7.70 | % | |||
5 Years | 9.26 | ||||
1 Year |
| 26.61
|
|
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 1.13% and 1.38%, 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance
including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–91.07% |
| |||||||
Biotechnology–20.45% | ||||||||
ACADIA Pharmaceuticals Inc.(b) | 65,547 | $ | 1,189,678 | |||||
Alexion Pharmaceuticals, Inc.(b) | 25,906 | 2,389,569 | ||||||
Algeta ASA (Norway)(b) | 35,566 | 1,353,669 | ||||||
Amarin Corp. PLC–ADR (Ireland)(b) | 134,921 | 782,542 | ||||||
ARIAD Pharmaceuticals, Inc.(b) | 86,031 | 1,504,682 | ||||||
Biogen Idec Inc.(b) | 23,529 | 5,063,441 | ||||||
BioMarin Pharmaceutical Inc.(b) | 63,249 | 3,528,662 | ||||||
Celgene Corp.(b) | 30,582 | 3,575,342 | ||||||
Exact Sciences Corp.(b) | 117,742 | 1,637,791 | ||||||
Gilead Sciences, Inc.(b) | 138,682 | 7,101,905 | ||||||
Incyte Corp.(b) | 60,007 | 1,320,154 | ||||||
Infinity Pharmaceuticals, Inc.(b) | 28,549 | 463,921 | ||||||
Keryx Biopharmaceuticals, Inc.(b) | 99,428 | 742,727 | ||||||
Medivation Inc.(b) | 42,556 | 2,093,755 | ||||||
NewLink Genetics Corp.(b) | 32,193 | 634,846 | ||||||
Onyx Pharmaceuticals, Inc.(b) | 33,381 | 2,898,138 | ||||||
Vanda Pharmaceuticals Inc.(b) | 131,482 | 1,062,375 | ||||||
Vertex Pharmaceuticals Inc.(b) | 38,878 | 3,105,186 | ||||||
40,448,383 | ||||||||
Drug Retail–1.69% | ||||||||
CVS Caremark Corp. | 33,142 | 1,895,060 | ||||||
Raia Drogasil S.A. (Brazil) | 148,860 | 1,444,627 | ||||||
3,339,687 | ||||||||
Health Care Distributors–6.15% | ||||||||
Cardinal Health, Inc. | 110,540 | 5,217,488 | ||||||
McKesson Corp. | 39,793 | 4,556,298 | ||||||
Patterson Cos. Inc. | 63,635 | 2,392,676 | ||||||
12,166,462 | ||||||||
Health Care Equipment–8.51% | ||||||||
Abbott Laboratories | 78,741 | 2,746,486 | ||||||
Baxter International Inc. | 38,713 | 2,681,650 | ||||||
Covidien PLC | 43,681 | 2,744,914 | ||||||
HeartWare International Inc.(b) | 22,987 | 2,186,294 | ||||||
Hologic, Inc.(b) | 74,292 | 1,433,836 | ||||||
Olympus Corp. (Japan)(b) | 98,500 | 2,994,328 | ||||||
Wright Medical Group, Inc.(b) | 78,064 | 2,046,057 | �� | |||||
16,833,565 | ||||||||
Health Care Facilities–7.25% | ||||||||
HCA Holdings, Inc. | 104,722 | 3,776,275 | ||||||
Health Management Associates Inc.–Class A(b) | 190,718 | 2,998,087 | ||||||
Rhoen-Klinikum AG (Germany) | 84,234 | 1,942,803 | ||||||
Tenet Healthcare Corp.(b) | 54,261 | 2,501,432 | ||||||
Universal Health Services, Inc.–Class B | 46,462 | 3,111,095 | ||||||
14,329,692 |
Shares | Value | |||||||
Health Care Services–2.62% | ||||||||
Air Methods Corp. | 41,972 | $ | 1,422,011 | |||||
Express Scripts Holding Co.(b) | 49,533 | 3,055,691 | ||||||
Innovacare Inc. | 122,652 | 705,249 | ||||||
5,182,951 | ||||||||
Health Care Technology–1.55% | ||||||||
Cerner Corp.(b) | 19,599 | 1,883,268 | ||||||
HMS Holdings Corp.(b) | 50,689 | 1,181,054 | ||||||
3,064,322 | ||||||||
Life Sciences Tools & Services–1.62% | ||||||||
Thermo Fisher Scientific, Inc. | 37,863 | 3,204,346 | ||||||
Managed Health Care–4.31% | ||||||||
Aetna Inc. | 49,605 | 3,151,902 | ||||||
Qualicorp S.A. (Brazil)(b)(c) | 109,000 | 830,606 | ||||||
UnitedHealth Group Inc. | 69,333 | 4,539,925 | ||||||
8,522,433 | ||||||||
Pharmaceuticals–36.92% | ||||||||
AbbVie Inc. | 71,321 | 2,948,410 | ||||||
Allergan, Inc. | 16,502 | 1,390,128 | ||||||
Auxilium Pharmaceuticals Inc.(b) | 126,313 | 2,100,585 | ||||||
Bayer AG (Germany) | 47,416 | 5,056,446 | ||||||
Eli Lilly & Co. | 49,284 | 2,420,830 | ||||||
Endo Health Solutions Inc.(b) | 80,797 | 2,972,522 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 157,453 | 7,867,926 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 135,378 | 1,953,455 | ||||||
Jazz Pharmaceuticals PLC(b) | 29,797 | 2,047,948 | ||||||
Johnson & Johnson | 94,500 | 8,113,770 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 116,000 | 1,932,164 | ||||||
Novartis AG–ADR (Switzerland) | 104,043 | 7,356,881 | ||||||
Pfizer Inc. | 222,692 | 6,237,603 | ||||||
Pharmstandard–GDR (Russia)(b)(c) | 23,450 | 489,402 | ||||||
Roche Holding AG (Switzerland) | 31,847 | 7,891,607 | ||||||
Sanofi-ADR (France) | 97,623 | 5,028,561 | ||||||
Shire PLC–ADR (Ireland) | 44,039 | 4,188,549 | ||||||
Zoetis Inc. | 97,532 | 3,012,754 | ||||||
73,009,541 | ||||||||
Total Common Stocks & Other Equity Interests |
| 180,101,382 | ||||||
Money Market Funds–8.43% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 8,338,552 | 8,338,552 | ||||||
Premier Portfolio–Institutional Class(d) | 8,338,552 | 8,338,552 | ||||||
Total Money Market Funds |
| 16,677,104 | ||||||
TOTAL INVESTMENTS–99.50% |
| 196,778,486 | ||||||
OTHER ASSETS LESS LIABILITIES–0.50% |
| 996,584 | ||||||
NET ASSETS–100.00% |
| $ | 197,775,070 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $2,025,257, which represented 1.02% of the Fund’s Net Assets. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2013
United States | 65.2 | % | ||
Switzerland | 7.7 | |||
United Kingdom | 5.0 | |||
Germany | 3.5 | |||
France | 2.6 | |||
Ireland | 2.5 | |||
Japan | 2.5 | |||
Countries each less than 2.0% of portfolio | 2.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 8.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $129,285,188) | $ | 180,101,382 | ||
Investments in affiliated money market funds, at value and cost | 16,677,104 | |||
Total investments, at value (Cost $145,962,292) | 196,778,486 | |||
Foreign currencies, at value (Cost $12,088) | 11,977 | |||
Receivable for: | ||||
Investments sold | 528,303 | |||
Fund shares sold | 107,961 | |||
Dividends | 333,012 | |||
Foreign currency contracts outstanding | 178,410 | |||
Investment for trustee deferred compensation and retirement plans | 27,314 | |||
Other assets | 180,380 | |||
Total assets | 198,145,843 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 124,847 | |||
Accrued fees to affiliates | 153,165 | |||
Accrued trustees’ and officers’ fees and benefits | 768 | |||
Accrued other operating expenses | 28,516 | |||
Trustee deferred compensation and retirement plans | 63,477 | |||
Total liabilities | 370,773 | |||
Net assets applicable to shares outstanding | $ | 197,775,070 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 143,164,992 | ||
Undistributed net investment income | 1,240,043 | |||
Undistributed net realized gain | 2,377,047 | |||
Unrealized appreciation | 50,992,988 | |||
$ | 197,775,070 | |||
Net Assets: |
| |||
Series I | $ | 152,851,961 | ||
Series II | $ | 44,923,109 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,148,193 | |||
Series II | 1,854,729 | |||
Series I: | ||||
Net asset value per share | $ | 24.86 | ||
Series II: | ||||
Net asset value per share | $ | 24.22 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $150,781) | $ | 1,480,831 | ||
Dividends from affiliated money market funds | 6,305 | |||
Total investment income | 1,487,136 | |||
Expenses: | ||||
Advisory fees | 702,746 | |||
Administrative services fees | 250,043 | |||
Custodian fees | 10,323 | |||
Distribution fees — Series II | 49,956 | |||
Transfer agent fees | 23,267 | |||
Trustees’ and officers’ fees and benefits | 15,977 | |||
Other | 33,581 | |||
Total expenses | 1,085,893 | |||
Less: Fees waived | (10,670 | ) | ||
Net expenses | 1,075,223 | |||
Net investment income | 411,913 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,794,463 | |||
Foreign currencies | 13,222 | |||
Foreign currency contracts | (9,967 | ) | ||
2,797,718 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 26,604,609 | |||
Foreign currencies | (1,400 | ) | ||
Foreign currency contracts | 243,993 | |||
26,847,202 | ||||
Net realized and unrealized gain | 29,644,920 | |||
Net increase in net assets resulting from operations | $ | 30,056,833 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 411,913 | $ | 890,937 | ||||
Net realized gain | 2,797,718 | 14,877,498 | ||||||
Change in net unrealized appreciation | 26,847,202 | 12,791,192 | ||||||
Net increase in net assets resulting from operations | 30,056,833 | 28,559,627 | ||||||
Share transactions-net: | ||||||||
Series l | 80,173 | (8,466,440 | ) | |||||
Series ll | 5,917,152 | (296,116 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 5,997,325 | (8,762,556 | ) | |||||
Net increase in net assets | 36,054,158 | 19,797,071 | ||||||
Net assets: | ||||||||
Beginning of period | 161,720,912 | 141,923,841 | ||||||
End of period (includes undistributed net investment income of $1,240,043 and $828,130, respectively) | $ | 197,775,070 | $ | 161,720,912 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Health Care Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. Global Health Care Fund
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 trades 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 of 1986, as amended (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. Global Health Care 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. | 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).
Effective May 1, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2013, 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 iterms 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. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $10,670.
Invesco V.I. Global Health Care Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $225,249 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $593 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2013, there were transfers from Level 1 to Level 2 of $1,953,455 and from Level 2 to Level 1 of $6,869,295, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 185,738,773 | $ | 11,039,713 | $ | — | $ | 196,778,486 | ||||||||
Foreign Currency Contracts* | — | 178,410 | — | 178,410 | ||||||||||||
Total Investments | $ | 185,738,773 | $ | 11,218,123 | $ | — | $ | 196,956,896 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 178,410 | $ | — |
(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 Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, 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 | $ | (9,967 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 243,993 | |||
Total | $ | 234,026 |
* | The average notional value of foreign currency contracts outstanding during the period was $8,862,180. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/12/13 | Citibank Capital | CHF | 5,004,000 | USD | 5,397,010 | $ | 5,298,570 | $ | 98,440 | |||||||||||||||||
07/12/13 | Citibank Capital | EUR | 3,240,000 | USD | 4,297,471 | 4,217,501 | 79,970 | |||||||||||||||||||
$ | 178,410 |
Currency Abbreviations:
CHF | — Swiss Franc | |
EUR | — Euro | |
USD | — U.S. Dollar |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Citibank Capital | $ | 178,410 | $ | — | $ | 178,410 | $ | — | $ | — | $ | 178,410 |
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Citibank Capital | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
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 V.I. Global Health Care Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $26,677,714 and $29,605,012, 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 | $ | 53,589,938 | ||
Aggregate unrealized (depreciation) of investment securities | (2,773,744 | ) | ||
Net unrealized appreciation of investment securities | $ | 50,816,194 |
Cost of investments is the same for tax and financial reporting purposes.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,032,900 | $ | 24,463,885 | 1,403,027 | $ | 27,821,446 | ||||||||||
Series II | 307,748 | 7,186,468 | 202,373 | 3,873,007 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,021,301 | ) | (24,383,712 | ) | (1,856,473 | ) | (36,287,886 | ) | ||||||||
Series II | (54,981 | ) | (1,269,316 | ) | (216,297 | ) | (4,169,123 | ) | ||||||||
Net increase (decrease) in share activity | 264,366 | $ | 5,997,325 | (467,370 | ) | $ | (8,762,556 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 65% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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 Health Care 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 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 21.00 | $ | 0.06 | $ | 3.80 | $ | 3.86 | $ | — | $ | — | $ | — | $ | 24.86 | 18.38 | % | $ | 152,852 | 1.10 | %(d) | 1.11 | %(d) | 0.49 | %(d) | 15 | % | ||||||||||||||||||||||||||||
Year ended 12/31/12 | 17.37 | 0.12 | (e) | 3.51 | 3.63 | — | — | — | 21.00 | 20.90 | 128,898 | 1.12 | 1.13 | 0.63 | (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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 20.49 | 0.03 | 3.70 | 3.73 | — | — | — | 24.22 | 18.20 | 44,923 | 1.35 | (d) | 1.36 | (d) | 0.24 | (d) | 15 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.99 | 0.07 | (e) | 3.43 | 3.50 | — | — | — | 20.49 | 20.60 | 32,823 | 1.37 | 1.38 | 0.38 | (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) | Ratios are annualized and based on average daily net assets (000’s omitted) of $148,656 and $40,296 for Series I and Series II shares, respectively. |
(e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include 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. |
(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
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,183.80 | $ | 5.93 | $ | 1,019.36 | $ | 5.49 | 1.10 | % | ||||||||||||
Series II | 1,000.00 | 1,182.00 | 7.30 | 1,018.10 | 6.76 | 1.35 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Health Care Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Global Health Care Fund |
performance universe and against the Lipper VA Underlying Funds – Health/Biotechnology Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one year period and the fourth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers advises or sub-advises one mutual fund and two off-shore funds with investment strategies comparable to those of the Fund. The Fund’s effective advisory fee rate was above the effective advisory fee rate of the mutual fund and below the effective advisory fee rate of the off-shore funds.
Other than the funds described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to
Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such
services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Health Care Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Global Real Estate Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 0.97 | % | |||
Series II Shares | 0.86 | ||||
MSCI World Index ND‚ (Broad Market Index) | 8.43 | ||||
FTSE EPRA/NAREIT Developed Real Estate Index – Gross Returnn (Style-Specific Index) | 2.40 | ||||
Lipper VUF Real Estate Funds Classification Average¿ (Peer Group) | 4.86 |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nInvesco, Bloomberg L.P.;
¿Lipper Inc.
The MSCI World IndexSM ND is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return which withholds applicable taxes for non-resident investors. The FTSE EPRA/NAREIT Developed Real Estate Index – Gross Return is an unmanaged index considered representative of global real estate companies and REITs. The index is computed using the gross return which does not withhold taxes for non-resident investors. 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es). A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
|
Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
Inception (3/31/98) | 8.48 | % | |||
10 Years | 10.10 | ||||
5 Years | 3.84 | ||||
1 Year | 12.74 | ||||
Series II Shares | |||||
10 Years | 9.85 | % | |||
5 Years | 3.61 | ||||
1 Year
| 12.54 |
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 shares. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above,
for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.62% |
| |||||||
Australia–6.97% | ||||||||
Dexus Property Group | 3,900,183 | $ | 3,791,232 | |||||
Federation Centres | 1,463,915 | 3,162,637 | ||||||
Goodman Group | 622,700 | 2,759,373 | ||||||
GPT Group | 857,036 | 2,999,015 | ||||||
Stockland | 969,863 | 3,070,995 | ||||||
Westfield Group | 603,650 | 6,295,919 | ||||||
Westfield Retail Trust | 597,570 | 1,686,449 | ||||||
23,765,620 | ||||||||
Austria–0.23% | ||||||||
Conwert Immobilien Invest S.E. | 80,149 | 792,429 | ||||||
Canada–3.08% | ||||||||
Allied Properties REIT | 71,300 | 2,169,912 | ||||||
Calloway REIT | 51,200 | 1,251,523 | ||||||
Canadian Apartment Properties REIT | 100,300 | 2,159,912 | ||||||
Canadian REIT | 33,400 | 1,382,934 | ||||||
Chartwell Retirement Residences | 204,400 | 1,906,412 | ||||||
RioCan REIT | 67,300 | 1,616,915 | ||||||
10,487,608 | ||||||||
China–0.33% | ||||||||
China Resources Land Ltd. | 236,000 | 641,360 | ||||||
Guangzhou R&F Properties Co. Ltd.–Class H | 347,600 | 497,098 | ||||||
1,138,458 | ||||||||
Finland–0.36% | ||||||||
Sponda Oyj | 260,978 | 1,226,555 | ||||||
France–3.72% | ||||||||
Gecina S.A. | 14,714 | 1,620,199 | ||||||
Klepierre | 40,726 | 1,605,111 | ||||||
Mercialys S.A. | 40,394 | 778,926 | ||||||
Societe Immobiliere de Location pour I’Industrie et le Commerce | 7,794 | 803,176 | ||||||
Unibail-Rodamco S.E. | 33,835 | 7,883,095 | ||||||
12,690,507 | ||||||||
Germany–1.59% | ||||||||
Deutsche Wohnen AG | 81,750 | 1,388,064 | ||||||
GSW Immobilien AG | 53,257 | 2,053,041 | ||||||
LEG Immobilien AG(a) | 38,165 | 1,983,821 | ||||||
5,424,926 | ||||||||
Hong Kong–9.19% | ||||||||
Henderson Land Development Co. Ltd. | 915,900 | 5,425,455 | ||||||
Hongkong Land Holdings Ltd. | 685,000 | 4,692,049 | ||||||
Hysan Development Co. Ltd. | 559,000 | 2,399,887 | ||||||
Link REIT (The) | 242,500 | 1,183,823 | ||||||
New World Development Co. Ltd. | 2,766,000 | 3,810,412 | ||||||
New World Development Co. Ltd.–Rts.(a) | 34,575 | 0 |
Shares | Value | |||||||
Hong Kong–(continued) | ||||||||
Shimao Property Holdings Ltd. | 1,037,500 | $ | 2,035,677 | |||||
Sino Land Co. Ltd. | 1,053,600 | 1,475,663 | ||||||
Sun Hung Kai Properties Ltd. | 230,000 | 2,957,105 | ||||||
Swire Properties Ltd. | 373,200 | 1,096,380 | ||||||
Wharf Holdings Ltd. (The) | 750,000 | 6,239,568 | ||||||
31,316,019 | ||||||||
Japan–13.84% | ||||||||
Activia Properties, Inc. | 157 | 1,236,308 | ||||||
Frontier Real Estate Investment Corp. | 186 | 1,706,594 | ||||||
GLP J-REIT(b) | 226 | 221,032 | ||||||
GLP J-REIT | 1,431 | 1,399,546 | ||||||
Hulic Co., Ltd. | 97,300 | 1,043,831 | ||||||
Industrial & Infrastructure Fund Investment Corp.(b) | 20 | 194,596 | ||||||
Industrial & Infrastructure Fund Investment Corp. | 150 | 1,459,467 | ||||||
Japan Prime Realty Investment Corp. | 385 | 1,178,136 | ||||||
Japan Real Estate Investment Corp. | 247 | 2,756,897 | ||||||
Kenedix Realty Investment Corp. | 305 | 1,214,711 | ||||||
Mitsubishi Estate Co. Ltd. | 359,000 | 9,559,579 | ||||||
Mitsui Fudosan Co., Ltd. | 436,000 | 12,823,271 | ||||||
Nippon Building Fund Inc. | 110 | 1,273,241 | ||||||
Nippon Prologis REIT Inc. | 129 | 1,122,474 | ||||||
Sumitomo Realty & Development Co., Ltd. | 168,000 | 6,699,335 | ||||||
Tokyu Land Corp. | 255,000 | 2,339,685 | ||||||
United Urban Investment Corp. | 700 | 941,573 | ||||||
47,170,276 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC(a)(b) | 3,053,090 | 0 | ||||||
Norway–0.21% | ||||||||
Norwegian Property ASA | 555,293 | 703,886 | ||||||
Singapore–4.18% | ||||||||
Ascendas REIT | 335,000 | 589,389 | ||||||
CapitaLand Ltd. | 1,266,000 | 3,058,041 | ||||||
CapitaMall Trust | 1,697,000 | 2,671,018 | ||||||
CapitaMalls Asia Ltd. | 1,511,000 | 2,164,741 | ||||||
CDL Hospitality Trusts | 436,000 | 584,773 | ||||||
Global Logistic Properties Ltd. | 1,581,000 | 3,410,698 | ||||||
Keppel Land Ltd. | 361,000 | 948,004 | ||||||
Suntec REIT | 656,000 | 815,148 | ||||||
14,241,812 | ||||||||
Sweden–1.07% | ||||||||
Castellum AB | 152,735 | 2,067,542 | ||||||
Fabege AB | 65,848 | 645,562 | ||||||
Wihlborgs Fastigheter AB | 61,762 | 916,336 | ||||||
3,629,440 |
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–4.90% | ||||||||
Big Yellow Group PLC | 129,700 | $ | 760,379 | |||||
British Land Co. PLC | 358,054 | 3,080,868 | ||||||
Derwent London PLC | 34,314 | 1,200,407 | ||||||
Great Portland Estates PLC | 327,696 | 2,649,132 | ||||||
Hammerson PLC | 272,079 | 2,023,654 | ||||||
Land Securities Group PLC | 314,119 | 4,201,995 | ||||||
Shaftesbury PLC | 181,125 | 1,639,172 | ||||||
Unite Group PLC | 209,707 | 1,158,077 | ||||||
16,713,684 | ||||||||
United States—47.95% | ||||||||
Acadia Realty Trust | 44,356 | 1,095,150 | ||||||
AvalonBay Communities, Inc. | 74,221 | 10,013,155 | ||||||
Boston Properties, Inc. | 101,120 | 10,665,126 | ||||||
Brookfield Office Properties, Inc. | 154,369 | 2,566,946 | ||||||
CBL & Associates Properties, Inc. | 46,717 | 1,000,678 | ||||||
CubeSmart | 229,500 | 3,667,410 | ||||||
DCT Industrial Trust Inc. | 194,926 | 1,393,721 | ||||||
DDR Corp. | 469,899 | 7,823,818 | ||||||
Equity One, Inc. | 39,719 | 898,841 | ||||||
Equity Residential | 89,235 | 5,180,984 | ||||||
Essex Property Trust, Inc. | 43,824 | 6,964,510 | ||||||
Federal Realty Investment Trust | 26,900 | 2,788,992 | ||||||
General Growth Properties, Inc. | 110,324 | 2,192,138 | ||||||
HCP, Inc. | 37,400 | 1,699,456 | ||||||
Health Care REIT, Inc. | 152,032 | 10,190,705 | ||||||
Healthcare Realty Trust, Inc. | 91,835 | 2,341,793 | ||||||
Healthcare Trust of America, Inc.–Class A | 93,408 | 1,048,972 |
Shares | Value | |||||||
United States—(continued) | ||||||||
Host Hotels & Resorts Inc. | 506,918 | $ | 8,551,707 | |||||
Hudson Pacific Properties Inc. | 68,800 | 1,464,064 | ||||||
Macerich Co. (The) | 131,594 | 8,023,286 | ||||||
Mid-America Apartment Communities, Inc. | 62,500 | 4,235,625 | ||||||
National Retail Properties Inc. | 37,683 | 1,296,295 | ||||||
Pebblebrook Hotel Trust | 54,231 | 1,401,871 | ||||||
Piedmont Office Realty Trust Inc.–Class A | 199,500 | 3,567,060 | ||||||
Prologis, Inc. | 261,720 | 9,872,078 | ||||||
Public Storage | 45,100 | 6,915,183 | ||||||
Retail Opportunity Investments Corp. | 129,427 | 1,799,035 | ||||||
RLJ Lodging Trust | 81,472 | 1,832,305 | ||||||
Senior Housing Properties Trust | 161,899 | 4,198,041 | ||||||
Simon Property Group, Inc. | 121,706 | 19,219,812 | ||||||
SL Green Realty Corp. | 88,888 | 7,839,033 | ||||||
UDR, Inc. | 218,855 | 5,578,614 | ||||||
Ventas, Inc. | 87,880 | 6,104,145 | ||||||
163,430,549 | ||||||||
Total Common Stocks & Other Equity Interests |
| 332,731,769 | ||||||
Money Market Funds–2.18% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 3,721,701 | 3,721,701 | ||||||
Premier Portfolio–Institutional Class(c) | 3,721,701 | 3,721,701 | ||||||
Total Money Market Funds |
| 7,443,402 | ||||||
TOTAL INVESTMENTS–99.80% |
| 340,175,171 | ||||||
OTHER ASSETS LESS LIABILITIES–0.20% |
| 653,054 | ||||||
NET ASSETS–100.00% |
| $ | 340,828,225 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust | |
Rts. | – Rights |
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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $415,628, which 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. |
Portfolio Composition
By country, based on Net Assets as of June 30, 2013
United States | 47.9 | % | ||
Japan | 13.8 | |||
Hong Kong | 9.2 | |||
Australia | 7.0 | |||
United Kingdom | 4.9 | |||
Singapore | 4.2 | |||
France | 3.7 | |||
Canada | 3.1 | |||
Countries each less than 2.0% of portfolio | 3.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $288,336,356) | $ | 332,731,769 | ||
Investments in affiliated money market funds, at value and cost | 7,443,402 | |||
Total investments, at value (Cost $295,779,758) | 340,175,171 | |||
Foreign currencies, at value (Cost $185,204) | 182,209 | |||
Receivable for: | ||||
Investments sold | 2,314,918 | |||
Fund shares sold | 596,345 | |||
Dividends | 1,339,113 | |||
Investment for trustee deferred compensation and retirement plans | 25,435 | |||
Total assets | 344,633,191 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,041,701 | |||
Fund shares reacquired | 327,010 | |||
Accrued fees to affiliates | 99,325 | |||
Accrued other operating expenses | 286,505 | |||
Trustee deferred compensation and retirement plans | 50,425 | |||
Total liabilities | 3,804,966 | |||
Net assets applicable to shares outstanding | $ | 340,828,225 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 313,457,527 | ||
Undistributed net investment income | 8,172,271 | |||
Undistributed net realized gain (loss) | (25,188,512 | ) | ||
Unrealized appreciation | 44,386,939 | |||
$ | 340,828,225 | |||
Net Assets: | ||||
Series I | $ | 185,688,002 | ||
Series II | $ | 155,140,223 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 11,887,436 | |||
Series II | 10,182,991 | |||
Series I: | ||||
Net asset value per share | $ | 15.62 | ||
Series II: | ||||
Net asset value per share | $ | 15.24 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $342,253) | $ | 5,503,933 | ||
Dividends from affiliated money market funds | 3,546 | |||
Total investment income | 5,507,479 | |||
Expenses: | ||||
Advisory fees | 1,252,471 | |||
Administrative services fees | 452,196 | |||
Custodian fees | 80,686 | |||
Distribution fees — Series II | 184,254 | |||
Transfer agent fees | 20,435 | |||
Trustees’ and officers’ fees and benefits | 18,717 | |||
Other | 35,780 | |||
Total expenses | 2,044,539 | |||
Less: Fees waived | (6,283 | ) | ||
Net expenses | 2,038,256 | |||
Net investment income | 3,469,223 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from: | ||||
Investment securities | 11,890,339 | |||
Foreign currencies | (29,665 | ) | ||
11,860,674 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (14,234,695 | ) | ||
Foreign currencies | (1,784 | ) | ||
(14,236,479 | ) | |||
Net realized and unrealized gain (loss) | (2,375,805 | ) | ||
Net increase in net assets resulting from operations | $ | 1,093,418 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,469,223 | $ | 4,601,550 | ||||
Net realized gain | 11,860,674 | 10,780,482 | ||||||
Change in net unrealized appreciation (depreciation) | (14,236,479 | ) | 44,286,264 | |||||
Net increase in net assets resulting from operations | 1,093,418 | 59,668,296 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (897,653 | ) | |||||
Series ll | — | (457,553 | ) | |||||
Total distributions from net investment income | — | (1,355,206 | ) | |||||
Share transactions–net: | ||||||||
Series l | 7,496,755 | 5,417,318 | ||||||
Series ll | 31,085,513 | 40,819,507 | ||||||
Net increase in net assets resulting from share transactions | 38,582,268 | 46,236,825 | ||||||
Net increase in net assets | 39,675,686 | 104,549,915 | ||||||
Net assets: | ||||||||
Beginning of period | 301,152,539 | 196,602,624 | ||||||
End of period (includes undistributed net investment income of $8,172,271 and $4,703,048, respectively) | $ | 340,828,225 | $ | 301,152,539 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Real Estate Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. Global Real Estate Fund
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 trades 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Global Real Estate Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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).
Invesco V.I. Global Real Estate Fund
Effective May 1, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2013, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $6,283.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $41,022 for accounting and fund administrative services and reimbursed $411,174 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Global Real Estate Fund
During the six months ended June 30, 2013, there were transfers from Level 1 to Level 2 of $24,833,685 and from Level 2 to Level 1 of $53,285,486, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 23,765,620 | $ | — | $ | 23,765,620 | ||||||||
Austria | 792,429 | — | — | 792,429 | ||||||||||||
Canada | 10,487,608 | — | — | 10,487,608 | ||||||||||||
China | — | 1,138,458 | — | 1,138,458 | ||||||||||||
Finland | — | 1,226,555 | — | 1,226,555 | ||||||||||||
France | 10,267,132 | 2,423,375 | — | 12,690,507 | ||||||||||||
Germany | 1,388,064 | 4,036,862 | — | 5,424,926 | ||||||||||||
Hong Kong | — | 31,316,019 | — | 31,316,019 | ||||||||||||
Japan | 46,228,702 | 941,574 | — | 47,170,276 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Norway | 703,886 | — | — | 703,886 | ||||||||||||
Singapore | 4,660,328 | 9,581,484 | — | 14,241,812 | ||||||||||||
Sweden | 916,336 | 2,713,104 | — | 3,629,440 | ||||||||||||
United Kingdom | 5,488,711 | 11,224,973 | — | 16,713,684 | ||||||||||||
United States | 170,873,951 | — | — | 170,873,951 | ||||||||||||
$ | 251,807,147 | $ | 88,368,024 | $ | 0 | $ | 340,175,171 |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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. |
Invesco V.I. Global Real Estate Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $145,847,257 and $102,169,618, 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 | $ | 34,820,333 | ||
Aggregate unrealized (depreciation) of investment securities | (5,431,756 | ) | ||
Net unrealized appreciation of investment securities | $ | 29,388,577 |
Cost of investments for tax purposes is $310,786,594.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,642,014 | $ | 26,666,864 | 2,803,154 | $ | 39,088,897 | ||||||||||
Series II | 2,519,946 | 39,842,562 | 3,738,406 | 51,495,783 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 61,273 | 897,653 | ||||||||||||
Series II | — | — | 31,952 | 457,553 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,188,732 | ) | (19,170,109 | ) | (2,489,915 | ) | (34,569,232 | ) | ||||||||
Series II | (557,337 | ) | (8,757,049 | ) | (802,159 | ) | (11,133,829 | ) | ||||||||
Net increase in share activity | 2,415,891 | $ | 38,582,268 | 3,342,711 | $ | 46,236,825 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 60% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 9—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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 15.47 | $ | 0.18 | $ | (0.03 | ) | $ | 0.15 | $ | — | $ | — | $ | — | $ | 15.62 | 0.97 | % | $ | 185,688 | 1.11 | %(d) | 1.11 | %(d) | 2.18 | %(d) | 31 | % | |||||||||||||||||||||||||||
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 | 1.14 | 1.94 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 15.11 | 0.15 | (0.02 | ) | 0.13 | — | — | — | 15.24 | 0.86 | 155,140 | 1.36 | (d) | 1.36 | (d) | 1.93 | (d) | 31 | ||||||||||||||||||||||||||||||||||||||
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 | 1.39 | 1.69 | 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 annualized and based on average daily net assets (000’s omitted) of $189,308 and $148,624 for Series I and Series II shares, respectively. |
Invesco V.I. Global Real Estate Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | Actual | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,009.70 | $ | 5.53 | $ | 1,019.29 | $ | 5.56 | 1.11 | % | ||||||||||||
Series II | 1,000.00 | 1,008.60 | 6.77 | 1,018.05 | 6.80 | 1.36 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Real Estate Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Asset Management Limited currently manages certain assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Global Real Estate Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of the performance universe for the one and three year periods and in the fourth quintile for the five year period. (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. Invesco Advisers presented an analysis to the Board that included an explanation of reasons for differences in performance relative to that of the Fund’s peers, including differences between the Fund’s investment strategies and the quality of underlying portfolio investments. The Trustees also reviewed more recent
Invesco V.I. Global Real Estate Fund |
Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco and below the total account fee of a mutual fund sub-advised by Invesco Advisers. The Board also noted that Invesco Advisers advises or sub-advises five funds with comparable investment strategies, but the fee structures were not comparable.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the
sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers retains overall responsibility for, and provides services to, sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described herein other than day-to-day portfolio management. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these
services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Real Estate Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Government Securities Fund |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | -2.26 | % | |||
Series II Shares | -2.36 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | -2.44 | ||||
Barclays U.S. Government Indexn (Style-Specific Index) | -2.04 | ||||
Lipper VUF General U.S. Government Funds Indexn (Peer Group Index) | -2.49 | ||||
Source(s): ‚ Invesco, Barclays via FactSet Research Systems Inc.; n Lipper Inc. |
|
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 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.76% and 1.01%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns As of 6/30/13 |
| ||||
Series I Shares | |||||
Inception (5/5/93) | 4.82 | % | |||
10 Years | 3.86 | ||||
5 Years | 4.42 | ||||
1 Year | -1.65 | ||||
Series II Shares | |||||
Inception (9/19/01) | 3.98 | % | |||
10 Years | 3.60 | ||||
5 Years | 4.15 | ||||
1 Year | -1.86 |
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2013
(Unaudited)
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–69.44% |
| |||||||
Collateralized Mortgage Obligations–30.91% | ||||||||
Fannie Mae REMICs, |
| |||||||
4.00%, 07/25/18 to 07/25/40 | $ | 11,207,850 | $ | 11,903,198 | ||||
4.50%, 07/25/19 to 07/25/27 | 3,312,565 | 3,406,900 | ||||||
5.00%, 08/25/19 to 09/25/37 | 11,076,368 | 11,501,015 | ||||||
4.25%, 12/25/19 to 02/25/37 | 7,933,020 | 8,370,924 | ||||||
3.00%, 10/25/25 to 09/25/36 | 10,528,121 | 10,803,116 | ||||||
2.50%, 03/25/26 | 3,580,636 | 3,711,018 | ||||||
7.00%, 09/18/27 | 729,100 | 826,697 | ||||||
6.50%, 01/25/30 to 03/25/32 | 2,107,964 | 2,368,569 | ||||||
3.50%, 12/25/31 | 448,583 | 452,628 | ||||||
4.75%, 07/25/33 | 866,543 | 873,739 | ||||||
5.75%, 10/25/35 | 811,936 | 909,749 | ||||||
0.49%, 05/25/36(a) | 8,926,388 | 8,961,093 | ||||||
0.69%, 03/25/37 to 05/25/41(a) | 13,791,706 | 13,908,052 | ||||||
0.96%, 06/25/37(a) | 6,355,372 | 6,448,729 | ||||||
0.59%, 06/25/38(a) | 11,253,417 | 11,338,307 | ||||||
6.57%, 06/25/39(a) | 7,939,331 | 9,252,600 | ||||||
0.74%, 02/25/41(a) | 8,502,449 | 8,595,644 | ||||||
0.71%, 11/25/41(a) | 3,169,245 | 3,202,777 | ||||||
Federal Home Loan Bank, | ||||||||
5.07%, 10/20/15 | 1,081,463 | 1,154,171 | ||||||
5.46%, 11/27/15 | 15,222,223 | 16,299,013 | ||||||
5.77%, 03/23/18 | 2,412,951 | 2,642,574 | ||||||
Freddie Mac REMICs, | ||||||||
4.00%, 12/15/17 to 06/15/39 | 11,891,665 | 12,336,927 | ||||||
5.00%, 02/15/18 to 09/15/31 | 5,876,723 | 6,193,631 | ||||||
4.50%, 07/15/18 to 10/15/36 | 1,901,211 | 1,965,369 | ||||||
3.00%, 10/15/18 to 04/15/26 | 8,961,109 | 9,302,254 | ||||||
3.75%, 10/15/18 | 2,945,196 | 3,029,330 | ||||||
4.25%, 01/15/19 | 531,800 | 542,705 | ||||||
3.50%, 12/15/27 | 759,609 | 779,278 | ||||||
0.59%, 04/15/28 to 06/15/37(a) | 12,011,304 | 12,099,180 | ||||||
5.25%, 08/15/32 | 223,749 | 223,792 | ||||||
0.69%, 12/15/35 to 03/15/40(a) | 10,639,077 | 10,796,080 | ||||||
0.49%, 03/15/36(a) | 8,579,008 | 8,621,985 | ||||||
5.75%, 05/15/36 | 283,773 | 289,745 | ||||||
0.55%, 11/15/36(a) | 10,384,225 | 10,428,192 | ||||||
1.05%, 11/15/39(a) | 2,968,538 | 3,003,141 | ||||||
0.64%, 03/15/40 to 02/15/42(a) | 24,612,134 | 24,872,465 | ||||||
Ginnie Mae REMICs, | ||||||||
6.00%, 01/16/25 | 1,853,151 | 2,089,657 | ||||||
4.50%, 01/16/31 to 09/16/34 | 21,729,259 | 22,332,843 | ||||||
4.75%, 09/20/32 | 858,555 | 884,405 | ||||||
4.00%, 04/16/33 to 02/20/38 | 10,127,430 | 10,531,172 | ||||||
5.75%, 08/20/34(a) | 2,788,820 | 3,123,287 | ||||||
5.00%, 08/16/35 | 379,826 | 391,271 | ||||||
5.85%, 01/20/39(a) | 8,560,731 | 9,802,902 | ||||||
0.99%, 09/16/39(a) | 3,651,576 | 3,739,474 | ||||||
4.51%, 07/20/41(a) | 2,497,951 | 2,764,854 | ||||||
297,074,452 |
Principal Amount | Value | |||||||
Federal Deposit Insurance Co. (FDIC)–0.07% | ||||||||
Series 2010-S1, Class 1A, Gtd. Floating Rate Notes, 0.74%, 02/25/48 (Acquired 03/05/10; Cost $650,311)(a)(b) | $ | 650,311 | $ | 649,798 | ||||
Federal Home Loan Mortgage Corp. (FHLMC)–14.67% | ||||||||
Pass Through Ctfs., | ||||||||
6.00%, 09/01/13 to 07/01/38 | 3,483,694 | 3,772,338 | ||||||
7.00%, 07/01/14 to 12/01/37 | 8,860,476 | 10,096,869 | ||||||
6.50%, 04/01/15 to 12/01/35 | 8,059,406 | 9,024,832 | ||||||
8.00%, 07/01/15 to 09/01/36 | 8,713,129 | 10,511,262 | ||||||
5.00%, 07/01/18 to 01/01/40 | 4,205,171 | 4,562,494 | ||||||
10.50%, 08/01/19 | 1,482 | 1,601 | ||||||
4.50%, 09/01/20 to 08/01/41 | 21,103,661 | 22,737,531 | ||||||
8.50%, 09/01/20 to 08/01/31 | 759,322 | 877,845 | ||||||
10.00%, 03/01/21 | 39,656 | 45,104 | ||||||
9.00%, 06/01/21 to 06/01/22 | 278,469 | 312,601 | ||||||
7.50%, 09/01/22 to 08/01/36 | 2,991,799 | 3,493,023 | ||||||
5.50%, 12/01/22 | 1,566,090 | 1,692,859 | ||||||
3.50%, 08/01/26 | 2,150,850 | 2,269,089 | ||||||
3.00%, 05/01/27 | 2,937,903 | 3,044,126 | ||||||
7.05%, 05/20/27 | 216,969 | 233,863 | ||||||
6.03%, 10/20/30 | 1,489,089 | 1,737,982 | ||||||
Pass Through Ctfs., ARM | ||||||||
2.93%, 09/01/35(a) | 11,718,522 | 12,356,897 | ||||||
2.76%, 07/01/36(a) | 9,236,208 | 9,892,456 | ||||||
2.65%, 10/01/36(a) | 4,682,111 | 5,027,554 | ||||||
2.94%, 10/01/36(a) | 411,393 | 440,738 | ||||||
2.98%, 11/01/37(a) | 3,256,132 | 3,505,222 | ||||||
2.93%, 01/01/38(a) | 162,152 | 173,948 | ||||||
Pass Through Ctfs., TBA | ||||||||
3.00%, 07/01/43(c) | 12,200,000 | 11,895,000 | ||||||
3.50%, 07/01/43(c) | 23,000,000 | 23,301,875 | ||||||
141,007,109 | ||||||||
Federal National Mortgage Association (FNMA)–19.63% | ||||||||
Pass Through Ctfs., | ||||||||
10.00%, 09/01/13 | 597 | 600 | ||||||
7.50%, 12/01/13 to 08/01/37 | 10,956,531 | 12,824,898 | ||||||
6.00%, 01/01/14 to 10/01/38 | 7,271,014 | 7,960,194 | ||||||
7.00%, 01/15/14 to 06/01/36 | 12,293,092 | 13,757,732 | ||||||
8.00%, 02/01/14 to 11/01/37 | 8,248,058 | 9,668,910 | ||||||
6.50%, 12/01/14 to 11/01/37 | 9,511,224 | 10,497,509 | ||||||
8.50%, 09/01/15 to 08/01/37 | 3,488,313 | 4,101,288 | ||||||
5.00%, 11/01/17 to 12/01/33 | 948,688 | 1,020,785 | ||||||
4.50%, 04/01/19 to 08/01/41 | 18,937,752 | 20,531,792 | ||||||
5.50%, 03/01/21 to 05/01/35 | 4,295,034 | 4,705,210 | ||||||
6.75%, 07/01/24 | 779,062 | 888,118 | ||||||
6.95%, 10/01/25 | 25,391 | 28,423 | ||||||
3.50%, 03/01/27 to 08/01/27 | 19,256,189 | 20,328,251 | ||||||
3.00%, 05/01/27 to 08/01/27 | 9,260,186 | 9,553,227 | ||||||
Pass Through Ctfs., ARM | ||||||||
2.50%, 10/01/34(a) | 4,581,967 | 4,908,943 | ||||||
2.34%, 05/01/35(a) | 876,886 | 932,472 | ||||||
2.64%, 03/01/38(a) | 183,294 | 194,712 |
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., BAL | ||||||||
3.84%, 04/01/18 | $ | 6,498,945 | $ | 7,066,807 | ||||
Pass Through Ctfs., TBA | ||||||||
3.00%, 07/01/43(c) | 39,500,000 | 38,605,076 | ||||||
3.50%, 07/01/43(c) | 18,200,000 | 18,481,530 | ||||||
4.00%, 07/01/43(c) | 2,500,000 | 2,605,176 | ||||||
188,661,653 | ||||||||
Government National Mortgage Association (GNMA)–4.16% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 09/20/13 to 01/15/37 | 8,192,215 | 9,110,854 | ||||||
7.50%, 10/15/14 to 10/15/35 | 4,694,167 | 5,385,031 | ||||||
11.00%, 10/15/15 | 1,020 | 1,030 | ||||||
9.00%, 10/20/16 | 31,576 | 31,958 | ||||||
7.00%, 04/15/17 to 01/15/37 | 2,904,110 | 3,260,124 | ||||||
8.00%, 05/15/17 to 01/15/37 | 2,712,164 | 3,223,660 | ||||||
10.50%, 09/15/17 to 11/15/19 | 2,558 | 2,580 | ||||||
8.50%, 12/15/17 to 01/15/37 | 494,150 | 547,168 | ||||||
10.00%, 06/15/19 | 17,629 | 19,219 | ||||||
6.00%, 09/15/20 to 08/15/33 | 1,250,355 | 1,390,495 | ||||||
5.00%, 02/15/25 | 412,059 | 450,718 | ||||||
6.95%, 08/20/25 to 08/20/27 | 509,018 | 574,565 | ||||||
6.38%, 10/20/27 to 04/20/28 | 568,031 | 631,673 | ||||||
6.10%, 12/20/33 | 6,681,906 | 7,840,901 | ||||||
3.50%, 10/20/42 | 7,505,400 | 7,505,738 | ||||||
39,975,714 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 667,368,726 | ||||||
U.S. Government Sponsored Agency Securities–17.47% |
| |||||||
Federal Agricultural Mortgage Corp.–3.66% | ||||||||
Sec. Gtd. Notes, | ||||||||
5.13%, 04/19/17(b) | 14,000,000 | 15,984,249 | ||||||
Sr. Unsec. Notes, | ||||||||
2.00%, 07/27/16 | 4,000,000 | 4,135,554 | ||||||
Unsec. Medium-Term Notes, | ||||||||
1.25%, 12/06/13 | 8,000,000 | 8,036,974 | ||||||
0.85%, 08/11/14 | 7,000,000 | 7,048,229 | ||||||
35,205,006 | ||||||||
Federal Farm Credit Bank (FFCB)–1.50% | ||||||||
Unsec. Bonds, | ||||||||
1.05%, 03/28/16 | 7,000,000 | 7,059,315 | ||||||
5.43%, 06/07/24 | 2,885,000 | 3,507,049 | ||||||
Unsec. Medium-Term Notes, | ||||||||
5.75%, 12/07/28 | 3,100,000 | 3,854,264 | ||||||
14,420,628 | ||||||||
Federal Home Loan Bank (FHLB)–4.60% | ||||||||
Unsec. Bonds, | ||||||||
3.13%, 03/11/16 | 20,000,000 | 21,277,170 | ||||||
1.50%, 10/12/17 | 4,800,000 | 4,812,980 | ||||||
4.50%, 09/13/19 | 5,000,000 | 5,661,519 | ||||||
1.88%, 03/13/20 | 6,000,000 | 5,829,779 | ||||||
3.38%, 06/12/20 | 6,220,000 | 6,612,167 | ||||||
44,193,615 |
Principal Amount | Value | |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–3.27% | ||||||||
Unsec. Global Notes, | ||||||||
0.50%, 05/13/16 | $ | 4,250,000 | $ | 4,226,257 | ||||
1.00%, 03/08/17 | 6,500,000 | 6,479,492 | ||||||
0.75%, 01/12/18 | 6,000,000 | 5,810,167 | ||||||
0.88%, 03/07/18 | 5,800,000 | 5,627,762 | ||||||
1.25%, 08/01/19 | 4,800,000 | 4,572,853 | ||||||
1.25%, 10/02/19 | 5,000,000 | 4,737,378 | ||||||
31,453,909 | ||||||||
Federal National Mortgage Association (FNMA)–2.26% | ||||||||
Unsec. Global Notes, | ||||||||
1.25%, 01/30/17 | 5,300,000 | 5,332,661 | ||||||
0.88%, 08/28/17 | 7,250,000 | 7,122,539 | ||||||
0.88%, 10/26/17 | 6,200,000 | 6,070,999 | ||||||
0.88%, 05/21/18 | 3,350,000 | 3,238,538 | ||||||
21,764,737 | ||||||||
Financing Corp. (FICO)–0.39% | ||||||||
Sec. Bonds, 9.80%, 04/06/18 | 700,000 | 956,661 | ||||||
Series E, Sec. Bonds, | 1,985,000 | 2,765,177 | ||||||
3,721,838 | ||||||||
Tennessee Valley Authority (TVA)–1.79% | ||||||||
Sr. Unsec. Global Bonds, | ||||||||
4.88%, 12/15/16 | 13,553,000 | 15,338,707 | ||||||
Sr. Unsec. Global Notes, | ||||||||
1.88%, 08/15/22 | 2,000,000 | 1,836,971 | ||||||
17,175,678 | ||||||||
Total U.S. Government Sponsored Agency Securities |
| 167,935,411 | ||||||
U.S. Treasury Securities–16.64% |
| |||||||
U.S. Treasury Bonds–1.81% | ||||||||
8.75%, 05/15/20 | 3,500,000 | 5,070,236 | ||||||
7.88%, 02/15/21 | 1,100,000 | 1,558,114 | ||||||
7.50%, 11/15/24 | 120,000 | 177,919 | ||||||
7.63%, 02/15/25 | 550,000 | 825,606 | ||||||
5.38%, 02/15/31 | 3,800,000 | 4,950,257 | ||||||
4.25%, 05/15/39(d) | 3,685,000 | 4,242,073 | ||||||
4.38%, 11/15/39 | 500,000 | 586,996 | ||||||
17,411,201 | ||||||||
U.S. Treasury Notes–14.42% | ||||||||
3.63%, 02/15/20 | 2,000,000 | 2,230,019 | ||||||
1.00%, 03/31/17 | 2,000,000 | 2,001,525 | ||||||
0.63%, 05/31/17 | 13,000,000 | 12,790,598 | ||||||
2.75%, 05/31/17(d) | 10,000,000 | 10,660,865 | ||||||
2.38%, 07/31/17(d) | 10,000,000 | 10,510,400 | ||||||
0.63%, 08/31/17 | 6,000,000 | 5,874,976 | ||||||
0.63%, 09/30/17 | 7,000,000 | 6,843,214 | ||||||
0.75%, 12/31/17 | 7,000,000 | 6,846,535 | ||||||
0.88%, 01/31/18 | 5,000,000 | 4,908,361 | ||||||
1.38%, 09/30/18 | 13,800,000 | 13,732,732 | ||||||
1.38%, 12/31/18 | 3,000,000 | 2,974,142 | ||||||
1.00%, 11/30/19 | 10,000,000 | 9,523,344 | ||||||
1.13%, 03/31/20 | 5,800,000 | 5,522,672 |
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 Notes–(continued) | ||||||||
2.63%, 08/15/20 | $ | 4,000,000 | $ | 4,178,179 | ||||
2.13%, 08/15/21 | 2,700,000 | 2,687,842 | ||||||
2.00%, 11/15/21 | 8,300,000 | 8,152,420 | ||||||
2.00%, 02/15/22 | 7,000,000 | 6,842,752 | ||||||
1.75%, 05/15/22 | 4,250,000 | 4,050,278 | ||||||
2.00%, 02/15/23 | 19,000,000 | 18,279,590 | ||||||
138,610,444 | ||||||||
U.S. Treasury Inflation-Indexed Bonds–0.41% | ||||||||
0.13%, 07/15/22 | 4,045,080 | (e) | 3,949,263 | |||||
Total U.S. Treasury Securities |
| 159,970,908 | ||||||
Foreign Bonds–4.46% |
| |||||||
Collateralized Mortgage Obligations–3.99% | ||||||||
La Hipotecaria Panamanian Mortgage Trust (El Salvador), | ||||||||
Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 3.00%, 09/08/39 (Acquired 11/05/10; Cost $24,195,855)(a)(b) | 23,420,065 | 24,327,593 | ||||||
Series 2013-1A, Class A, Pass Through Ctfs., 3.50%, 10/25/41 (Acquired 04/22/13; Cost $14,016,192)(b) | 13,542,215 | 13,973,873 | ||||||
38,301,466 |
Principal Amount | Value | |||||||
Sovereign Debt–0.47% | ||||||||
Israel Government Agency for International Development (AID) Bond, Unsec. Gtd. Bonds, 5.13%, 11/01/24 | $ | 3,800,000 | $ | 4,561,532 | ||||
Total Foreign Bonds |
| 42,862,998 | ||||||
Corporate Notes–1.75% |
| |||||||
Private Export Funding Corp.,-1.75% | ||||||||
Sec. Gtd. Notes, 2.13%, 07/15/16 | 5,000,000 | 5,180,539 | ||||||
1.38%, 02/15/17 | 5,000,000 | 5,043,604 | ||||||
4.30%, 12/15/21 | 1,540,000 | 1,715,246 | ||||||
Sr. Sec. Gtd. Notes, | ||||||||
1.45%, 08/15/19 | 5,000,000 | 4,838,578 | ||||||
Total Corporate Notes |
| 16,777,967 | ||||||
Shares | ||||||||
Money Market Funds–6.81% |
| |||||||
Government & Agency Portfolio–Institutional Class | 65,445,602 | 65,445,602 | ||||||
TOTAL INVESTMENTS–116.57% |
| 1,120,361,612 | ||||||
OTHER ASSETS LESS LIABILITIES–(16.57)% |
| (159,274,149 | ) | |||||
NET ASSETS–100.00% |
| $ | 961,087,463 |
Investment Abbreviations:
ARM | — Adjustable Rate Mortgage | |
BAL | — Balloon | |
Ctfs. | — Certificates | |
Gtd. | — Guaranteed | |
REMIC | — Real Estate Mortgage Investment Conduits | |
Sec. | — Secured | |
Sr. | — Senior | |
TBA | — To Be Announced | |
Unsec. | — Unsecured |
Notes to Schedule of Investments:
(a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2013. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $54,935,513, which represented 5.72% of the Fund’s Net Assets. |
(c) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1I. |
(d) | All or a portion of the value of this security was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. |
(e) | Principal amount of security and interest payments are adjusted for inflation. |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2013
U.S. Government Sponsored Agency Mortgage-Backed Securities | 69.4 | % | ||
U.S. Government Sponsored Agency Securities | 17.5 | |||
U.S. Treasury Securities | 16.6 | |||
Foreign Bonds | 4.5 | |||
Corporate Notes | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | (9.8 | ) |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,045,461,008) | $ | 1,054,916,010 | ||
Investments in affiliated money market funds, at value and cost | 65,445,602 | |||
Total investments, at value (Cost $1,110,906,610) | 1,120,361,612 | |||
Receivable for: | ||||
Variation margin | 429,508 | |||
Fund shares sold | 10,430 | |||
Dividends and interest | 3,638,271 | |||
Principal paydowns | 674,274 | |||
Investment for trustee deferred compensation and retirement plans | 78,601 | |||
Other assets | 23,775 | |||
Total assets | 1,125,216,471 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 157,809,627 | |||
Fund shares reacquired | 5,054,560 | |||
Accrued fees to affiliates | 881,278 | |||
Accrued trustees’ and officers’ fees and benefits | 1,338 | |||
Accrued other operating expenses | 141,041 | |||
Trustee deferred compensation and retirement plans | 241,164 | |||
Total liabilities | 164,129,008 | |||
Net assets applicable to shares outstanding | $ | 961,087,463 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 924,461,193 | ||
Undistributed net investment income | 34,869,691 | |||
Undistributed net realized gain (loss) | (7,260,460 | ) | ||
Unrealized appreciation | 9,017,039 | |||
$ | 961,087,463 | |||
Net Assets: |
| |||
Series I | $ | 724,225,362 | ||
Series II | $ | 236,862,101 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 59,732,018 | |||
Series II | 19,736,637 | |||
Series I: | ||||
Net asset value per share | $ | 12.12 | ||
Series II: | ||||
Net asset value per share | $ | 12.00 |
Investment income: |
| |||
Interest | $ | 9,297,863 | ||
Dividends from affiliated money market funds | 995 | |||
Total investment income | 9,298,858 | |||
Expenses: | ||||
Advisory fees | 2,427,654 | |||
Administrative services fees | 1,408,502 | |||
Custodian fees | 26,563 | |||
Distribution fees — Series II | 312,267 | |||
Transfer agent fees | 17,234 | |||
Trustees’ and officers’ fees and benefits | 35,007 | |||
Other | 65,037 | |||
Total expenses | 4,292,264 | |||
Less: Fees waived and expense offset arrangement(s) | (204,203 | ) | ||
Net expenses | 4,088,061 | |||
Net investment income | 5,210,797 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | (626,219 | ) | ||
Futures contracts | (3,413,181 | ) | ||
(4,039,400 | ) | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (25,030,877 | ) | ||
Futures contracts | 628,824 | |||
(24,402,053 | ) | |||
Net realized and unrealized gain (loss) | (28,441,453 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (23,230,656 | ) |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 5,210,797 | $ | 17,251,297 | ||||
Net realized gain (loss) | (4,039,400 | ) | 19,561,851 | |||||
Change in net unrealized appreciation (depreciation) | (24,402,053 | ) | (8,256,599 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (23,230,656 | ) | 28,556,549 | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (27,559,188 | ) | |||||
Series ll | — | (7,996,672 | ) | |||||
Total distributions from net investment income | — | (35,555,860 | ) | |||||
Share transactions-net: | ||||||||
Series l | (131,562,684 | ) | (91,925,900 | ) | ||||
Series ll | (18,413,646 | ) | (32,126,913 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (149,976,330 | ) | (124,052,813 | ) | ||||
Net increase (decrease) in net assets | (173,206,986 | ) | (131,052,124 | ) | ||||
Net assets: | ||||||||
Beginning of period | 1,134,294,449 | 1,265,346,573 | ||||||
End of period (includes undistributed net investment income of $34,869,691 and $29,658,894, respectively) | $ | 961,087,463 | $ | 1,134,294,449 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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”).
Invesco V.I. Government 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.
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 trades 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 of 1986, as amended (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 |
Invesco V.I. Government Securities Fund
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. | 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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective May 1, 2013, 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 waivers and/or expense reimbursements (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 May 1, 2013, 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 to 0.70% and Series II to 0.95% 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
Invesco V.I. Government Securities Fund
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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $204,089.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $123,392 for accounting and fund administrative services and reimbursed $1,285,110 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 65,445,602 | $ | — | $ | — | $ | 65,445,602 | ||||||||
U.S. Treasury Securities | — | 159,970,908 | — | 159,970,908 | ||||||||||||
U.S Government Sponsored Agency Securities | — | 835,304,137 | — | 835,304,137 | ||||||||||||
Corporate Debt Securities | — | 16,777,967 | — | 16,777,967 | ||||||||||||
Foreign Debt Securities | — | 38,301,466 | — | 38,301,466 | ||||||||||||
Foreign Sovereign Debt Securities | — | 4,561,532 | — | 4,561,532 | ||||||||||||
$ | 65,445,602 | $ | 1,054,916,010 | $ | — | $ | 1,120,361,612 | |||||||||
Futures Contracts* | (437,963 | ) | — | — | (437,963 | ) | ||||||||||
Total Investments | $ | 65,007,639 | $ | 1,054,916,010 | $ | — | $ | 1,119,923,649 |
* | Unrealized appreciation (depreciation). |
Invesco V.I. Government Securities Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 2,876,419 | $ | (3,314,382 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Futures Contracts* | ||||
Realized Gain (Loss) | ||||
Interest rate risk | $ | (3,413,181 | ) | |
Change in Unrealized Appreciation | ||||
Interest rate risk | 628,824 | |||
Total | $ | (2,784,357 | ) |
* | The average notional value of futures contracts outstanding during the period was $371,861,839. |
Long Contracts | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 516 | September–2013 | $ | 113,520,000 | $ | (146,396 | ) | |||||||||
U.S. Treasury 10 Year Notes | 84 | September–2013 | 10,631,250 | (11,989 | ) | |||||||||||
U.S. Ultra Bonds | 508 | September–2013 | 74,834,750 | (3,155,997 | ) | |||||||||||
Subtotal | $ | 198,986,000 | $ | (3,314,382 | ) | |||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 5 Year Notes | 45 | September–2013 | $ | (5,447,109 | ) | $ | 69,866 | |||||||||
U.S. Treasury 30 Year Bonds | 600 | September–2013 | (81,506,250 | ) | 2,806,553 | |||||||||||
Subtotal | $ | (86,953,359 | ) | $ | 2,876,419 | |||||||||||
Total | $ | (437,963 | ) |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards (“ASU”) Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Banc of America Securities LLC | $ | 2,876,419 | $ | (2,876,419 | ) | $— | $— | $ | — | $ | — | |||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Banc of America Securities LLC | $ | 3,314,382 | $ | (2,876,419 | ) | $ | 437,963 | $ | (437,963 | ) | $ | — | $ | — |
Invesco V.I. Government Securities 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 the six months ended June 30, 2013, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $114.
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 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 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 Van Kampen 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 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $655,395,211 and $836,232,933, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $71,577,187 and $27,342,928, 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 | $ | 20,765,349 | ||
Aggregate unrealized (depreciation) of investment securities | (11,752,356 | ) | ||
Net unrealized appreciation of investment securities | $ | 9,012,993 |
Cost of investments for tax purposes is $1,111,348,619.
Invesco V.I. Government Securities Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,876,671 | $ | 23,236,204 | 9,955,734 | $ | 124,521,467 | ||||||||||
Series II | 791,345 | 9,678,154 | 4,230,588 | 52,978,846 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 2,220,724 | 27,559,188 | ||||||||||||
Series II | — | — | 649,608 | 7,996,671 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (12,572,073 | ) | (154,798,888 | ) | (19,390,637 | ) | (244,006,555 | ) | ||||||||
Series II | (2,302,168 | ) | (28,091,800 | ) | (7,462,478 | ) | (93,102,430 | ) | ||||||||
Net increase (decrease) in share activity | (12,206,225 | ) | $ | (149,976,330 | ) | (9,796,461 | ) | $ | (124,052,813 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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 | 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 |
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Six months ended 06/30/13 | $ | 12.40 | $ | 0.06 | $ | (0.34 | ) | $ | (0.28 | ) | $ | — | $ | — | $ | — | $ | 12.12 | (2.26 | )% | $ | 724,225 | 0.72 | %(d) | 0.76 | %(d) | 1.05 | %(d) | 64 | % | ||||||||||||||||||||||||||
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 | 0.76 | 1.49 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 12.29 | 0.05 | (0.34 | ) | (0.29 | ) | — | — | — | 12.00 | (2.36 | ) | 236,862 | 0.97 | (d) | 1.01 | (d) | 0.80 | (d) | 64 | ||||||||||||||||||||||||||||||||||||
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 | 1.01 | 1.24 | 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 year 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 annualized and based on average daily net assets (000’s omitted) of $808,238 and $251,883 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/13) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 977.40 | $ | 3.53 | $ | 1,021.22 | $ | 3.61 | 0.72 | % | ||||||||||||
Series II | 1,000.00 | 976.40 | 4.75 | 1,019.98 | 4.86 | 0.97 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective May 1, 2013, the Fund’s Adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 1.50% and 1.75% of average daily net assets, respectively. The annualized expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 0.76% and 1.01% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.73 and $4.95 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.81 and $5.06 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Government Securities Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Government Securities Fund |
performance universe and against the Lipper VA Underlying Funds – General U.S. Government Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one and three year periods and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the Index for the five year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party
service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be
invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
Invesco V.I. Government Securities Fund |
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![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Growth and Income Fund Effective April 29, 2013, Invesco Van Kampen V.I. Growth and Income Fund was renamed Invesco V.I. Growth and Income Fund.
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1 | ||||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 17.59 | % | |||
Series II Shares | 17.42 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 1000 Value Indexn (Style-Specific Index) | 15.90 | ||||
Lipper VUF Large-Cap Value Funds Index¿ (Peer Group Index) | 16.40 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
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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) described 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.
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Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
Inception (12/23/96) | 8.55 | % | |||
10 Years | 8.15 | ||||
5 Years | 7.49 | ||||
1 Year | 25.34 | ||||
Series II Shares | |||||
Inception (9/18/00) | 5.49 | % | |||
10 Years | 7.88 | ||||
5 Years | 7.21 | ||||
1 Year | 25.04 |
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 (renamed Invesco V.I. Growth and Income Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco 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 0.78% and 1.03%, 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 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 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, 2014. See current prospectus for more information. |
Invesco V.I. Growth and Income Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.18% |
| |||||||
Aerospace & Defense–0.59% | ||||||||
General Dynamics Corp. | 175,898 | $ | 13,778,090 | |||||
Agricultural Products–1.37% | ||||||||
Archer-Daniels-Midland Co. | 943,144 | 31,982,013 | ||||||
Application Software–1.46% | ||||||||
Adobe Systems Inc.(b) | 746,609 | 34,015,506 | ||||||
Asset Management & Custody Banks–2.32% | ||||||||
Northern Trust Corp. | 412,434 | 23,879,928 | ||||||
State Street Corp. | 463,013 | 30,193,078 | ||||||
54,073,006 | ||||||||
Biotechnology–1.58% | ||||||||
Amgen Inc. | 373,716 | 36,870,821 | ||||||
Cable & Satellite–4.24% | ||||||||
Comcast Corp.–Class A | 1,099,535 | 46,048,526 | ||||||
Time Warner Cable Inc. | 467,647 | 52,600,934 | ||||||
98,649,460 | ||||||||
Diversified Banks–2.49% | ||||||||
Comerica Inc. | 602,999 | 24,017,450 | ||||||
Wells Fargo & Co. | 822,717 | 33,953,531 | ||||||
57,970,981 | ||||||||
Diversified Chemicals–1.80% | ||||||||
Dow Chemical Co. (The) | 729,138 | 23,456,370 | ||||||
PPG Industries, Inc. | 126,257 | 18,485,287 | ||||||
41,941,657 | ||||||||
Diversified Support Services–0.27% | ||||||||
Cintas Corp. | 139,949 | 6,373,278 | ||||||
Electric Utilities–1.84% | ||||||||
Edison International | 248,302 | 11,958,224 | ||||||
FirstEnergy Corp. | 220,402 | 8,229,811 | ||||||
Pinnacle West Capital Corp. | 408,630 | 22,666,706 | ||||||
42,854,741 | ||||||||
Electronic Components–0.65% | ||||||||
Corning Inc. | 1,057,414 | 15,047,001 | ||||||
Food Distributors–1.34% | ||||||||
Sysco Corp. | 909,990 | 31,085,258 | ||||||
Health Care Equipment–1.58% | ||||||||
Medtronic, Inc. | 716,725 | 36,889,836 | ||||||
Home Improvement Retail–0.76% | ||||||||
Home Depot, Inc. (The) | 229,909 | 17,811,050 | ||||||
Hotels, Resorts & Cruise Lines–0.97% | ||||||||
Carnival Corp. | 656,514 | 22,511,865 |
Shares | Value | |||||||
Household Products–1.43% | ||||||||
Procter & Gamble Co. (The) | 433,284 | $ | 33,358,535 | |||||
Industrial Conglomerates–2.93% | ||||||||
General Electric Co. | 2,940,476 | 68,189,638 | ||||||
Industrial Machinery–1.03% | ||||||||
Ingersoll-Rand PLC | 429,938 | 23,870,158 | ||||||
Insurance Brokers–3.89% | ||||||||
Aon PLC | 344,639 | 22,177,520 | ||||||
Marsh & McLennan Cos., Inc. | 1,295,899 | 51,732,288 | ||||||
Willis Group Holdings PLC | 406,228 | 16,565,978 | ||||||
90,475,786 | ||||||||
Integrated Oil & Gas–3.74% | ||||||||
Chevron Corp. | 373,537 | 44,204,369 | ||||||
Exxon Mobil Corp. | 281,364 | 25,421,237 | ||||||
Occidental Petroleum Corp. | 196,018 | 17,490,686 | ||||||
87,116,292 | ||||||||
Integrated Telecommunication Services–0.62% | ||||||||
Verizon Communications Inc. | 287,393 | 14,467,364 | ||||||
Internet Software & Services–1.99% | ||||||||
eBay Inc.(b)(c) | 897,627 | 46,425,268 | ||||||
Investment Banking & Brokerage–4.48% | ||||||||
Charles Schwab Corp. (The) | 1,702,508 | 36,144,245 | ||||||
Goldman Sachs Group, Inc. (The) | 128,450 | 19,428,062 | ||||||
Morgan Stanley | 1,998,262 | 48,817,541 | ||||||
104,389,848 | ||||||||
IT Consulting & Other Services–1.11% | ||||||||
Amdocs Ltd. | 695,867 | 25,809,707 | ||||||
Managed Health Care–3.85% | ||||||||
Cigna Corp. | 327,107 | 23,711,986 | ||||||
UnitedHealth Group Inc. | 407,812 | 26,703,530 | ||||||
WellPoint, Inc. | 478,864 | 39,190,230 | ||||||
89,605,746 | ||||||||
Movies & Entertainment–3.17% | ||||||||
Time Warner Inc. | 259,112 | 14,981,856 | ||||||
Viacom Inc.–Class B | 863,771 | 58,779,616 | ||||||
73,761,472 | ||||||||
Oil & Gas Equipment & Services–1.76% | ||||||||
Baker Hughes Inc. | 488,251 | 22,523,019 | ||||||
Halliburton Co. | 443,735 | 18,512,624 | ||||||
41,035,643 | ||||||||
Oil & Gas Exploration & Production–2.67% | ||||||||
Anadarko Petroleum Corp. | 410,811 | 35,300,989 | ||||||
Canadian Natural Resources Ltd. (Canada) | 950,370 | 26,790,712 | ||||||
62,091,701 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Shares | Value | |||||||
Oil & Gas Storage & Transportation–0.68% | ||||||||
Williams Cos., Inc. (The) | 484,550 | $ | 15,733,339 | |||||
Other Diversified Financial Services–9.41% | ||||||||
Bank of America Corp. | 1,347,477 | 17,328,554 | ||||||
Citigroup Inc. | 1,727,845 | 82,884,725 | ||||||
ING U.S. Inc.(b) | 379,681 | 10,274,168 | ||||||
JPMorgan Chase & Co. | 2,057,415 | 108,610,938 | ||||||
219,098,385 | ||||||||
Packaged Foods & Meats–2.53% | ||||||||
Mondelez International Inc.–Class A | 1,370,868 | 39,110,864 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 500,926 | 19,691,401 | ||||||
58,802,265 | ||||||||
Personal Products–2.73% | ||||||||
Avon Products, Inc.(c) | 3,017,649 | 63,461,159 | ||||||
Pharmaceuticals–7.49% | ||||||||
Bristol-Myers Squibb Co. | 613,988 | 27,439,124 | ||||||
Eli Lilly & Co. | 618,153 | 30,363,675 | ||||||
Merck & Co., Inc. | 1,004,121 | 46,641,420 | ||||||
Novartis AG (Switzerland) | 346,763 | 24,576,189 | ||||||
Novartis AG–ADR (Switzerland) | 35,328 | 2,498,043 | ||||||
Pfizer Inc. | 1,114,950 | 31,229,750 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 299,827 | 11,753,218 | ||||||
174,501,419 | ||||||||
Property & Casualty Insurance–0.83% | ||||||||
Chubb Corp. (The) | 229,523 | 19,429,122 | ||||||
Publishing–0.52% | ||||||||
Thomson Reuters Corp. (Canada) | 371,498 | 12,121,897 | ||||||
Railroads–0.79% | ||||||||
CSX Corp. | 789,075 | 18,298,649 | ||||||
Regional Banks–4.34% | ||||||||
BB&T Corp. | 755,561 | 25,598,407 | ||||||
Fifth Third Bancorp | 1,246,468 | 22,498,747 | ||||||
PNC Financial Services Group, Inc. | 726,667 | 52,988,558 | ||||||
101,085,712 |
Shares | Value | |||||||
Security & Alarm Services–2.45% | ||||||||
ADT Corp. (The)(b) | 495,981 | $ | 19,764,843 | |||||
Tyco International Ltd. | 1,132,689 | 37,322,102 | ||||||
57,086,945 | ||||||||
Semiconductor Equipment–1.93% | ||||||||
Applied Materials, Inc. | 3,008,777 | 44,860,865 | ||||||
Semiconductors–0.71% | ||||||||
Texas Instruments Inc. | 475,385 | 16,576,675 | ||||||
Soft Drinks–1.71% | ||||||||
Coca-Cola Co. (The) | 585,200 | 23,472,372 | ||||||
PepsiCo, Inc. | 201,206 | 16,456,639 | ||||||
39,929,011 | ||||||||
Specialized Finance–0.90% | ||||||||
CME Group Inc.–Class A | 276,199 | 20,985,600 | ||||||
Systems Software–3.59% | ||||||||
Microsoft Corp. | 1,609,383 | 55,571,995 | ||||||
Symantec Corp. | 1,251,787 | 28,127,654 | ||||||
83,699,649 | ||||||||
Wireless Telecommunication Services–1.64% | ||||||||
Vodafone Group PLC–ADR | 1,327,050 | 38,139,417 | ||||||
Total Common Stocks & Other Equity Interests |
| 2,286,261,830 | ||||||
Money Market Funds–2.06% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 23,943,261 | 23,943,261 | ||||||
Premier Portfolio–Institutional Class(d) | 23,943,261 | 23,943,261 | ||||||
Total Money Market Funds |
| 47,886,522 | ||||||
TOTAL INVESTMENTS–100.24% |
| 2,334,148,352 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.24)% |
| (5,639,255 | ) | |||||
NET ASSETS–100.00% |
| $ | 2,328,509,097 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | A portion of this security is subject to call options written. See Note 1K and Note 4. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Financials | 28.7 | % | ||
Health Care | 14.5 | |||
Information Technology | 11.4 | |||
Consumer Staples | 11.1 | |||
Consumer Discretionary | 9.7 | |||
Energy | 8.8 | |||
Industrials | 8.1 | |||
Telecommunication Services | 2.3 | |||
Materials | 1.8 | |||
Utilities | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,790,155,812) | $ | 2,286,261,830 | ||
Investments in affiliated money market funds, at value and cost | 47,886,522 | |||
Total investments, at value (Cost $1,838,042,334) | 2,334,148,352 | |||
Receivable for: | ||||
Investments sold | 12,510,015 | |||
Fund shares sold | 654,450 | |||
Dividends | 4,521,485 | |||
Foreign currency contracts outstanding | 2,498,532 | |||
Investment for trustee deferred compensation and retirement plans | 26,126 | |||
Total assets | 2,354,358,960 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 3,864,282 | |||
Fund shares reacquired | 19,016,952 | |||
Options written, at value (premiums received $379,429) | 38,223 | |||
Accrued fees to affiliates | 2,769,847 | |||
Accrued trustees’ and officers’ fees and benefits | 2,399 | |||
Accrued other operating expenses | 7,580 | |||
Trustee deferred compensation and retirement plans | 150,580 | |||
Total liabilities | 25,849,863 | |||
Net assets applicable to shares outstanding | $ | 2,328,509,097 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,673,197,420 | ||
Undistributed net investment income | 44,131,315 | |||
Undistributed net realized gain | 112,242,337 | |||
Unrealized appreciation | 498,938,025 | |||
$ | 2,328,509,097 | |||
Net Assets: |
| |||
Series I | $ | 152,882,116 | ||
Series II | $ | 2,175,626,981 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,479,213 | |||
Series II | 92,502,812 | |||
Series I: | ||||
Net asset value per share | $ | 23.60 | ||
Series II: | ||||
Net asset value per share | $ | 23.52 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $229,115) | $ | 25,200,870 | ||
Dividends from affiliated money market funds | 42,247 | |||
Total investment income | 25,243,117 | |||
Expenses: | ||||
Advisory fees | 6,382,116 | |||
Administrative services fees | 2,950,476 | |||
Custodian fees | 18,538 | |||
Distribution fees — Series II | 2,655,375 | |||
Transfer agent fees | 8,375 | |||
Trustees’ and officers’ fees and benefits | 57,907 | |||
Other | (79,682 | ) | ||
Total expenses | 11,993,105 | |||
Less: Fees waived | (1,012,842 | ) | ||
Net expenses | 10,980,263 | |||
Net investment income | 14,262,854 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $62,263) | 91,073,871 | |||
Foreign currencies | (637 | ) | ||
Foreign currency contracts | 252,357 | |||
91,325,591 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 250,245,345 | |||
Foreign currencies | (10,298 | ) | ||
Foreign currency contracts | 3,518,076 | |||
Option contracts written | 341,206 | |||
254,094,329 | ||||
Net realized and unrealized gain | 345,419,920 | |||
Net increase in net assets resulting from operations | $ | 359,682,774 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 14,262,854 | $ | 29,998,626 | ||||
Net realized gain | 91,325,591 | 84,274,132 | ||||||
Change in net unrealized appreciation | 254,094,329 | 153,877,713 | ||||||
Net increase in net assets resulting from operations | 359,682,774 | 268,150,471 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,099,962 | ) | |||||
Series II | — | (24,684,293 | ) | |||||
Total distributions from net investment income | — | (26,784,255 | ) | |||||
Share transactions-net: | ||||||||
Series I | (11,313,129 | ) | (35,529,889 | ) | ||||
Series II | (106,093,292 | ) | (1,049,836 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (117,406,421 | ) | (36,579,725 | ) | ||||
Net increase in net assets | 242,276,353 | 204,786,491 | ||||||
Net assets: | ||||||||
Beginning of period | 2,086,232,744 | 1,881,446,253 | ||||||
End of period (includes undistributed net investment income of $44,131,315 and $29,868,461, respectively) | $ | 2,328,509,097 | $ | 2,086,232,744 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Growth and Income Fund (the “Fund”), formerly Invesco Van Kampen V.I. Growth and Income 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-four 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
Invesco V.I. Growth and Income 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 trades 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 of 1986, as amended (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. Growth and Income 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. |
K. | Call Options Written — The Fund may write covered call options. A covered call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written covered 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 covered call 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. |
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 $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) Ltd., 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, 2013, 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 0.78% and Series II shares to 1.03% of average daily net assets. Prior to May 1, 2013, 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 0.72% and Series II shares to 0.97% 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. Growth and Income 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 April 30, 2014. To the extent that the annualized expense ratio does not exceed the expense limitation, Invesco will retain its ability to be reimbursed for such fee waivers or reimbursed prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $1,012,842.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $224,782 for accounting and fund administrative services and reimbursed $2,725,694 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $4,692 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 June 30, 2013. 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 | $ | 2,309,572,163 | $ | 24,576,189 | $ | — | $ | 2,334,148,352 | ||||||||
Foreign Currency Contracts* | — | 2,498,532 | — | 2,498,532 | ||||||||||||
Options | (38,223 | ) | — | — | (38,223 | ) | ||||||||||
Total Investments | $ | 2,309,533,940 | $ | 27,074,721 | $ | — | $ | 2,336,608,661 |
* | Unrealized appreciation. |
Invesco V.I. Growth and Income Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 2,666,449 | $ | (167,917 | ) | |||
Equity risk | ||||||||
Options contracts(a) | — | (38,223 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Options written, at value and Foreign currency contracts outstanding, respectively. |
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations | ||||||||
Foreign Currency Contracts* | Options* | |||||||
Realized Gain | ||||||||
Currency risk | $ | 252,357 | $ | — | ||||
Change in Unrealized Appreciation | ||||||||
Currency risk | $ | 3,518,076 | $ | — | ||||
Equity risk | — | 341,206 | ||||||
Total | $ | 3,770,433 | $ | 341,206 |
* | The average notional value of foreign currency contracts and options outstanding during the period was $96,344,341 and $8,519,867, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/22/13 | Bank of New York | USD | 1,534,053 | CAD | 1,567,266 | $ | 1,489,264 | $ | (44,789 | ) | ||||||||||||||||
07/22/13 | Bank of New York | USD | 1,305,919 | CHF | 1,203,333 | 1,274,260 | (31,659 | ) | ||||||||||||||||||
07/22/13 | Bank of New York | USD | 1,137,444 | EUR | 851,259 | 1,108,142 | (29,302 | ) | ||||||||||||||||||
07/22/13 | State Street | USD | 2,606,431 | GBP | 1,673,084 | 2,544,264 | (62,167 | ) | ||||||||||||||||||
$ | (167,917 | ) | ||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/22/13 | State Street | CAD | 18,120,523 | USD | 17,739,305 | $ | 17,218,678 | $ | 520,627 | |||||||||||||||||
07/22/13 | Bank of New York | CAD | 14,759,936 | USD | 14,447,156 | 14,025,345 | 421,811 | |||||||||||||||||||
07/22/13 | Bank of New York | CHF | 12,534,544 | USD | 13,603,139 | 13,273,360 | 329,779 | |||||||||||||||||||
07/22/13 | State Street | CHF | 8,358,855 | USD | 9,069,840 | 8,851,546 | 218,294 | |||||||||||||||||||
07/22/13 | Bank of New York | EUR | 12,503,558 | USD | 16,707,129 | 16,276,732 | 430,397 | |||||||||||||||||||
07/22/13 | State Street | GBP | 20,064,750 | USD | 31,258,071 | 30,512,530 | 745,541 | |||||||||||||||||||
$ | 2,666,449 | |||||||||||||||||||||||||
Total open foreign currency contracts | $ | 2,498,532 |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Options Written | ||||||||||||
Calls | Contract Month | Strike Price | Number of Contracts | Premiums Received | Value | Unrealized Appreciation | ||||||
Avon Products, Inc. | July-2013 | $24 | 4,526 | $273,692 | $11,315 | $262,377 | ||||||
eBay Inc. | October-2013 | 65 | 868 | 105,737 | 26,908 | 78,829 | ||||||
$379,429 | $38,223 | $341,206 |
Invesco V.I. Growth and Income Fund
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 5,394 | 379,429 | ||||||
Expired | — | — | ||||||
End of period | 5,394 | $ | 379,429 |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York | $ | 1,181,987 | $ | (105,750 | ) | $ | 1,076,237 | $ | — | $ | — | $ | 1,076,237 | |||||||||||
State Street | 1,484,462 | (62,167 | ) | 1,422,295 | — | — | 1,422,295 | |||||||||||||||||
Total | $ | 2,666,449 | $ | (167,917 | ) | $ | 2,498,532 | $ | — | $ | — | $ | 2,498,532 |
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York | $ | 105,750 | $ | (105,750 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
State Street | 62,167 | (62,167 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 167,917 | $ | (167,917 | ) | $ | — | $ | — | $ | — | $ | — |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities purchases of $2,278,467 and securities sales of $182,230, which resulted in net realized gains of $62,263.
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. Growth and Income Fund
NOTE 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did not have a 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 six months ended June 30, 2013 was $358,056,905 and $372,943,642, 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 | $ | 506,313,763 | ||
Aggregate unrealized (depreciation) of investment securities | (10,793,198 | ) | ||
Net unrealized appreciation of investment securities | $ | 495,520,565 |
Cost of investments for tax purposes is $1,838,627,787.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 333,701 | $ | 7,548,671 | 887,171 | $ | 17,276,539 | ||||||||||
Series II | 2,420,014 | 53,637,542 | 8,473,190 | 163,595,757 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 104,580 | 2,099,962 | ||||||||||||
Series II | — | — | 1,230,523 | 24,684,293 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (826,058 | ) | (18,861,800 | ) | (2,832,826 | ) | (54,906,390 | ) | ||||||||
Series II | (7,066,357 | ) | (159,730,834 | ) | (9,776,546 | ) | (189,329,886 | ) | ||||||||
Net increase (decrease) in share activity | (5,138,700 | ) | $ | (117,406,421 | ) | (1,913,908 | ) | $ | (36,579,725 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Growth and 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 on securities | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 20.07 | $ | 0.17 | $ | 3.36 | $ | 3.53 | $ | — | $ | — | $ | — | $ | 23.60 | 17.59 | %(d) | $ | 152,882 | 0.73 | %(e) | 0.82 | %(e) | 1.49 | %(e) | 16 | % | ||||||||||||||||||||||||||||
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 | 0.84 | 1.72 | 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) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 20.03 | 0.14 | 3.35 | 3.49 | — | — | — | 23.52 | 17.42 | (d) | 2,175,627 | 0.98 | (e) | 1.07 | (e) | 1.24 | (e) | 16 | ||||||||||||||||||||||||||||||||||||||
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 | 1.09 | 1.47 | 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 annualized and based on average daily net assets (000’s omitted) of $152,643 and $2,141,904 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%. |
Invesco V.I. Growth and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/13) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,175.90 | $ | 3.94 | $ | 1,021.17 | $ | 3.66 | 0.73 | % | ||||||||||||
Series II | 1,000.00 | 1,174.20 | 5.28 | 1,019.93 | 4.91 | 0.98 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective May 1, 2013, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expense of Series I and Series II shares to 0.78% and 1.03% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 0.78% and 1.03% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.21 and $5.55 for, Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.91 and $5.16 for Series I and Series II shares, respectively. |
Invesco V.I. Growth and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Growth and Income Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one year period, the third quintile for the three year period and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. The Trustees also reviewed
Invesco V.I. Growth and Income Fund |
more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers with investment strategies comparable to those of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to a client account with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least April 30, 2014 in an amount
necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these
services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Growth and Income Fund |
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![]() | Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. High Yield Fund | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 0.71 | % | |||
Series II Shares | 0.72 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | -2.44 | ||||
Barclays U.S. Corporate High Yield 2% Issuer Cap Indexn (Style-Specific Index) | 1.42 | ||||
Lipper VUF High Current Yield Bond Funds Classification Averagen (Peer Group) | 1.23 | ||||
Source(s): ‚Invesco, Barclays via FactSet Research Systems Inc.; nLipper Inc. |
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, non-investment grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Lipper VUF High Current Yield Bond Funds 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (5/1/98) | 4.19 | % | |||
10 Years | 8.07 | ||||
5 Years | 9.08 | ||||
1 Year | 9.53 | ||||
Series II Shares | |||||
Inception (3/26/02) | 7.81 | % | |||
10 Years | 7.82 | ||||
5 Years | 8.81 | ||||
1 Year | 9.32 |
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 0.81% and 1.06%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.05% and 1.30%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 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
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–89.39% |
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Aerospace & Defense–2.41% | ||||||||
B/E Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | $ | 125,000 | $ | 125,625 | ||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, | 115,000 | 115,288 | ||||||
6.13%, 01/15/23(b) | 215,000 | 215,000 | ||||||
7.75%, 03/15/20(b) | 435,000 | 489,375 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Notes, 5.25%, 02/01/21(b) | 365,000 | 354,050 | ||||||
Erickson Air-Crane Inc., Sr. Sec. Gtd. Notes, 8.25%, 05/01/20(b) | 110,000 | 108,075 | ||||||
GenCorp Inc., Sr. Sec. Gtd. Notes, 7.13%, 03/15/21(b) | 540,000 | 562,950 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 03/15/18 | 200,000 | 215,250 | ||||||
Sequa Corp., Sr. Unsec. Gtd. Notes, 7.00%, 12/15/17(b) | 200,000 | 198,750 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 295,000 | 308,275 | ||||||
TransDigm Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Notes, 5.50%, 10/15/20(b) | 225,000 | 210,937 | ||||||
Sr. Unsec. Sub. Notes, 7.50%, 07/15/21(b) | 210,000 | 212,100 | ||||||
3,115,675 | ||||||||
Airlines–2.36% | ||||||||
Air Canada Pass Through Trust (Canada), Series 2013-1, Class B, Sec. Pass Through Ctfs., 5.38%, 05/15/21(b) | 160,000 | 157,328 | ||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 308,221 | 323,632 | ||||||
British Airways PLC (United Kingdom), Sec. Pass Through Ctfs., 5.63%, 06/20/20(b) | 180,000 | 183,195 | ||||||
Continental Airlines Pass Through Trust, Series 2000-2, Class B, Sec. Pass Through Ctfs., 8.31%, 04/02/18 | 35,710 | 36,915 | ||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | 187,561 | 192,836 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 0 | 0 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 207,024 | 230,443 | ||||||
Series 2012-3, Class C, Sr. Sec. Pass Through Ctfs., 6.13%, 04/29/18 | 145,000 | 147,175 | ||||||
Delta Air Lines Pass Through Trust, Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14 | 315,138 | 330,107 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15 | 165,000 | 172,837 |
Principal Amount | Value | |||||||
Airlines–(continued) | ||||||||
UAL Pass Through Trust, Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19 | $ | 108,620 | $ | 113,508 | ||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 101,349 | 116,552 | ||||||
Series 2009-2, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 203,568 | 231,177 | ||||||
United Continental Holdings Inc., Sr. Unsec. Gtd. Notes, 6.38%, 06/01/18 | 335,000 | 329,975 | ||||||
US Airways Pass Through Trust, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | 212,106 | 206,804 | ||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | 69,874 | 73,848 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 69,950 | 76,245 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 84,936 | 90,032 | ||||||
Series 2013-1, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 5.38%, 11/15/21 | 35,000 | 34,563 | ||||||
3,047,172 | ||||||||
Alternative Carriers–1.40% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, | 225,000 | 248,625 | ||||||
Level 3 Communications Inc., Sr. Unsec. Global Notes, | 210,000 | 220,500 | ||||||
11.88%, 02/01/19 | 435,000 | 495,900 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, | 285,000 | 286,425 | ||||||
8.13%, 07/01/19 | 265,000 | 279,575 | ||||||
8.63%, 07/15/20 | 130,000 | 139,100 | ||||||
9.38%, 04/01/19 | 130,000 | 141,375 | ||||||
1,811,500 | ||||||||
Apparel Retail–0.83% | ||||||||
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | 650,000 | 682,500 | ||||||
L Brands Inc., | 160,000 | 162,600 | ||||||
8.50%, 06/15/19 | 100,000 | 116,750 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | 80,000 | 87,000 | ||||||
7.00%, 05/01/20 | 25,000 | 28,000 | ||||||
1,076,850 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Apparel, Accessories & Luxury Goods–1.98% | ||||||||
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | $ | 1,110,000 | $ | 1,121,100 | ||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 6.88%, 05/01/22 | 340,000 | 370,600 | ||||||
7.63%, 05/15/20 | 690,000 | 745,200 | ||||||
PVH Corp., Sr. Unsec. Global Notes, 4.50%, 12/15/22 | 70,000 | 66,587 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 255,000 | 248,944 | ||||||
2,552,431 | ||||||||
Application Software–0.28% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | 365,000 | 358,613 | ||||||
Auto Parts & Equipment–1.14% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 595,000 | 632,187 | ||||||
American Axle & Manufacturing Inc., Sr. Unsec. Gtd. Notes, | 230,000 | 234,600 | ||||||
6.63%, 10/15/22 | 195,000 | 199,875 | ||||||
Gestamp Funding Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 5.63%, 05/31/20(b) | 220,000 | 208,620 | ||||||
Schaeffler Finance B.V. (Germany), Sr. Sec. Notes, 4.75%, 05/15/21(b) | 200,000 | 190,977 | ||||||
1,466,259 | ||||||||
Automobile Manufacturers–0.38% | ||||||||
Chrysler Group LLC/CG Co-Issuer Inc., Sr. Sec. Gtd. Global Notes, 8.00%, 06/15/19 | 450,000 | 494,438 | ||||||
Biotechnology–0.02% | ||||||||
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | 120,000 | 25,800 | ||||||
Broadcasting–0.94% | ||||||||
Clear Channel Worldwide Holdings Inc., Series A, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | 110,000 | 111,650 | ||||||
Series B, Sr. Unsec. Gtd. Notes, 6.50%, 11/15/22(b) | 290,000 | 297,250 | ||||||
Series B, Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | 635,000 | 660,400 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 01/15/21 | 90,000 | 91,575 | ||||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 50,000 | 49,531 | ||||||
1,210,406 | ||||||||
Building Products–3.25% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 555,000 | 588,300 | ||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 300,000 | 291,750 |
Principal Amount | Value | |||||||
Building Products–(continued) | ||||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Notes, 6.25%, 02/01/21(b) | $ | 700,000 | $ | 729,750 | ||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 790,000 | 843,325 | ||||||
10.00%, 12/01/18 | 410,000 | 446,900 | ||||||
Ply Gem Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.38%, 04/15/17 | 96,000 | 101,520 | ||||||
USG Corp., | 445,000 | 486,162 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 620,000 | 703,700 | ||||||
4,191,407 | ||||||||
Cable & Satellite–4.18% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Notes, 5.25%, 03/15/21(b) | 295,000 | 293,525 | ||||||
DISH DBS Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.00%, 03/15/23 | 550,000 | 531,437 | ||||||
5.88%, 07/15/22 | �� | 130,000 | 132,763 | |||||
Sr. Unsec. Gtd. Notes, 5.13%, 05/01/20(b) | 410,000 | 405,900 | ||||||
Hughes Satellite Systems Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | 345,000 | 370,875 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 105,000 | 112,350 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.63%, 12/15/22(b) | 465,000 | 452,213 | ||||||
Intelsat Luxembourg S.A. (Luxembourg), Sr. Unsec. Gtd. Notes, 7.75%, 06/01/21(b) | 555,000 | 561,937 | ||||||
8.13%, 06/01/23(b) | 165,000 | 170,363 | ||||||
Lynx I Corp. (United Kingdom), Sr. Sec. Notes, 5.38%, 04/15/21(b) | 200,000 | 202,000 | ||||||
Lynx II Corp. (United Kingdom), Sr. Unsec. Notes, 6.38%, 04/15/23(b) | 200,000 | 203,000 | ||||||
Nara Cable Funding Ltd. (Spain), Sr. Sec. Gtd. Notes, 8.88%, 12/01/18(b) | 400,000 | 416,000 | ||||||
Ono Finance II PLC (Spain), Sr. Unsec. Gtd. Notes, 10.88%, 07/15/19(b) | 450,000 | 468,000 | ||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. Notes, 7.50%, 03/15/19(b) | 410,000 | 433,088 | ||||||
ViaSat Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 06/15/20 | 605,000 | 638,275 | ||||||
5,391,726 | ||||||||
Casinos & Gaming–4.68% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | 435,000 | 455,662 | ||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, | 155,000 | 158,875 | ||||||
9.13%, 12/01/18 | 100,000 | 104,750 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
Caesars Entertainment Operating Co. Inc., | ||||||||
Sec. Gtd. Global Notes, 12.75%, 04/15/18 | $ | 140,000 | $ | 95,550 | ||||
Sr. Sec. Gtd. Global Notes, 10.00%, 12/15/15 | 100,000 | 86,750 | ||||||
Sr. Sec. Gtd. Notes, 9.00%, 02/15/20(b) | 270,000 | 258,525 | ||||||
Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/13 | 405,000 | 405,000 | ||||||
Caesars Operating Escrow LLC/Caesars Escrow Corp., Sr. Sec. Gtd. Notes, | ||||||||
9.00%, 02/15/20(b) | 135,000 | 129,262 | ||||||
9.00%, 02/15/20(b) | 155,000 | 148,412 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sr. Sec. Gtd. Global PIK Notes, 10.75%, 01/15/17 | 494,351 | 536,371 | ||||||
Codere Finance Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 9.25%, 02/15/19(b) | 95,000 | 56,288 | ||||||
MCE Finance Ltd. (China), Sr. Unsec. Gtd. Notes, 5.00%, 02/15/21(b) | 200,000 | 188,000 | ||||||
MGM Resorts International, | 95,000 | 106,578 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 12/15/21 | 180,000 | 186,300 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 1,040,000 | 1,136,200 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 415,000 | 439,900 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.22%, 02/01/14(b)(c) | 705,000 | 690,019 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 502,000 | 496,980 | ||||||
Sugarhouse HSP Gaming Prop Mezz L.P./Sugarhouse HSP Gaming Finance Corp., Sr. Sec. Notes, 6.38%, 06/01/21(b) | 55,000 | 53,763 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. First Mortgage Global Notes, 5.38%, 03/15/22 | 305,000 | 309,766 | ||||||
6,042,951 | ||||||||
Coal & Consumable Fuels–1.25% | ||||||||
Alpha Natural Resources Inc., Sr. Unsec. Gtd. Notes, 9.75%, 04/15/18 | 145,000 | 140,650 | ||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | 595,000 | 629,212 | ||||||
Peabody Energy Corp., | 540,000 | 544,050 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | 295,000 | 295,738 | ||||||
1,609,650 | ||||||||
Communications Equipment–0.68% | ||||||||
Avaya Inc., | 205,000 | 156,313 | ||||||
Sr. Sec. Gtd. Notes, | 650,000 | 589,062 | ||||||
9.00%, 04/01/19(b) | 135,000 | 130,950 | ||||||
876,325 |
Principal Amount | Value | |||||||
Computer & Electronics Retail–0.55% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | $ | 680,000 | $ | 714,850 | ||||
Computer Storage & Peripherals–0.92% | ||||||||
Seagate HDD Cayman, | 695,000 | 748,862 | ||||||
Sr. Unsec. Gtd. Notes, 4.75%, 06/01/23(b) | 470,000 | 438,275 | ||||||
1,187,137 | ||||||||
Construction & Engineering–1.48% | ||||||||
Abengoa Finance S.A.U. (Spain), Sr. Unsec. Gtd. Notes, | 210,000 | 194,860 | ||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 730,000 | 777,450 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 910,000 | 939,575 | ||||||
1,911,885 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.88% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/17 | 290,000 | 329,150 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 400,000 | 403,000 | ||||||
Manitowoc Co. Inc. (The), | 375,000 | 376,875 | ||||||
Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 230,000 | 253,000 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 560,000 | 553,000 | ||||||
Terex Corp., | 75,000 | 76,500 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 04/01/20 | 40,000 | 41,100 | ||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | 375,000 | 394,687 | ||||||
2,427,312 | ||||||||
Construction Materials–1.51% | ||||||||
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Notes, 9.50%, 12/14/16(b) | 595,000 | 632,207 | ||||||
Cemex S.A.B de C.V. (Mexico), Sr. Sec. Gtd. Notes, 5.88%, 03/25/19(b) | 400,000 | 395,644 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 810,000 | 874,800 | ||||||
U.S. Concrete, Inc., Sr. Sec. Gtd. Sub. Notes, 9.50%, 10/01/15 | 50,400 | 50,589 | ||||||
1,953,240 | ||||||||
Consumer Finance–1.00% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, | 60,000 | 69,450 | ||||||
8.00%, 03/15/20 | 1,040,000 | 1,219,400 | ||||||
1,288,850 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Data Processing & Outsourced Services–3.04% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | $ | 930,000 | $ | 995,100 | ||||
First Data Corp., | 705,000 | 724,387 | ||||||
7.38%, 06/15/19(b) | 195,000 | 202,313 | ||||||
8.25%, 01/15/21(b) | 1,394,000 | 1,428,850 | ||||||
Sr. Unsec. Gtd. Global Notes, 12.63%, 01/15/21 | 80,000 | 84,800 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 11.75%, 08/15/21(b) | 140,000 | 127,750 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/15/20 | 148,000 | 157,620 | ||||||
WEX Inc., Sr. Unsec. Gtd. Notes, 4.75%, 02/01/23(b) | 215,000 | 202,637 | ||||||
3,923,457 | ||||||||
Department Stores–0.30% | ||||||||
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | 415,000 | 393,213 | ||||||
Distillers & Vintners–0.22% | ||||||||
CEDC Finance Corp. International Inc. (Poland), | 79,843 | 62,277 | ||||||
Sr. Sec. Gtd. Global Notes, 8.00%, 04/30/18(d) | 185,474 | 162,629 | ||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | 50,000 | 53,875 | ||||||
278,781 | ||||||||
Diversified Banks–0.27% | ||||||||
RBS Capital Trust II (United Kingdom), Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(e) | 200,000 | 160,000 | ||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | 195,000 | 186,325 | ||||||
346,325 | ||||||||
Diversified Chemicals–0.06% | ||||||||
Eagle Spinco Inc., Sr. Unsec. Gtd. Notes, 4.63%, 02/15/21(b) | 75,000 | 72,375 | ||||||
Diversified Metals & Mining–1.45% | ||||||||
FMG Resources Pty. Ltd. (Australia), | 340,000 | 340,000 | ||||||
6.88%, 04/01/22(b) | 225,000 | 219,938 | ||||||
8.25%, 11/01/19(b) | 505,000 | 520,150 | ||||||
Vedanta Resources PLC (India), | 220,000 | 212,878 | ||||||
9.50%, 07/18/18(b) | 395,000 | 436,682 | ||||||
Walter Energy Inc., Sr. Unsec. Gtd. Notes, 8.50%, 04/15/21(b) | 183,000 | 146,400 | ||||||
1,876,048 |
Principal Amount | Value | |||||||
Electric Utilities–0.00% | ||||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14(f) | $ | 262,000 | $ | 0 | ||||
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(f) | 275,000 | 0 | ||||||
0 | ||||||||
Electrical Components & Equipment–0.21% | ||||||||
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | 270,000 | 268,650 | ||||||
Electronic Manufacturing Services–0.52% | ||||||||
Sanmina Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 640,000 | 668,800 | ||||||
Environmental & Facilities Services–0.22% | ||||||||
Clean Harbors Inc., Sr. Unsec. Gtd. Global Notes, 5.13%, 06/01/21 | 120,000 | 119,550 | ||||||
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | 160,000 | 171,600 | ||||||
291,150 | ||||||||
Food Retail–0.13% | ||||||||
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | 205,000 | 162,975 | ||||||
Forest Products–0.30% | ||||||||
Boise Cascade Co., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/01/20 | 45,000 | 45,675 | ||||||
Emerald Plantation Holdings Ltd. (Cayman Islands), Sr. Sec. Gtd. Global PIK Notes, 6.00%, 01/30/20(g) | 6,933 | 3,998 | ||||||
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | 345,000 | 343,275 | ||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, | 40,000 | 200 | ||||||
393,148 | ||||||||
Gas Utilities–1.26% | ||||||||
AmeriGas Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 05/20/22 | 350,000 | 360,500 | ||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | 563,000 | 572,852 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., | ||||||||
Sr. Unsec. Global Notes, 7.38%, 08/01/21 | 209,000 | 216,315 | ||||||
Sr. Unsec. Notes, 7.38%, 03/15/20 | 460,000 | 481,850 | ||||||
1,631,517 | ||||||||
Gold–0.20% | ||||||||
Eldorado Gold Corp. (Canada), Sr. Unsec. Notes, 6.13%, 12/15/20(b) | 260,000 | 253,500 | ||||||
Health Care Equipment–0.70% | ||||||||
Biomet Inc., | 150,000 | 155,250 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 6.50%, 10/01/20 | 250,000 | 251,250 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Health Care Equipment–(continued) | ||||||||
DJO Finance LLC/Corp., | $ | 45,000 | $ | 44,662 | ||||
Sr. Unsec. Gtd. Sub. Global Notes, | ||||||||
9.75%, 10/15/17 | 150,000 | 153,750 | ||||||
Universal Hospital Services Inc., Sr. Sec. Gtd. Global Notes, 7.63%, 08/15/20 | 280,000 | 294,000 | ||||||
898,912 | ||||||||
Health Care Facilities–1.16% | ||||||||
HCA, Inc., | 260,000 | 267,800 | ||||||
Sr. Unsec. Gtd. Global Notes, 5.88%, 05/01/23 | 590,000 | 594,425 | ||||||
Tenet Healthcare Corp., | 30,000 | 28,987 | ||||||
Sr. Unsec. Global Notes, | 265,000 | 258,375 | ||||||
8.00%, 08/01/20 | 330,000 | 344,850 | ||||||
1,494,437 | ||||||||
Health Care Services–0.42% | ||||||||
DaVita HealthCare Partners Inc., Sr. Unsec. Gtd. Global Notes, 5.75%, 08/15/22 | 140,000 | 140,350 | ||||||
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | 375,000 | 397,500 | ||||||
537,850 | ||||||||
Health Care Technology–0.42% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | 505,000 | 539,087 | ||||||
Homebuilding–3.58% | ||||||||
Beazer Homes USA Inc., | 400,000 | 438,000 | ||||||
Sr. Unsec. Gtd. Notes, 7.25%, 02/01/23(b) | 168,000 | 171,360 | ||||||
Sr. Unsec. Gtd. Notes, 9.13%, 06/15/18 | 215,000 | 224,944 | ||||||
K. Hovnanian Enterprises Inc., | 325,000 | 352,625 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.25%, 01/15/16 | 660,000 | 679,800 | ||||||
Sr. Unsec. Gtd. Notes, 7.50%, 05/15/16 | 125,000 | 128,906 | ||||||
11.88%, 10/15/15 | 85,000 | 97,325 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/22 | 105,000 | 112,875 | ||||||
Lennar Corp., | 520,000 | 567,450 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 11/15/22(b) | 166,000 | 158,322 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 450,000 | 488,250 |
Principal Amount | Value | |||||||
Homebuilding–(continued) | ||||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/22 | $ | 170,000 | $ | 188,275 | ||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 315,000 | 308,306 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, | 55,000 | 52,388 | ||||||
7.75%, 04/15/20(b) | 454,000 | 490,320 | ||||||
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | 150,000 | 158,250 | ||||||
4,617,396 | ||||||||
Hotels, Resorts & Cruise Lines–0.36% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, | 145,000 | 142,100 | ||||||
7.25%, 03/15/18 | 130,000 | 147,875 | ||||||
7.50%, 10/15/27 | 160,000 | 176,800 | ||||||
466,775 | ||||||||
Household Products–0.64% | ||||||||
Central Garden & Pet Co., Sr. Unsec. Gtd. Sub. Notes, 8.25%, 03/01/18 | 300,000 | 304,125 | ||||||
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC, Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 340,000 | 343,400 | ||||||
7.13%, 04/15/19 | 175,000 | 185,719 | ||||||
833,244 | ||||||||
Housewares & Specialties–0.22% | ||||||||
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | 230,000 | 233,450 | ||||||
Spectrum Brands Escrow Corp., Sr. Unsec. Gtd. Notes, | 45,000 | 47,531 | ||||||
280,981 | ||||||||
Independent Power Producers & Energy Traders–0.79% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 7.38%, 07/01/21 | 350,000 | 385,875 | ||||||
NRG Energy Inc., | 233,000 | 249,892 | ||||||
7.88%, 05/15/21 | 85,000 | 90,738 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 03/15/23(b) | 100,000 | 100,000 | ||||||
Red Oak Power LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 176,894 | 188,392 | ||||||
1,014,897 | ||||||||
Industrial Conglomerates–0.00% | ||||||||
Indalex Holding Corp., Series B, Sec. Gtd. Global Notes, | 230,000 | 0 | ||||||
Industrial Machinery–0.16% | ||||||||
Actuant Corp., Sr. Unsec. Gtd. Global Notes, 5.63%, 06/15/22 | 165,000 | 167,888 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | 35,000 | 37,275 | ||||||
205,163 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Internet Software & Services–0.82% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Notes, 6.38%, 11/15/22(b) | $ | 375,000 | $ | 384,375 | ||||
Equinix Inc., Sr. Unsec. Notes, 5.38%, 04/01/23 | 430,000 | 423,550 | ||||||
7.00%, 07/15/21 | 110,000 | 119,900 | ||||||
VeriSign Inc., Sr. Unsec. Gtd. Notes, 4.63%, 05/01/23(b) | 135,000 | 132,131 | ||||||
1,059,956 | ||||||||
Leisure Facilities–0.29% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Notes, 5.25%, 03/15/21(b) | 235,000 | 227,363 | ||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 135,000 | 141,750 | ||||||
369,113 | ||||||||
Marine–0.11% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Global Notes, 8.63%, 11/01/17 | 145,000 | 148,988 | ||||||
Movies & Entertainment–1.04% | ||||||||
Cinemark USA Inc., Sr. Unsec. Gtd. Global Notes, 5.13%, 12/15/22 | 280,000 | 272,300 | ||||||
Live Nation Entertainment Inc., Sr. Unsec. Gtd. Notes, 7.00%, 09/01/20(b) | 650,000 | 687,375 | ||||||
Outerwall Inc., Sr. Unsec. Gtd. Notes, 6.00%, 03/15/19(b) | 385,000 | 386,925 | ||||||
1,346,600 | ||||||||
Multi-Line Insurance–1.78% | ||||||||
American International Group Inc., Jr. Unsec. Sub. Global Deb., 8.18%, 05/15/58 | 595,000 | 736,543 | ||||||
Fairfax Financial Holdings Ltd. (Canada), Sr. Unsec. Notes, 5.80%, 05/15/21(b) | 300,000 | 308,820 | ||||||
Hartford Financial Services Group Inc. (The), | 275,000 | 307,312 | ||||||
Sr. Unsec. Global Notes, 5.95%, 10/15/36 | 90,000 | 98,011 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 725,000 | 848,250 | ||||||
2,298,936 | ||||||||
Office Services & Supplies–0.04% | ||||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 55,000 | 58,025 | ||||||
Oil & Gas Drilling–0.50% | ||||||||
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | 49,000 | 51,389 | ||||||
Precision Drilling Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | 585,000 | 601,087 | ||||||
652,476 |
Principal Amount | Value | |||||||
Oil & Gas Equipment & Services–0.96% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | $ | 240,000 | $ | 247,200 | ||||
Calfrac Holdings L.P. (Canada), Sr. Unsec. Gtd. Notes, | 545,000 | 542,275 | ||||||
Exterran Partners L.P./EXLP Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/21(b) | 135,000 | 133,987 | ||||||
Gulfmark Offshore Inc., Sr. Unsec. Global Notes, 6.38%, 03/15/22 | 300,000 | 299,250 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 20,000 | 19,250 | ||||||
1,241,962 | ||||||||
Oil & Gas Exploration & Production–5.86% | ||||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.38%, 09/15/22 | 415,000 | 415,519 | ||||||
6.75%, 11/01/20 | 130,000 | 135,525 | ||||||
Bonanza Creek Energy Inc., Sr. Unsec. Gtd. Notes, 6.75%, 04/15/21(b) | 113,000 | 114,413 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, | 540,000 | 553,500 | ||||||
8.25%, 09/01/21 | 350,000 | 369,250 | ||||||
Chesapeake Energy Corp., | 165,000 | 180,263 | ||||||
Sr. Unsec. Gtd. Notes, 5.75%, 03/15/23 | 130,000 | 131,950 | ||||||
6.13%, 02/15/21 | 263,000 | 276,807 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | 510,000 | 530,400 | ||||||
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | 680,000 | 688,500 | ||||||
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 340,000 | 319,600 | ||||||
Halcon Resources Corp., Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/21 | 733,000 | 716,507 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | 55,000 | 58,300 | ||||||
Legacy Reserves L.P./Legacy Reserves Finance Corp., Sr. Unsec. Gtd. Notes, 6.63%, 12/01/21(b) | 143,000 | 137,995 | ||||||
MEG Energy Corp. (Canada), Sr. Unsec. Gtd. Notes, | 297,000 | 289,575 | ||||||
6.50%, 03/15/21(b) | 85,000 | 85,000 | ||||||
Memorial Production Partners L.P./Memorial Production Finance Corp., Sr. Unsec. Gtd. Notes, 7.63%, 05/01/21(b) | 381,000 | 377,190 | ||||||
QEP Resources Inc., | 215,000 | 210,700 | ||||||
Sr. Unsec. Notes, 5.38%, 10/01/22 | 340,000 | 340,000 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, | 80,000 | 78,400 | ||||||
5.75%, 06/01/21 | 600,000 | 624,000 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
SandRidge Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 03/15/21 | $ | 333,000 | $ | 319,680 | ||||
SM Energy Co., Sr. Unsec. Global Notes, 6.50%, 11/15/21 | 270,000 | 284,850 | ||||||
6.50%, 01/01/23 | 105,000 | 110,775 | ||||||
6.63%, 02/15/19 | 210,000 | 218,925 | ||||||
7,567,624 | ||||||||
Oil & Gas Refining & Marketing–0.57% | ||||||||
CVR Refining LLC/Coffeyville Finance Inc., Sr. Sec. Gtd. Notes, 6.50%, 11/01/22(b) | 504,000 | 497,700 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 210,000 | 234,150 | ||||||
731,850 | ||||||||
Oil & Gas Storage & Transportation–3.90% | ||||||||
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, | 310,000 | 313,100 | ||||||
6.13%, 07/15/22 | 290,000 | 295,075 | ||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.88%, 08/01/23(b) | 170,000 | 163,200 | ||||||
6.63%, 10/01/20(b) | 480,000 | 482,400 | ||||||
Crosstex Energy L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 06/01/22 | 205,000 | 209,612 | ||||||
Eagle Rock Energy Partners L.P./Eagle Rock Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 06/01/19 | 808,000 | 828,200 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 480,000 | 526,800 | ||||||
Inergy Midstream L.P./NRGM Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 12/15/20(b) | 175,000 | 169,750 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, | 440,000 | 435,600 | ||||||
6.50%, 08/15/21 | 123,000 | 126,690 | ||||||
Penn Virginia Resource Partners L.P./Penn Virginia Resource Finance Corp. II, Sr. Unsec. Gtd. Notes, 6.50%, 05/15/21(b) | 235,000 | 225,600 | ||||||
Rockies Express Pipeline LLC, Sr. Unsec. Notes, 6.00%, 01/15/19(b) | 50,000 | 45,375 | ||||||
Sabine Pass Liquefaction LLC, Sr. Sec. Notes, 5.63%, 02/01/21(b) | 190,000 | 182,400 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 08/01/22 | 83,000 | 87,150 | ||||||
6.88%, 02/01/21 | 580,000 | 619,150 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 160,000 | 174,800 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., Sr. Unsec. Notes, 5.88%, 10/01/20(b) | 150,000 | 149,250 | ||||||
5,034,152 |
Principal Amount | Value | |||||||
Other Diversified Financial Services–1.11% | ||||||||
Citigroup Inc., Series A, Jr. Unsec. Sub. Global Notes, 5.95%(e) | $ | 600,000 | $ | 600,000 | ||||
Compiler Finance Sub Inc., Sr. Unsec. Notes, 7.00%, 05/01/21(b) | 30,000 | 29,400 | ||||||
Jefferies Finance LLC/JFIN Co-Issuer Corp., Sr. Unsec. Notes, 7.38%, 04/01/20(b) | 400,000 | 394,000 | ||||||
Oxford Finance LLC/Oxford Finance Co-Issuer Inc., Sr. Unsec. Notes, 7.25%, 01/15/18(b) | 385,000 | 404,250 | ||||||
1,427,650 | ||||||||
Packaged Foods & Meats–1.40% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | 460,000 | 473,800 | ||||||
Post Holdings Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 02/15/22 | 565,000 | 610,200 | ||||||
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | 365,000 | 385,075 | ||||||
Wells Enterprises Inc., Sr. Sec. Notes, 6.75%, 02/01/20(b) | 320,000 | 335,200 | ||||||
1,804,275 | ||||||||
Paper Packaging–0.32% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 395,000 | 415,738 | ||||||
Paper Products–0.49% | ||||||||
Neenah Paper Inc., Sr. Unsec. Gtd. Notes, 5.25%, 05/15/21(b) | 84,000 | 83,160 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 180,000 | 179,100 | ||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, 7.50%, 02/15/19(b) | 355,000 | 365,650 | ||||||
627,910 | ||||||||
Personal Products–0.22% | ||||||||
First Quality Finance Co. Inc., Sr. Unsec. Notes, 4.63%, 05/15/21(b) | 114,000 | 108,870 | ||||||
Revlon Consumer Products Corp., Sr. Unsec. Gtd. Notes, | 185,000 | 181,763 | ||||||
290,633 | ||||||||
Real Estate Services–0.24% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 295,000 | 312,700 | ||||||
Regional Banks–2.11% | ||||||||
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | 100,000 | 106,408 | ||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 920,000 | 1,004,613 | ||||||
Synovus Financial Corp., | 265,000 | 296,800 | ||||||
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 830,000 | 821,700 | ||||||
Zions Bancorp., Series I, Jr. Unsec. Sub. Notes, 5.80% (e) | 530,000 | 499,525 | ||||||
2,729,046 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Research & Consulting Services–0.30% | ||||||||
FTI Consulting Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | $ | 250,000 | $ | 264,375 | ||||
Sr. Unsec. Gtd. Notes, 6.00%, 11/15/22(b) | 125,000 | 127,500 | ||||||
391,875 | ||||||||
Semiconductor Equipment–1.38% | ||||||||
Amkor Technology Inc., | 50,000 | 48,875 | ||||||
6.63%, 06/01/21 | 705,000 | 697,950 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/18 | 490,000 | 508,375 | ||||||
Sensata Technologies B.V., Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 490,000 | 521,850 | ||||||
1,777,050 | ||||||||
Semiconductors–1.27% | ||||||||
Freescale Semiconductor Inc., Sr. Unsec. Gtd. Global Notes, | 535,000 | 545,700 | ||||||
10.75%, 08/01/20 | 250,000 | 274,375 | ||||||
NXP BV/NXP Funding LLC (Netherlands), Sr. Unsec. Gtd. Notes, 5.75%, 02/15/21(b) | 400,000 | 410,000 | ||||||
Sr. Unsec. Notes, 5.75%, 03/15/23(b) | 400,000 | 410,000 | ||||||
1,640,075 | ||||||||
Sovereign Debt–0.29% | ||||||||
Slovenia Government International Bond (Slovenia), Sr. Unsec. Bonds, 4.75%, 05/10/18(b) | 200,000 | 190,500 | ||||||
5.85%, 05/10/23(b) | 200,000 | 186,500 | ||||||
377,000 | ||||||||
Specialized Finance–3.52% | ||||||||
Air Lease Corp., | 530,000 | 552,525 | ||||||
Sr. Unsec. Gtd. Global Notes, 4.75%, 03/01/20 | 454,000 | 441,515 | ||||||
Aircastle Ltd., Sr. Unsec. Global Notes, 6.25%, 12/01/19 | 50,000 | 52,188 | ||||||
6.75%, 04/15/17 | 780,000 | 822,900 | ||||||
7.63%, 04/15/20 | 250,000 | 276,250 | ||||||
CIT Group Inc., | 585,000 | 585,000 | ||||||
5.25%, 03/15/18 | 72,000 | 74,160 | ||||||
Sr. Unsec. Notes, 5.50%, 02/15/19(b) | 195,000 | 201,337 | ||||||
International Lease Finance Corp., | 265,000 | 293,984 | ||||||
Sr. Unsec. Global Notes, 3.88%, 04/15/18 | 325,000 | 306,109 | ||||||
4.63%, 04/15/21 | 175,000 | 161,438 | ||||||
5.88%, 04/01/19 | 90,000 | 91,069 | ||||||
5.88%, 08/15/22 | 265,000 | 264,006 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 375,000 | 421,875 | ||||||
4,544,356 |
Principal Amount | Value | |||||||
Specialized REIT’s–0.26% | ||||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | $ | 320,000 | $ | 340,800 | ||||
Specialty Chemicals–0.89% | ||||||||
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | 235,000 | 244,400 | ||||||
Magnetation LLC/ Mag Finance Corp., Sr. Sec. Gtd. Notes, 11.00%, 05/15/18(b) | 90,000 | 89,325 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 5.25%, 03/15/23(b) | 425,000 | 418,625 | ||||||
PQ Corp., Sr. Sec. Notes, 8.75%, 05/01/18(b) | 240,000 | 246,600 | ||||||
U.S. Coatings Acquisition Inc./Axalta Coating Systems Dutch Holding B.V., Sr. Unsec. Gtd. Notes, 7.38%, 05/01/21(b) | 150,000 | 154,500 | ||||||
1,153,450 | ||||||||
Specialty Stores–0.38% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | 460,000 | 493,350 | ||||||
Steel–1.39% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 6.75%, 02/25/22 | 150,000 | 154,475 | ||||||
Commercial Metals Co., Sr. Unsec. Notes, 4.88%, 05/15/23 | 88,000 | 81,180 | ||||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Notes, 6.13%, 08/15/19(b) | 400,000 | 427,000 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/20(b) | 630,000 | 645,750 | ||||||
United States Steel Corp., | 305,000 | 300,425 | ||||||
Sr. Unsec. Notes, 7.00%, 02/01/18 | 175,000 | 184,188 | ||||||
1,793,018 | ||||||||
Technology Distributors–0.25% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 315,000 | 329,963 | ||||||
Tires & Rubber–0.35% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 425,000 | 449,438 | ||||||
Trading Companies & Distributors–0.28% | ||||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 09/01/22 | 55,000 | 57,750 | ||||||
United Rentals North America Inc., Sr. Sec. Gtd. Global Notes, 5.75%, 07/15/18 | 40,000 | 42,100 | ||||||
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 235,000 | 258,500 | ||||||
358,350 |
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–1.56% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, | $ | 800,000 | $ | 877,000 | ||||
9.75%, 03/15/20 | 95,000 | 108,419 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, | 25,000 | 25,875 | ||||||
6.75%, 04/15/19 | 305,000 | 324,062 | ||||||
7.38%, 01/15/21 | 625,000 | 675,000 | ||||||
2,010,356 | ||||||||
Wireless Telecommunication Services–5.76% | ||||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 1,130,000 | 1,096,100 | ||||||
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/20(b) | 400,000 | 416,000 | ||||||
Digicel Ltd. (Jamaica), Sr. Unsec. Notes, 6.00%, 04/15/21(b) | 400,000 | 384,000 | ||||||
eAccess Ltd. (Japan), Sr. Unsec. Gtd. Notes, 8.25%, 04/01/18(b) | 200,000 | 220,750 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | 60,000 | 61,350 | ||||||
6.63%, 11/15/20 | 690,000 | 719,325 | ||||||
6.63%, 04/01/23(b) | 60,000 | 61,350 | ||||||
SBA Communications Corp., Sr. Unsec. Notes, 5.63%, 10/01/19(b) | 190,000 | 187,625 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, | 410,000 | 396,163 | ||||||
6.90%, 05/01/19 | 390,000 | 407,063 | ||||||
Sprint Communications Inc., | 545,000 | 535,462 | ||||||
7.00%, 08/15/20 | 260,000 | 273,975 | ||||||
11.50%, 11/15/21 | 150,000 | 200,250 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | 165,000 | 177,581 | ||||||
9.00%, 11/15/18(b) | 350,000 | 409,500 | ||||||
Sr. Unsec. Notes, 8.38%, 08/15/17 | 340,000 | 383,350 | ||||||
Vimpel Communications via VIP Finance Ireland Ltd. OJSC (Russia), Sr. Unsec. Loan Participation Notes, 7.75%, 02/02/21(b) | 600,000 | 642,750 | ||||||
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 825,000 | 862,125 | ||||||
7,434,719 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes |
| 115,414,592 | ||||||
Non-U.S. Dollar Denominated Bonds & Notes–5.42%(h) |
| |||||||
Apparel, Accessories & Luxury Goods–0.31% | ||||||||
Boardriders S.A., Sr. Unsec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 315,000 | 407,954 |
Principal Amount | Value | |||||||
Broadcasting–0.66% | ||||||||
Central European Media Enterprises Ltd. (Czech Republic), REGS, Jr. Sec. Gtd. Euro Notes, 11.63%, 09/15/16(b) | EUR | 335,000 | $ | 468,739 | ||||
CET 21 spol sro (Czech Republic), Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | EUR | 215,000 | 307,408 | |||||
Polish Television Holding B.V. (Poland), Sr. Sec. Notes, 11.25%, 05/15/17(b)(d) | EUR | 60,000 | 81,220 | |||||
857,367 | ||||||||
Cable & Satellite–0.15% | ||||||||
Nara Cable Funding Ltd. (Spain), Sr. Sec. Gtd. Notes, 8.88%, 12/01/18(b) | EUR | 140,000 | 190,880 | |||||
Casinos & Gaming–0.96% | ||||||||
Codere Finance Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | EUR | 200,000 | 158,144 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 06/15/15(b) | EUR | 345,000 | 272,799 | |||||
Gala Group Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 8.88%, 09/01/18(b) | GBP | 220,000 | 355,032 | |||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22(b) | CAD | 455,000 | 448,814 | |||||
1,234,789 | ||||||||
Construction Materials–0.38% | ||||||||
Obrascon Huarte Lain S.A. (Spain), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.63%, 03/15/20(b) | EUR | 100,000 | 135,855 | |||||
Spie BondCo 3 SCA, (Luxembourg), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 11.00%, 08/15/19(b) | EUR | 255,000 | 355,639 | |||||
491,494 | ||||||||
Diversified Banks–0.21% | ||||||||
Co-Operative Group Holdings (2011) Ltd. (United Kingdom), Sr. Unsec. Gtd. Euro Notes, 5.63%, 07/08/20(d) | GBP | 190,000 | 267,316 | |||||
Food Distributors–0.48% | ||||||||
Bakkavor Finance 2 PLC (United Kingdom), REGS, | GBP | 405,000 | 617,545 | |||||
Hotels, Resorts & Cruise Lines–0.17% | ||||||||
Thomas Cook Finance PLC (United Kingdom), | EUR | 180,000 | 225,502 | |||||
Independent Power Producers & Energy Traders–0.23% | ||||||||
Infinis PLC (United Kingdom), Sr. Sec. Notes, 7.00%, 02/15/19(b) | GBP | 200,000 | 304,960 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Leisure Facilities–0.45% | ||||||||
Cirsa Funding Luxembourg S.A. (Spain), Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | EUR | 230,000 | $ | 302,661 | ||||
REGS, Sr. Unsec. Gtd. Euro Notes, 8.75%, 05/15/18(b) | EUR | 210,000 | 276,343 | |||||
579,004 | ||||||||
Metal & Glass Containers–0.12% | ||||||||
Greif Luxembourg Finance SCA, REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.38%, 07/15/21(b) | EUR | 105,000 | 153,751 | |||||
Multi-Sector Holdings–0.30% | ||||||||
KM Germany Holdings GmbH (Germany), Sr. Sec. Gtd. Notes, 8.75%, 12/15/20(b) | EUR | 155,000 | 208,002 | |||||
Odeon & UCI Finco PLC (United Kingdom), | GBP | 110,000 | 177,349 | |||||
385,351 | ||||||||
Other Diversified Financial Services–0.69% | ||||||||
AG Spring Finance II Ltd. (Spain), Sr. Sec. Notes, 9.50%, 06/01/19(b) | EUR | 120,000 | 142,525 | |||||
AG Spring Finance Ltd. (Spain), Sr. Sec. Gtd. Notes, 7.50%, 06/01/18(b) | EUR | 120,000 | 148,382 | |||||
Boats Investments Netherlands B.V. (Netherlands), REGS, Series 97, Sr. Sec. PIK Medium-Term Mortgage Euro Notes, 11.00%, 03/31/17(b) | EUR | 95,862 | 54,159 | |||||
Lowell Group Financing PLC (United Kingdom), REGS, | GBP | 200,000 | 334,240 | |||||
TVN Finance Corp II AB (Poland), Sr. Unsec. Gtd. Notes, 10.75%, 11/15/17(b) | EUR | 150,000 | 208,907 | |||||
888,213 | ||||||||
Sovereign Debt–0.10% | ||||||||
Takko Luxembourg 2 S.C.A (Germany), Sr. Sec. Gtd. Notes, 9.88%, 04/15/19(b) | EUR | 105,000 | 125,735 | |||||
Wireless Telecommunication Services–0.21% | ||||||||
Matterhorn Mobile Holdings S.A. (Luxembourg), REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, | EUR | 100,000 | 135,366 | |||||
Wind Acquisition Finance S.A. (Italy), Sec. Gtd. Notes, 11.75%, 07/15/17(b) | EUR | 100,000 | 135,692 | |||||
271,058 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes |
| 7,000,919 |
Shares | Value | |||||||
Preferred Stocks–2.19% |
| |||||||
Automobile Manufacturers–0.21% | ||||||||
General Motors Co., Series B, $2.38 Conv. Pfd. | 5,710 | $ | 274,993 | |||||
Consumer Finance–0.31% | ||||||||
Ally Financial, Inc., Series G, 7.00% Pfd.(b) | 425 | 403,976 | ||||||
Diversified Banks–0.46% | ||||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | 24,735 | 592,650 | ||||||
Industrial REIT’s–0.08% | ||||||||
DuPont Fabros Technology, Inc., | 4,065 | 103,454 | ||||||
Investment Banking & Brokerage–0.21% | ||||||||
Goldman Sachs Group, Inc. (The), | 11,335 | 273,627 | ||||||
Multi-Line Insurance–0.61% | ||||||||
Hartford Financial Services Group Inc. (The), 7.88% Jr. Sub. Pfd. | 26,710 | 787,411 | ||||||
Regional Banks–0.18% | ||||||||
Zions Bancorp., Series G, 6.30% Pfd. | 835 | 21,345 | ||||||
Zions Bancorp., Series H, 5.75% Pfd. | 9,000 | 210,600 | ||||||
231,945 | ||||||||
Tires & Rubber–0.13% | ||||||||
Goodyear Tire & Rubber Co. (The), | 3,345 | 164,775 | ||||||
Total Preferred Stocks |
| 2,832,831 | ||||||
Common Stocks & Other Equity Interests–0.82% |
| |||||||
Automobile Manufacturers–0.37% | ||||||||
General Motors Co.(i)(j) | 6,127 | 204,090 | ||||||
General Motors Co.–Wts. expiring 07/10/16(i)(j) | 5,568 | 133,632 | ||||||
General Motors Co.–Wts. expiring 07/10/19(i)(j) | 5,568 | 91,037 | ||||||
Motors Liquidation Co. GUC Trust(j) | 1,538 | 46,994 | ||||||
475,753 | ||||||||
Broadcasting–0.00% | ||||||||
Adelphia Communications Corp.(k) | 3,280 | 2,558 | ||||||
Adelphia Recovery Trust, | 318,570 | 446 | ||||||
Adelphia Recovery Trust, Series Arahova(k) | 109,170 | 1,332 | ||||||
4,336 | ||||||||
Construction Materials–0.20% | ||||||||
U.S. Concrete, Inc.(j) | 15,521 | 254,855 | ||||||
Forest Products–0.00% | ||||||||
Emerald Plantation Holdings Ltd. (Cayman Islands)(g)(j) | 6,205 | 1,241 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Shares | Value | |||||||
Independent Power Producers & Energy Traders–0.00% | ||||||||
SW Acquisition L.P.(j) | 1 | $ | 0 | |||||
Integrated Telecommunication Services–0.16% | ||||||||
Hawaiian Telcom Holdco Inc. Wts. expiring 10/28/15(j) | 1,527 | 18,171 | ||||||
Largo Ltd.–Class A (Luxembourg)(j) | 17,563 | 18,059 | ||||||
Largo Ltd.–Class B (Luxembourg)(j) | 158,069 | 162,537 | ||||||
198,767 | ||||||||
Paper Products–0.07% | ||||||||
NewPage Holdings Inc.(b)(l) | 1,140 | 91,200 | ||||||
Publishing–0.00% | ||||||||
Reader’s Digest Association Inc. (The) (China), Wts. expiring 02/19/14(j) | 669 | 0 |
Shares | Value | |||||||
Semiconductors–0.02% | ||||||||
Magnachip Semiconductor Corp. (South Korea)(j) | 1,372 | $ | 25,067 | |||||
Total Common Stocks & Other Equity Interests (Cost $2,660,964) |
| 1,051,219 | ||||||
TOTAL INVESTMENTS–97.82% |
| 126,299,561 | ||||||
OTHER ASSETS LESS LIABILITIES–2.18% |
| 2,808,786 | ||||||
NET ASSETS–100.00% |
| $ | 129,108,347 |
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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $47,539,781, which represented 36.82% of the Fund’s Net Assets. |
(c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2013. |
(d) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(e) | Perpetual bond with no specified maturity date. |
(f) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2013 was $200, which represented less than 1% of the Fund’s Net Assets. |
(g) | Acquired as part of the Sino-Forest Corp. reorganization. |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. |
(i) | Acquired as part of the General Motors reorganization. |
(j) | Non-income producing security. |
(k) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(l) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
Portfolio Composition
By credit quality, based on Net Assets
as of June 30, 2013
A | 0.3 | % | ||
BBB | 2.6 | |||
BB | 33.5 | |||
B | 46.0 | |||
CCC | 11.5 | |||
D | 0.3 | |||
Other | 5.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $125,601,520) | $ | 126,299,561 | ||
Foreign currencies, at value (Cost $101,875) | 97,908 | |||
Receivable for: | ||||
Investments sold | 2,662,057 | |||
Fund shares sold | 37,040 | |||
Dividends and interest | 2,226,130 | |||
Foreign currency contracts | 65,693 | |||
Unrealized appreciation on swap agreements | 46,388 | |||
Investment for trustee deferred compensation and retirement plans | 58,075 | |||
Other assets | 855 | |||
Total assets | 131,493,707 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 600,193 | |||
Fund shares reacquired | 180,740 | |||
Amount due custodian | 1,331,670 | |||
Accrued fees to affiliates | 98,203 | |||
Accrued trustees’ and officers’ fees and benefits | 722 | |||
Accrued other operating expenses | 80,599 | |||
Trustee deferred compensation and retirement plans | 73,113 | |||
Premiums received on swap agreements | 20,120 | |||
Total liabilities | 2,385,360 | |||
Net assets applicable to shares outstanding | $ | 129,108,347 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 132,700,225 | ||
Undistributed net investment income | 10,254,924 | |||
Undistributed net realized gain (loss) | (7,427,106 | ) | ||
Unrealized appreciation (depreciation) | (6,419,696 | ) | ||
$ | 129,108,347 | |||
Net Assets: |
| |||
Series I | $ | 90,979,633 | ||
Series II | $ | 38,128,714 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 16,089,582 | |||
Series II | 6,769,106 | |||
Series I: | ||||
Net asset value per share | $ | 5.65 | ||
Series II: | ||||
Net asset value per share | $ | 5.63 |
Investment income: |
| |||
Interest (net of foreign withholding taxes of $ 2,867) | $ | 3,997,565 | ||
Dividends | 94,994 | |||
Dividends from affiliated money market funds | 882 | |||
Total investment income | 4,093,441 | |||
Expenses: | ||||
Advisory fees | 386,052 | |||
Administrative services fees | 171,298 | |||
Custodian fees | 7,673 | |||
Distribution fees — Series II | 35,960 | |||
Transfer agent fees | 13,089 | |||
Trustees’ and officers’ fees and benefits | 15,207 | |||
Professional services fees | 38,652 | |||
Other | 6,678 | |||
Total expenses | 674,609 | |||
Less: Fees waived | (135,635 | ) | ||
Net expenses | 538,974 | |||
Net investment income | 3,554,467 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 2,053,531 | |||
Foreign currencies | 10,955 | |||
Foreign currency contracts | (72,280 | ) | ||
Swap agreements | 11,424 | |||
2,003,630 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (5,454,051 | ) | ||
Foreign currencies | (10,883 | ) | ||
Foreign currency contracts | 174,544 | |||
Swap agreements | 23,725 | |||
(5,266,665 | ) | |||
Net realized and unrealized gain (loss) | (3,263,035 | ) | ||
Net increase in net assets resulting from operations | $ | 291,432 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 3,554,467 | $ | 6,813,629 | ||||
Net realized gain | 2,003,630 | 2,223,714 | ||||||
Change in net unrealized appreciation (depreciation) | (5,266,665 | ) | 8,190,348 | |||||
Net increase in net assets resulting from operations | 291,432 | 17,227,691 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,674,624 | ) | |||||
Series ll | — | (868,824 | ) | |||||
Total distributions from net investment income | — | (5,543,448 | ) | |||||
Share transactions–net: | ||||||||
Series l | (3,248,697 | ) | (23,701,208 | ) | ||||
Series ll | 17,532,742 | 14,630,099 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 14,284,045 | (9,071,109 | ) | |||||
Net increase in net assets | 14,575,477 | 2,613,134 | ||||||
Net assets: | ||||||||
Beginning of period | 114,532,870 | 111,919,736 | ||||||
End of period (includes undistributed net investment income of $10,254,924 and $6,700,457, respectively) | $ | 129,108,347 | $ | 114,532,870 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. High Yield Fund
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 trades 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. High Yield Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. | 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.
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 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”. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $200 million | 0 | .625% | ||||
Next $300 million | 0 | .55% | ||||
Next $500 million | 0 | .50% | ||||
Over $1 billion | 0 | .45% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (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 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $135,635.
Invesco V.I. High Yield Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $146,503 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. 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 | $ | 3,136,140 | $ | 747,910 | $ | 0 | $ | 3,884,050 | ||||||||
Corporate Debt Securities | — | 115,037,592 | 0 | 115,037,592 | ||||||||||||
Foreign Debt Securities | — | 6,875,184 | — | 6,875,184 | ||||||||||||
Foreign Sovereign Debt Securities | — | 502,735 | — | 502,735 | ||||||||||||
$ | 3,136,140 | $ | 123,163,421 | $ | 0 | $ | 126,299,561 | |||||||||
Foreign Currency Contracts* | — | 55,531 | — | 55,531 | ||||||||||||
Swap Agreements* | — | 46,388 | — | 46,388 | ||||||||||||
Total Investments | $ | 3,136,140 | $ | 123,265,340 | $ | 0 | $ | 126,401,480 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Swap agreements(a) | $ | 46,388 | $ | — | ||||
Currency risk | ||||||||
Foreign currency contracts(b) | 65,693 | — |
(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. |
Invesco V.I. High Yield Fund
Effect of Derivative Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, 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 | $ | — | $ | 11,424 | ||||
Currency risk | (72,280 | ) | — | |||||
Change in Unrealized Appreciation | ||||||||
Credit risk | $ | — | $ | 23,725 | ||||
Currency risk | 174,544 | — | ||||||
Total | $ | 102,264 | $ | 35,149 |
* | The average notional value of foreign currency contracts and swap agreements during the period was $6,073,392 and $365,000, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement | Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
08/08/13 | RBC Capital Markets Corp. | EUR | 3,494,000 | USD | 4,567,502 | $ | 4,548,765 | $ | 18,737 | |||||||||||||||||
08/08/13 | RBC Capital Markets Corp. | GBP | 1,321,000 | USD | 2,045,393 | 2,008,599 | 36,794 | |||||||||||||||||||
Total open foreign currency contracts | $ | 55,531 |
Closed Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement | Counterparty | Contract to | Notional Value | Realized Gain | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
08/08/13 | RBC Capital Markets Corp. | GBP | 297,000 | USD | 461,230 | $ | 451,068 | $ | 10,162 | |||||||||||||||||
Total foreign currency contracts | $ | 65,693 |
Currency Abbreviations:
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Credit Default Swap Agreements | ||||||||||||||||||||||||||||||
Counterparty | Reference Entity | Buy/Sell Protection | (Pay)/Receive Fixed Rate | Expiration Date | Implied Credit | Notional Value | Upfront Payments | Unrealized Appreciation | ||||||||||||||||||||||
JPMorgan Chase Bank, N.A. | MGM Resorts International | Sell | 5.00 | % | 06/20/17 | 3.08 | % | $ | 365,000 | $ | (20,120 | ) | $ | 46,388 |
(a) | Implied credit spreads represent the current level as of June 30, 2013 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. |
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. High Yield Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of assets
| Collateral Received | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
J.P. Morgan Securities Inc. | $ | 46,388 | $ | — | $ | 46,388 | $ | — | $ | — | $ | 46,388 | ||||||||||||
RBC Capital Markets Corp. | 65,693 | — | 65,693 | — | — | 65,693 | ||||||||||||||||||
Total | $ | 112,081 | $ | — | $ | 112,081 | $ | — | $ | — | $ | 112,081 |
Liabilities: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of liabilities
| Collateral Pledged | |||||||||||||||||||||
Counterparty
| Financial
| Cash
| Net
| |||||||||||||||||||||
J.P. Morgan Securities Inc. | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
RBC Capital Markets Corp. | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 | |||||||||
$ | 9,540,199 | $ | — | $ | 9,540,199 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
Invesco V.I. High Yield Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $38,366,225 and $41,807,443, 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 | $ | 11,729,406 | ||
Aggregate unrealized (depreciation) of investment securities | (11,072,399 | ) | ||
Net unrealized appreciation of investment securities | $ | 657,007 |
Cost of investments for tax purposes is $125,642,554.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,601,476 | $ | 14,868,088 | 5,101,039 | $ | 27,750,130 | ||||||||||
Series II | 1,552,178 | 8,945,013 | 3,502,236 | 19,021,718 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 864,071 | 4,674,624 | ||||||||||||
Series II | — | — | 160,789 | 868,262 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | 2,383,944 | 13,917,969 | — | — | ||||||||||||
Series II | 2,020,980 | 11,783,481 | — | — | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (5,569,010 | ) | (32,034,754 | ) | (10,440,518 | ) | (56,125,962 | ) | ||||||||
Series II | (560,201 | ) | (3,195,752 | ) | (972,464 | ) | (5,259,881 | ) | ||||||||
Net increase (decrease) in share activity | 2,429,367 | $ | 14,284,045 | (1,784,847 | ) | $ | (9,071,109 | ) |
(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. |
(b) | As of the opening of business on April 29, 2013, the Fund acquired all the net assets of Invesco V.I. High Yield Securities Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on December 6, 2012 and by the shareholders of the Target Fund on March 28, 2013. The acquisition was accomplished by a tax-free exchange of 4,404,924 shares of the Fund for 23,160,520 shares outstanding of the Target Fund as of the close of business on April 26, 2013. Shares of the Target Fund were 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 26, 2013. The Target Fund’s net assets as of the close of business on April 26, 2013 of $25,701,450, including $(5,548,317) of unrealized appreciation (depreciation), were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $116,562,405 and $142,263,855 immediately after the acquisition. |
The pro forma results of operations for the six months ended June 30, 2013 assuming the reorganization had been completed on January 1, 2013, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 3,989,999 | ||
Net realized/unrealized gains | (2,777,777 | ) | ||
Change in net assets resulting from operations | $ | 1,212,222 |
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, 2013. |
Invesco V.I. High Yield Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
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 and/or expenses | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 5.61 | $ | 0.17 | $ | (0.13 | ) | $ | 0.04 | $ | — | $ | 5.65 | 0.71 | % | $ | 90,980 | 0.81 | %(d) | 1.03 | %(d) | 5.82 | %(d) | 34 | % | |||||||||||||||||||||||
Year ended 12/31/12 | 5.04 | 0.33 | 0.53 | 0.86 | (0.29 | ) | 5.61 | 17.17 | 93,529 | 0.79 | 1.04 | 6.10 | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 5.59 | 0.16 | (0.12 | ) | 0.04 | — | 5.63 | 0.72 | 38,129 | 1.06 | (d) | 1.28 | (d) | 5.57 | (d) | 34 | ||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 5.03 | 0.32 | 0.52 | 0.84 | (0.28 | ) | 5.59 | 16.96 | 21,004 | 1.04 | 1.29 | 5.85 | 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 ended June 30, 2013, the portfolio turnover calculation excludes the value of securities purchased of $32,385,318 and sold of $3,653,024 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. High Yield Securities Fund into the Fund. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $30,901,742 and sold of $8,109,618 in the effort 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 $95,554 and $29,007 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,007.10 | $ | 4.03 | $ | 1,020.78 | $ | 4.06 | 0.81 | % | ||||||||||||
Series II | 1,000.00 | 1,007.20 | 5.28 | 1,019.54 | 5.31 | 1.06 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. High Yield Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – High Current Yield Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of its performance universe for the one year period, the fourth quintile for the three year period, and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. High Yield Fund |
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the rates of three mutual funds managed by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, which also had an effective advisory fee rate after waivers lower than the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least April 30, 2014 in an amount necessary to limit total annual operating expenses to
a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an
annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
Invesco V.I. High Yield Fund |
| ||||
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Semiannual Report to Shareholders
|
June 30, 2013
| ||
| ||||
Invesco V.I. International Growth Fund |
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1 |
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 1.60 | % | |||
Series II Shares | 1.48 | ||||
MSCI EAFE Index ND‚ (Broad Market Index) | 4.10 | ||||
Custom International Growth Index‚ (Style-Specific Index)* | 2.79 | ||||
MSCI EAFE Growth Index ND‚ (Former Style-Specific Index)* | 5.47 | ||||
Lipper VUF International Growth Funds Indexn (Peer Group Index) | 2.16 |
Source(s): ‚Invesco, MSCI via FactSet Research Systems Inc.; nLipper Inc. | |||||
* During the reporting period, the Fund has elected to use the Custom International Growth Index as its style-specific index rather than the MSCI EAFE Growth Index ND because the new index is more aligned with the market allocations of the Fund and therefore a more appropriate benchmark by which to measure relative allocations and performance. |
The MSCI EAFE® Index ND is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom International Growth Index is an index comprised of the MSCI EAFE Growth Index ND through 02/28/13 and the MSCI AC World ex US Growth Index ND thereafter.
The MSCI EAFE® Growth Index ND is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Lipper VUF International Growth Funds Index is an unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
The MSCI AC World ex US Growth Index ND is a market capitalization weighted index that includes growth companies in developed and emerging markets throughout the world, excluding the US. The index is computed using the net return which withholds applicable taxes for non-resident investors.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns |
| ||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (5/5/93) | 7.30 | % | |||
10 Years | 9.88 | ||||
5 Years | 2.51 | ||||
1 Year | 12.39 | ||||
Series II Shares | |||||
Inception (9/19/01) | 7.77 | % | |||
10 Years | 9.60 | ||||
5 Years | 2.26 | ||||
1 Year | 12.10 |
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 1.01% 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. 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 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
Schedule of Investments
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.13% |
| |||||||
Australia–3.70% | ||||||||
BHP Billiton Ltd. | 298,327 | $ | 8,594,945 | |||||
Brambles Ltd. | 2,768,710 | 23,559,091 | ||||||
CSL Ltd. | 196,315 | 11,054,253 | ||||||
WorleyParsons Ltd. | 641,263 | 11,336,896 | ||||||
54,545,185 | ||||||||
Belgium–1.53% | ||||||||
Anheuser-Busch InBev N.V. | 253,875 | 22,521,711 | ||||||
Brazil–2.61% | ||||||||
Banco Bradesco S.A.–ADR | 1,752,034 | 22,793,962 | ||||||
BM&FBovespa S.A. | 2,869,900 | 15,771,650 | ||||||
38,565,612 | ||||||||
Canada–8.13% | ||||||||
Agrium Inc. | 127,385 | 11,042,940 | ||||||
Canadian National Railway Co. | 129,374 | 12,595,453 | ||||||
Canadian Natural Resources Ltd. | 24,187 | 681,826 | ||||||
Cenovus Energy Inc. | 455,983 | 13,005,790 | ||||||
CGI Group Inc.–Class A(a) | 825,409 | 24,170,562 | ||||||
Fairfax Financial Holdings Ltd. | 38,416 | 15,105,253 | ||||||
Potash Corp. of Saskatchewan Inc. | 393,590 | 15,013,150 | ||||||
Suncor Energy, Inc. | 961,881 | 28,349,792 | ||||||
119,964,766 | ||||||||
China–5.98% | ||||||||
Baidu, Inc.–ADR(a) | 277,749 | 26,255,613 | ||||||
Belle International Holdings Ltd. | 10,353,000 | 14,229,185 | ||||||
China Mobile Ltd. | 1,088,500 | 11,312,637 | ||||||
CNOOC Ltd. | 13,028,000 | 21,884,665 | ||||||
Industrial & Commercial Bank of China Ltd.–Class H | 23,176,000 | 14,484,845 | ||||||
88,166,945 | ||||||||
Denmark–0.85% | ||||||||
Novo Nordisk AS–Class B | 80,529 | 12,536,925 | ||||||
France–4.39% | ||||||||
Eutelsat Communications S.A. | 276,172 | 7,816,273 | ||||||
Publicis Groupe S.A. | 353,910 | 25,094,961 | ||||||
Schneider Electric S.A. | 226,033 | 16,295,315 | ||||||
Sodexo | 81,405 | 6,781,232 | ||||||
Total S.A. | 178,947 | 8,725,915 | ||||||
64,713,696 | ||||||||
Germany–8.90% | ||||||||
Adidas AG | 252,280 | 27,266,169 | ||||||
Allianz S.E. | 104,240 | 15,229,943 | ||||||
Deutsche Boerse AG | 244,869 | 16,117,746 | ||||||
Deutsche Post AG | 605,670 | 15,053,354 | ||||||
Fresenius Medical Care AG & Co. KGaA | 156,708 | 11,101,925 |
Shares | Value | |||||||
Germany–(continued) | ||||||||
SAP AG | 428,849 | $ | 31,403,761 | |||||
Volkswagen AG–Preference Shares | 75,338 | 15,209,127 | ||||||
131,382,025 | ||||||||
Hong Kong–2.29% | ||||||||
Galaxy Entertainment Group Ltd.(a) | 3,793,000 | 18,376,532 | ||||||
Hutchison Whampoa Ltd. | 1,479,000 | 15,456,871 | ||||||
33,833,403 | ||||||||
Ireland–1.01% | ||||||||
Shire PLC | 468,119 | 14,845,388 | ||||||
Israel–1.72% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 647,106 | 25,366,555 | ||||||
Japan–5.38% | ||||||||
Denso Corp. | 272,300 | 12,771,073 | ||||||
Fanuc Corp. | 134,700 | 19,530,006 | ||||||
Keyence Corp. | 49,800 | 15,892,015 | ||||||
Komatsu Ltd. | 291,837 | 6,747,149 | ||||||
Toyota Motor Corp. | 405,500 | 24,490,270 | ||||||
79,430,513 | ||||||||
Mexico–2.45% | ||||||||
America Movil S.A.B. de C.V.–Series L–ADR | 432,178 | 9,399,872 | ||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 84,092 | 8,677,453 | ||||||
Grupo Televisa S.A.B.–ADR | 730,300 | 18,140,652 | ||||||
36,217,977 | ||||||||
Netherlands–1.21% | ||||||||
Unilever N.V. | 453,776 | 17,799,519 | ||||||
Russia–0.13% | ||||||||
Gazprom OAO–ADR | 291,519 | 1,918,195 | ||||||
Singapore–2.02% | ||||||||
Keppel Corp. Ltd. | 2,082,661 | 17,029,853 | ||||||
United Overseas Bank Ltd. | 819,000 | 12,775,395 | ||||||
29,805,248 | ||||||||
South Korea–3.36% | ||||||||
Hyundai Mobis | 95,399 | 22,713,398 | ||||||
NHN Corp. | 39,605 | 10,091,833 | ||||||
Samsung Electronics Co., Ltd. | 14,337 | 16,846,973 | ||||||
49,652,204 | ||||||||
Spain–1.58% | ||||||||
Amadeus IT Holding S.A.–Class A | 729,597 | 23,318,495 | ||||||
Sweden–4.30% | ||||||||
Investment AB Kinnevik–Class B | 424,576 | 10,836,731 | ||||||
Investor AB–Class B | 623,757 | 16,689,554 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
Sweden–(continued) | ||||||||
Swedbank AB–Class A | 577,335 | $ | 13,175,806 | |||||
Telefonaktiebolaget LM Ericsson–Class B | 1,015,341 | 11,498,740 | ||||||
Volvo AB–Class B | 849,026 | 11,315,509 | ||||||
63,516,340 | ||||||||
Switzerland–9.07% | ||||||||
ABB Ltd. | 850,857 | 18,369,970 | ||||||
Julius Baer Group Ltd. | 468,255 | 18,197,063 | ||||||
Nestle S.A. | 316,611 | 20,709,490 | ||||||
Novartis AG | 234,210 | 16,599,202 | ||||||
Roche Holding AG | 119,556 | 29,625,676 | ||||||
Syngenta AG | 53,292 | 20,784,349 | ||||||
UBS AG | 560,188 | 9,517,154 | ||||||
133,802,904 | ||||||||
Taiwan–1.08% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 872,925 | 15,991,986 | ||||||
Turkey–0.91% | ||||||||
Akbank T.A.S. | 3,297,848 | 13,404,303 | ||||||
United Kingdom–18.12% | ||||||||
BG Group PLC | 976,740 | 16,670,565 | ||||||
British American Tobacco PLC | 602,581 | 30,945,607 | ||||||
British Sky Broadcasting Group PLC | 1,524,548 | 18,397,644 | ||||||
Centrica PLC | 2,220,868 | 12,188,816 |
Shares | Value | |||||||
United Kingdom–(continued) | ||||||||
Compass Group PLC | 2,604,205 | $ | 33,375,542 | |||||
Imperial Tobacco Group PLC | 601,561 | 20,902,031 | ||||||
Informa PLC | 1,654,204 | 12,368,928 | ||||||
Kingfisher PLC | 2,571,100 | 13,460,011 | ||||||
Next PLC | 186,737 | 12,915,397 | ||||||
Reed Elsevier PLC | 3,254,673 | 37,088,223 | ||||||
Royal Dutch Shell PLC–Class B | 656,930 | 21,725,905 | ||||||
Smith & Nephew PLC | 1,044,715 | 11,643,485 | ||||||
WPP PLC | 1,502,732 | 25,674,391 | ||||||
267,356,545 | ||||||||
United States–1.41% | ||||||||
Avago Technologies Ltd. | 557,316 | 20,832,472 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,359,488,912 | ||||||
Money Market Funds–6.46% |
| |||||||
Liquid Assets Portfolio–Institutional Class(b) | 47,686,938 | 47,686,938 | ||||||
Premier Portfolio–Institutional | 47,686,938 | 47,686,938 | ||||||
Total Money Market Funds | 95,373,876 | |||||||
TOTAL INVESTMENTS–98.59% | 1,454,862,788 | |||||||
OTHER ASSETS LESS LIABILITIES–1.41% | 20,795,173 | |||||||
NET ASSETS–100.00% | $ | 1,475,657,961 |
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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Consumer Discretionary | 23.5 | % | ||
Information Technology | 13.3 | |||
Financials | 13.1 | |||
Industrials | 10.6 | |||
Health Care | 9.0 | |||
Energy | 8.4 | |||
Consumer Staples | 8.2 | |||
Materials | 3.8 | |||
Telecommunication Services | 1.4 | |||
Utilities | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,018,915,323) | $ | 1,359,488,912 | ||
Investments in affiliated money market funds, at value and cost | 95,373,876 | |||
Total investments, at value (Cost $1,114,289,199) | 1,454,862,788 | |||
Foreign currencies, at value (Cost $798,338) | 838,674 | |||
Receivable for: | ||||
Investments sold | 24,420,600 | |||
Fund shares sold | 1,490,624 | |||
Dividends | 5,032,828 | |||
Investment for trustee deferred compensation and retirement plans | 78,554 | |||
Other assets | 190 | |||
Total assets | 1,486,724,258 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 8,669,724 | |||
Fund shares reacquired | 590,451 | |||
Accrued fees to affiliates | 1,478,405 | |||
Accrued trustees’ and officers’ fees and benefits | 1,162 | |||
Accrued other operating expenses | 89,268 | |||
Trustee deferred compensation and retirement plans | 237,287 | |||
Total liabilities | 11,066,297 | |||
Net assets applicable to shares outstanding | $ | 1,475,657,961 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,320,415,487 | ||
Undistributed net investment income | 29,603,110 | |||
Undistributed net realized gain (loss) | (214,834,606 | ) | ||
Unrealized appreciation | 340,473,970 | |||
$ | 1,475,657,961 | |||
Net Assets: |
| |||
Series I | $ | 587,223,860 | ||
Series II | $ | 888,434,101 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 19,249,891 | |||
Series II | 29,502,323 | |||
Series I: | ||||
Net asset value per share | $ | 30.51 | ||
Series II: | ||||
Net asset value per share | $ | 30.11 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $2,236,950) | $ | 24,064,491 | ||
Dividends from affiliated money market funds | 52,055 | |||
Total investment income | 24,116,546 | |||
Expenses: | ||||
Advisory fees | 5,218,444 | |||
Administrative services fees | 1,959,590 | |||
Custodian fees | 199,038 | |||
Distribution fees — Series II | 1,092,197 | |||
Transfer agent fees | 36,056 | |||
Trustees’ and officers’ fees and benefits | 41,617 | |||
Other | 58,567 | |||
Total expenses | 8,605,509 | |||
Less: Fees waived | (92,366 | ) | ||
Net expenses | 8,513,143 | |||
Net investment income | 15,603,403 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 26,927,590 | |||
Foreign currencies | (217,999 | ) | ||
26,709,591 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (21,461,171 | ) | ||
Foreign currencies | (117,698 | ) | ||
(21,578,869 | ) | |||
Net realized and unrealized gain | 5,130,722 | |||
Net increase in net assets resulting from operations | $ | 20,734,125 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 15,603,403 | $ | 14,401,419 | ||||
Net realized gain | 26,709,591 | 16,747,435 | ||||||
Change in net unrealized appreciation (depreciation) | (21,578,869 | ) | 153,873,774 | |||||
Net increase in net assets resulting from operations | 20,734,125 | 185,022,628 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (8,556,390 | ) | |||||
Series ll | — | (9,968,702 | ) | |||||
Total distributions from net investment income | — | (18,525,092 | ) | |||||
Share transactions–net: | ||||||||
Series l | (14,042,262 | ) | (26,680,260 | ) | ||||
Series ll | 50,114,736 | 127,622,176 | ||||||
Net increase in net assets resulting from share transactions | 36,072,474 | 100,941,916 | ||||||
Net increase in net assets | 56,806,599 | 267,439,452 | ||||||
Net assets: | ||||||||
Beginning of period | 1,418,851,362 | 1,151,411,910 | ||||||
End of period (includes undistributed net investment income of $29,603,110 and $13,999,707, respectively) | $ | 1,475,657,961 | $ | 1,418,851,362 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. International Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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. International Growth 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 trades 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 of 1986, as amended (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. International Growth Fund
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 | 0.75% | |||
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).
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 2.25% and Series II shares to 2.50% 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $92,366.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $171,906 for accounting and fund administrative services and reimbursed $1,787,684 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 six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2013, there were transfers from Level 1 to Level 2 of $186,502,530 and from Level 2 to Level 1 of $118,003,736, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 11,054,253 | $ | 43,490,932 | $ | — | $ | 54,545,185 | ||||||||
Belgium | — | 22,521,711 | — | 22,521,711 | ||||||||||||
Brazil | 38,565,612 | — | — | 38,565,612 | ||||||||||||
Canada | 119,964,766 | — | — | 119,964,766 | ||||||||||||
China | 40,484,798 | 47,682,147 | — | 88,166,945 | ||||||||||||
Denmark | — | 12,536,925 | — | 12,536,925 | ||||||||||||
France | 6,781,232 | 57,932,464 | — | 64,713,696 | ||||||||||||
Germany | 77,804,804 | 53,577,221 | — | 131,382,025 | ||||||||||||
Hong Kong | — | 33,833,403 | — | 33,833,403 | ||||||||||||
Ireland | 14,845,388 | — | — | 14,845,388 | ||||||||||||
Israel | 25,366,555 | — | — | 25,366,555 | ||||||||||||
Japan | 66,659,440 | 12,771,073 | — | 79,430,513 | ||||||||||||
Mexico | 36,217,977 | — | — | 36,217,977 | ||||||||||||
Netherlands | — | 17,799,519 | — | 17,799,519 | ||||||||||||
Russia | 1,918,195 | — | — | 1,918,195 | ||||||||||||
Singapore | — | 29,805,248 | — | 29,805,248 | ||||||||||||
South Korea | 16,846,973 | 32,805,231 | — | 49,652,204 | ||||||||||||
Spain | 23,318,495 | — | — | 23,318,495 | ||||||||||||
Sweden | 11,498,740 | 52,017,600 | — | 63,516,340 | ||||||||||||
Switzerland | — | 133,802,904 | — | 133,802,904 | ||||||||||||
Taiwan | 15,991,986 | — | — | 15,991,986 | ||||||||||||
Turkey | — | 13,404,303 | — | 13,404,303 | ||||||||||||
United Kingdom | — | 267,356,545 | — | 267,356,545 | ||||||||||||
United States | 116,206,348 | — | — | 116,206,348 | ||||||||||||
Total Investments | $ | 623,525,562 | $ | 831,337,226 | $ | — | $ | 1,454,862,788 |
Invesco V.I. International Growth Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 2, 2011, the date of reorganization 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 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $225,689,409 and $168,249,282, 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 | $ | 347,531,518 | ||
Aggregate unrealized (depreciation) of investment securities | (28,670,650 | ) | ||
Net unrealized appreciation of investment securities | $ | 318,860,868 |
Cost of investments for tax purposes is $1,136,001,920.
Invesco V.I. International Growth Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,843,652 | $ | 57,065,033 | 3,825,772 | $ | 108,462,127 | ||||||||||
Series II | 3,088,922 | 94,973,752 | 7,868,132 | 219,142,823 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 293,127 | 8,556,390 | ||||||||||||
Series II | — | — | 345,296 | 9,968,702 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,289,576 | ) | (71,107,295 | ) | (5,060,588 | ) | (143,698,777 | ) | ||||||||
Series II | (1,459,958 | ) | (44,859,016 | ) | (3,624,167 | ) | (101,489,349 | ) | ||||||||
Net increase in share activity | 1,183,040 | $ | 36,072,474 | 3,647,572 | $ | 100,941,916 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 35% 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 9—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 on securities | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 30.03 | $ | 0.35 | $ | 0.13 | $ | 0.48 | $ | — | $ | — | $ | — | $ | 30.51 | 1.60 | % | $ | 587,224 | 1.01 | %(d) | 1.02 | %(d) | 2.26 | %(d) | 12 | % | ||||||||||||||||||||||||||||
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 | 1.01 | 1.24 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 29.68 | 0.31 | 0.12 | 0.43 | — | — | — | 30.11 | 1.45 | 888,434 | 1.26 | (d) | 1.27 | (d) | 2.01 | (d) | 12 | |||||||||||||||||||||||||||||||||||||||
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 | 1.26 | 0.99 | 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 annualized and on average daily net assets (000’s omitted) of $604,485 and $880,999 for Series I and Series II, respectively. |
Invesco V.I. International Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,016.00 | $ | 5.05 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||
Series II | 1,000.00 | 1,014.80 | 6.29 | 1,018.55 | 6.31 | 1.26 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. International Growth Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. International Growth Fund |
performance universe and against the Lipper VA Underlying Funds – International Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one year period, the second quintile for the three year period and the first quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was at the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale
through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with
other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. International Growth Fund |
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Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. Mid Cap Core Equity Fund
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 12.90 | % | |||
Series II Shares | 12.80 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell Midcap Indexn (Style-Specific Index) | 15.45 | ||||
Lipper VUF Mid-Cap Core Funds Index¿ (Peer Group Index) | 14.79 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; | |||||
nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.05% and 1.30%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns |
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As of 6/30/13 | |||||
Series I Shares | |||||
Inception (9/10/01) | 7.15 | % | |||
10 Years | 7.83 | ||||
5 Years | 5.65 | ||||
1 Year | 20.08 | ||||
Series II Shares | |||||
Inception (9/10/01) | 6.90 | % | |||
10 Years | 7.57 | ||||
5 Years | 5.39 | ||||
1 Year | 19.86 |
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–83.87% |
| |||||||
Aerospace & Defense–1.59% | ||||||||
Exelis Inc. | 146,393 | $ | 2,018,759 | |||||
Moog Inc.–Class A(b) | 78,143 | 4,026,709 | ||||||
6,045,468 | ||||||||
Application Software–1.15% | ||||||||
Adobe Systems Inc.(b) | 95,875 | 4,368,065 | ||||||
Asset Management & Custody Banks–2.36% | ||||||||
Northern Trust Corp. | 155,205 | 8,986,369 | ||||||
Brewers–1.33% | ||||||||
Molson Coors Brewing Co.–Class B | 106,057 | 5,075,888 | ||||||
Communications Equipment–2.48% | ||||||||
F5 Networks, Inc.(b) | 61,671 | 4,242,965 | ||||||
Polycom, Inc.(b) | 196,765 | 2,073,903 | ||||||
Riverbed Technology, Inc.(b) | 199,635 | 3,106,320 | ||||||
9,423,188 | ||||||||
Computer & Electronics Retail–1.85% | ||||||||
GameStop Corp.–Class A | 167,490 | 7,039,605 | ||||||
Computer Storage & Peripherals–1.60% | ||||||||
NetApp, Inc.(b) | 160,800 | 6,075,024 | ||||||
Construction & Engineering–1.27% | ||||||||
Chicago Bridge & Iron Co. N.V.–New York Shares | 81,227 | 4,846,003 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.54% | ||||||||
Joy Global Inc. | 63,982 | 3,105,046 | ||||||
Terex Corp.(b) | 104,082 | 2,737,357 | ||||||
5,842,403 | ||||||||
Construction Materials–1.33% | ||||||||
CRH PLC (Ireland) | 249,270 | 5,045,195 | ||||||
Department Stores–1.01% | ||||||||
Macy’s, Inc. | 80,121 | 3,845,808 | ||||||
Diversified Chemicals–0.92% | ||||||||
Huntsman Corp. | 211,025 | 3,494,574 | ||||||
Diversified Metals & Mining–1.55% | ||||||||
Compass Minerals International, Inc. | 69,609 | 5,884,049 | ||||||
Electronic Components–1.51% | ||||||||
Amphenol Corp.–Class A | 73,572 | 5,734,202 | ||||||
Electronic Manufacturing Services–1.00% | ||||||||
Molex Inc. | 128,999 | 3,784,831 | ||||||
Environmental & Facilities Services–2.07% | ||||||||
Clean Harbors, Inc.(b) | 63,329 | 3,200,014 | ||||||
Republic Services, Inc. | 137,243 | 4,658,028 | ||||||
7,858,042 | ||||||||
Footwear–1.27% | ||||||||
Wolverine World Wide, Inc. | 88,668 | 4,842,159 |
Shares | Value | |||||||
General Merchandise Stores–0.39% | ||||||||
Big Lots, Inc.(b) | 47,286 | $ | 1,490,928 | |||||
Gold–0.38% | ||||||||
Kinross Gold Corp. (Canada) | 283,992 | 1,448,359 | ||||||
Health Care Distributors–2.00% | ||||||||
Cardinal Health, Inc. | 93,090 | 4,393,848 | ||||||
Patterson Cos. Inc. | 85,626 | 3,219,538 | ||||||
7,613,386 | ||||||||
Homebuilding–0.82% | ||||||||
D.R. Horton, Inc. | 147,080 | 3,129,862 | ||||||
Industrial Machinery–7.43% | ||||||||
Dover Corp. | 53,091 | 4,123,047 | ||||||
Flowserve Corp. | 66,024 | 3,565,956 | ||||||
ITT Corp. | 154,383 | 4,540,404 | ||||||
Kennametal Inc. | 111,693 | 4,337,039 | ||||||
Parker Hannifin Corp. | 34,315 | 3,273,651 | ||||||
SPX Corp. | 44,070 | 3,172,159 | ||||||
Stanley Black & Decker Inc. | 67,829 | 5,243,182 | ||||||
28,255,438 | ||||||||
Insurance Brokers–1.53% | ||||||||
Marsh & McLennan Cos., Inc. | 145,297 | 5,800,256 | ||||||
Investment Banking & Brokerage–1.24% | ||||||||
Charles Schwab Corp. (The) | 221,564 | 4,703,804 | ||||||
Life & Health Insurance–1.75% | ||||||||
Torchmark Corp. | 102,154 | 6,654,312 | ||||||
Life Sciences Tools & Services–1.05% | ||||||||
Agilent Technologies, Inc. | 93,493 | 3,997,761 | ||||||
Managed Health Care–1.43% | ||||||||
Aetna Inc. | 85,794 | 5,451,351 | ||||||
Marine–1.15% | ||||||||
Kirby Corp.(b) | 55,181 | 4,389,097 | ||||||
Multi-Utilities–0.83% | ||||||||
CMS Energy Corp. | 116,127 | 3,155,171 | ||||||
Office Services & Supplies–1.40% | ||||||||
Avery Dennison Corp. | 124,324 | 5,316,094 | ||||||
Oil & Gas Drilling–0.70% | ||||||||
Nabors Industries Ltd. | 174,273 | 2,668,120 | ||||||
Oil & Gas Equipment & Services–3.70% | ||||||||
Cameron International Corp.(b) | 62,789 | 3,840,175 | ||||||
Dresser-Rand Group, Inc.(b) | 53,974 | 3,237,361 | ||||||
Weatherford International Ltd.(b) | 509,144 | 6,975,273 | ||||||
14,052,809 | ||||||||
Oil & Gas Exploration & Production–2.34% | ||||||||
Concho Resources Inc.(b) | 57,765 | 4,836,086 | ||||||
Southwestern Energy Co.(b) | 111,171 | 4,061,076 | ||||||
8,897,162 |
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 | |||||||
Packaged Foods & Meats–4.32% | ||||||||
Hain Celestial Group, Inc. (The)(b) | 44,051 | $ | 2,861,993 | |||||
JM Smucker Co. (The) | 51,757 | 5,338,735 | ||||||
Kellogg Co. | 128,393 | 8,246,682 | ||||||
16,447,410 | ||||||||
Paper Packaging–1.11% | ||||||||
Packaging Corp. of America | 86,087 | 4,214,819 | ||||||
Personal Products–0.76% | ||||||||
Avon Products, Inc. | 138,269 | 2,907,797 | ||||||
Pharmaceuticals–4.04% | ||||||||
Endo Health Solutions Inc.(b) | 115,278 | 4,241,077 | ||||||
Hospira, Inc.(b) | 107,156 | 4,105,146 | ||||||
Shire PLC–ADR (Ireland) | 56,134 | 5,338,905 | ||||||
Zoetis Inc. | 54,456 | 1,682,146 | ||||||
15,367,274 | ||||||||
Property & Casualty Insurance–3.42% | ||||||||
Arch Capital Group Ltd.(b) | 89,692 | 4,611,066 | ||||||
Progressive Corp. (The) | 330,726 | 8,407,055 | ||||||
13,018,121 | ||||||||
Publishing–0.12% | ||||||||
John Wiley & Sons, Inc.–Class A | 11,567 | 463,721 | ||||||
Regional Banks–0.85% | ||||||||
First Republic Bank | 83,493 | 3,212,811 | ||||||
Restaurants–1.08% | ||||||||
Brinker International, Inc. | 104,168 | 4,107,344 | ||||||
Semiconductor Equipment–2.90% | ||||||||
KLA–Tencor Corp. | 42,722 | 2,380,897 | ||||||
Lam Research Corp.(b) | 89,479 | 3,967,499 | ||||||
Teradyne, Inc.(b) | 266,621 | 4,684,531 | ||||||
11,032,927 |
Shares | Value | |||||||
Semiconductors–4.37% | ||||||||
Hittite Microwave Corp.(b) | 5,850 | $ | 339,300 | |||||
Linear Technology Corp. | 247,183 | 9,106,222 | ||||||
Xilinx, Inc. | 181,576 | 7,192,225 | ||||||
16,637,747 | ||||||||
Soft Drinks–0.81% | ||||||||
Dr Pepper Snapple Group, Inc. | 67,099 | 3,081,857 | ||||||
Specialized Finance–1.36% | ||||||||
Moody’s Corp. | 85,062 | 5,182,828 | ||||||
Specialty Chemicals–2.08% | ||||||||
International Flavors & Fragrances Inc. | 51,197 | 3,847,966 | ||||||
Sigma–Aldrich Corp. | 50,505 | 4,058,582 | ||||||
7,906,548 | ||||||||
Steel–0.52% | ||||||||
Allegheny Technologies, Inc. | 75,368 | 1,982,932 | ||||||
Systems Software–2.16% | ||||||||
Symantec Corp. | 365,665 | 8,216,492 | ||||||
Total Common Stocks & Other Equity Interests |
| 318,995,411 | ||||||
Money Market Funds–15.88% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 30,211,015 | 30,211,015 | ||||||
Premier Portfolio–Institutional | 30,211,015 | 30,211,015 | ||||||
Total Money Market Funds |
| 60,422,030 | ||||||
TOTAL INVESTMENTS–99.75% |
| 379,417,441 | ||||||
OTHER ASSETS LESS LIABILITIES–0.25% |
| 937,372 | ||||||
NET ASSETS–100.00% |
| $ | 380,354,813 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets as of June 30, 2013
Information Technology | 17.2 | % | ||
Industrials | 15.1 | |||
Financials | 12.5 | |||
Health Care | 8.5 | |||
Consumer Discretionary | 7.9 | |||
Materials | 7.9 | |||
Consumer Staples | 7.2 | |||
Energy | 6.8 | |||
Utilities | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 16.1 |
Invesco V.I. Mid Cap Core Equity Fund
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $248,429,259) | $ | 318,995,411 | ||
Investments in affiliated money market funds, at value and cost | 60,422,030 | |||
Total investments, at value (Cost $308,851,289) | 379,417,441 | |||
Receivable for: | ||||
Investments sold | 2,013,560 | |||
Fund shares sold | 500,676 | |||
Dividends | 329,520 | |||
Investment for trustee deferred compensation and retirement plans | 37,481 | |||
Other assets | 455 | |||
Total assets | 382,299,133 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 1,209,328 | |||
Fund shares reacquired | 289,018 | |||
Accrued fees to affiliates | 305,967 | |||
Accrued trustees’ and officers’ fees and benefits | 664 | |||
Accrued other operating expenses | 29,617 | |||
Trustee deferred compensation and retirement plans | 109,726 | |||
Total liabilities | 1,944,320 | |||
Net assets applicable to shares outstanding | $ | 380,354,813 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 263,806,364 | ||
Undistributed net investment income | 2,787,436 | |||
Undistributed net realized gain | 43,194,861 | |||
Unrealized appreciation | 70,566,152 | |||
$ | 380,354,813 | |||
Net Assets: |
| |||
Series I | $ | 286,471,032 | ||
Series II | $ | 93,883,781 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 19,960,731 | |||
Series II | 6,618,316 | |||
Series I: | ||||
Net asset value per share | $ | 14.35 | ||
Series II: | ||||
Net asset value per share | $ | 14.19 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $4,626) | $ | 2,411,691 | ||
Dividends from affiliated money market funds | 28,658 | |||
Total investment income | 2,440,349 | |||
Expenses: | ||||
Advisory fees | 1,404,879 | |||
Administrative services fees | 530,765 | |||
Custodian fees | 4,390 | |||
Distribution fees — Series II | 116,243 | |||
Transfer agent fees | 19,139 | |||
Trustees’ and officers’ fees and benefits | 20,451 | |||
Other | 30,700 | |||
Total expenses | 2,126,567 | |||
Less: Fees waived | (51,234 | ) | ||
Net expenses | 2,075,333 | |||
Net investment income | 365,016 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 16,639,318 | |||
Foreign currencies | (132 | ) | ||
16,639,186 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 30,166,883 | |||
Foreign currencies | 2 | |||
30,166,885 | ||||
Net realized and unrealized gain | 46,806,071 | |||
Net increase in net assets resulting from operations | $ | 47,171,087 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 365,016 | $ | 2,522,474 | ||||
Net realized gain | 16,639,186 | 29,185,757 | ||||||
Change in net unrealized appreciation | 30,166,885 | 9,094,762 | ||||||
Net increase in net assets resulting from operations | 47,171,087 | 40,802,993 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (192,445 | ) | |||||
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 | (36,060,197 | ) | (65,952,656 | ) | ||||
Series II | (8,011,846 | ) | 18,517,470 | |||||
Net increase (decrease) in net assets resulting from share transactions | (44,072,043 | ) | (47,435,186 | ) | ||||
Net increase (decrease) in net assets | 3,099,044 | (10,042,236 | ) | |||||
Net assets: | ||||||||
Beginning of period | 377,255,769 | 387,298,005 | ||||||
End of period (includes undistributed net investment income of $2,787,436 and $2,422,420, respectively) | $ | 380,354,813 | $ | 377,255,769 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Mid Cap Core Equity Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (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 trades 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Mid Cap Core Equity Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 | .725% | ||||
Next $500 million | 0 | .70% | ||||
Next $500 million | 0 | .675% | ||||
Over $1.5 billion | 0 | .65% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (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, 2013, 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 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, 2013, 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 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. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Invesco V.I. Mid Cap Core Equity Fund
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $51,234.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $47,048 for accounting and fund administrative services and reimbursed $483,717 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 six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $1,463 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. |
As of June 30, 2013, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). 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.
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. Mid Cap Core Equity Fund
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did 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 six months ended June 30, 2013 was $57,052,105 and $93,854,217, 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 | $ | 78,468,195 | ||
Aggregate unrealized (depreciation) of investment securities | (8,899,236 | ) | ||
Net unrealized appreciation of investment securities | $ | 69,568,959 |
Cost of investments for tax purposes is $309,848,482.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 614,329 | $ | 8,440,314 | 1,583,675 | $ | 19,472,516 | ||||||||||
Series II | 931,975 | 12,868,955 | 3,461,169 | 42,291,036 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 217,627 | 2,694,224 | ||||||||||||
Series II | — | — | 58,386 | 715,819 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,197,469 | ) | (44,500,511 | ) | (7,110,775 | ) | (88,119,396 | ) | ||||||||
Series II | (1,518,374 | ) | (20,880,801 | ) | (2,000,498 | ) | (24,489,385 | ) | ||||||||
Net increase (decrease) in share activity | (3,169,539 | ) | $ | (44,072,043 | ) | (3,790,416 | ) | $ | (47,435,186 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 65% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Mid Cap Core Equity Fund
NOTE 9—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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 12.71 | $ | 0.02 | $ | 1.62 | $ | 1.64 | $ | — | $ | — | $ | — | $ | 14.35 | 12.90 | % | $ | 286,471 | 1.01 | %(d) | 1.04 | %(d) | 0.25 | %(d) | 18 | % | ||||||||||||||||||||||||||||
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 | 1.05 | 0.69 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 12.58 | (0.00 | ) | 1.61 | 1.61 | — | — | — | 14.19 | 12.80 | 93,884 | 1.26 | (d) | 1.29 | (d) | (0.00 | )(d) | 18 | ||||||||||||||||||||||||||||||||||||||
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 | 1.30 | 0.44 | 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 annualized and based on average daily net assets (000’s omitted) of $296,999 and $93,765 for Series I and Series II shares, respectively. |
Invesco V.I. Mid Cap Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,129.00 | $ | 5.33 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||
Series II | 1,000.00 | 1,128.00 | 6.65 | 1,018.55 | 6.31 | 1.26 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Core Equity Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco
Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the
performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe and against the
Invesco V.I. Mid Cap Core Equity Fund |
Lipper VA Underlying Funds – Mid-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one and three year periods and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that performance has been affected by investments in higher quality investments and the retention of notable cash. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisers with investment strategies comparable to those of the Fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board
concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or
similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Mid Cap Core Equity Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Mid Cap Growth Fund | ||||
Effective April 29, 2013, Invesco Van Kampen V.I. Mid Cap Growth Fund was renamed Invesco V.I. Mid Cap Growth Fund. |
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 12.76 | % | |||
Series II Shares | 12.53 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell Midcap Growth Indexn (Style-Specific Index) | 14.70 | ||||
Lipper VUF Mid-Cap Growth Funds Index¿ (Peer Group Index) | 13.56 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc. |
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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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
10 Years | 8.31 | % | |||
5 Years | 5.75 | ||||
1 Year | 18.22 | ||||
Series II Shares | |||||
Inception (9/25/00) | -1.56 | % | |||
10 Years | 8.26 | ||||
5 Years | 5.66 | ||||
1 Year
| 18.00 |
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 (renamed Invesco V.I. Mid Cap Growth Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco V.I. Mid Cap Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is September 25, 2000.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be
lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.09% and 1.34%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.12% and 1.37%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2014. See current prospectus for more information. |
Invesco V.I. Mid Cap Growth Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.27% |
| |||||||
Aerospace & Defense–2.54% | ||||||||
B/E Aerospace, Inc.(b) | 53,648 | $ | 3,384,116 | |||||
Triumph Group, Inc. | 34,356 | 2,719,277 | ||||||
6,103,393 | ||||||||
Apparel Retail–2.09% | ||||||||
Ross Stores, Inc. | 37,961 | 2,460,253 | ||||||
Urban Outfitters, Inc.(b) | 63,905 | 2,570,259 | ||||||
5,030,512 | ||||||||
Apparel, Accessories & Luxury Goods–4.80% | ||||||||
Michael Kors Holdings Ltd.(b) | 49,935 | 3,096,969 | ||||||
Ralph Lauren Corp. | 25,005 | 4,344,369 | ||||||
Under Armour, Inc.–Class A(b)(c) | 68,571 | 4,094,374 | ||||||
11,535,712 | ||||||||
Application Software–3.83% | ||||||||
Aspen Technology, Inc.(b)(c) | 106,879 | 3,077,046 | ||||||
Cadence Design Systems, Inc.(b) | 240,543 | 3,483,063 | ||||||
Citrix Systems, Inc.(b) | 18,185 | 1,097,101 | ||||||
Salesforce.com, Inc.(b) | 40,692 | 1,553,621 | ||||||
9,210,831 | ||||||||
Asset Management & Custody Banks–2.32% | ||||||||
Affiliated Managers Group, Inc.(b) | 33,967 | 5,568,550 | ||||||
Automobile Manufacturers–0.98% | ||||||||
Tesla Motors, Inc.(b) | 21,944 | 2,357,444 | ||||||
Automotive Retail–1.91% | ||||||||
O’Reilly Automotive, Inc.(b) | 40,680 | 4,581,382 | ||||||
Biotechnology–4.62% | ||||||||
BioMarin Pharmaceutical Inc.(b) | 60,699 | 3,386,397 | ||||||
Medivation Inc.(b) | 63,562 | 3,127,251 | ||||||
Onyx Pharmaceuticals, Inc.(b) | 52,898 | 4,592,604 | ||||||
11,106,252 | ||||||||
Broadcasting–1.73% | ||||||||
Discovery Communications, Inc.–Class A(b) | 53,768 | 4,151,427 | ||||||
Building Products–2.25% | ||||||||
Fortune Brands Home & Security Inc. | 48,473 | 1,877,844 | ||||||
Lennox International Inc. | 54,522 | 3,518,850 | ||||||
5,396,694 | ||||||||
Casinos & Gaming–1.78% | ||||||||
Wynn Resorts Ltd. | 33,328 | 4,265,984 | ||||||
Commodity Chemicals–0.84% | ||||||||
LyondellBasell Industries N.V.–Class A | 30,392 | 2,013,774 | ||||||
Communications Equipment–0.28% | ||||||||
F5 Networks, Inc.(b) | 9,831 | 676,373 |
Shares | Value | |||||||
Computer & Electronics Retail–1.35% | ||||||||
Best Buy Co., Inc. | 118,834 | $ | 3,247,733 | |||||
Construction & Engineering–1.58% | ||||||||
MasTec Inc.(b) | 115,322 | 3,794,094 | ||||||
Construction & Farm Machinery & Heavy Trucks–2.20% | ||||||||
Cummins Inc. | 25,477 | 2,763,235 | ||||||
Joy Global Inc. | 52,141 | 2,530,403 | ||||||
5,293,638 | ||||||||
Construction Materials–1.15% | ||||||||
Martin Marietta Materials, Inc.(c) | 28,108 | 2,766,389 | ||||||
Consumer Finance–1.74% | ||||||||
Discover Financial Services | 87,875 | 4,186,365 | ||||||
Data Processing & Outsourced Services–1.67% | ||||||||
Alliance Data Systems Corp.(b) | 22,105 | 4,001,668 | ||||||
Distillers & Vintners–1.08% | ||||||||
Constellation Brands, Inc.–Class A(b) | 49,940 | 2,602,873 | ||||||
Diversified Chemicals–2.30% | ||||||||
PPG Industries, Inc. | 37,812 | 5,536,055 | ||||||
Electrical Components & Equipment–2.11% | ||||||||
AMETEK, Inc. | 120,118 | 5,080,991 | ||||||
Electronic Components–1.93% | ||||||||
Amphenol Corp.–Class A | 59,458 | 4,634,157 | ||||||
Environmental & Facilities Services–1.63% | ||||||||
Waste Connections, Inc. | 95,058 | 3,910,686 | ||||||
Food Retail–1.82% | ||||||||
Whole Foods Market, Inc. | 85,083 | 4,380,073 | ||||||
Health Care Equipment–0.96% | ||||||||
Hologic, Inc.(b)(c) | 118,925 | 2,295,252 | ||||||
Health Care Facilities–1.50% | ||||||||
Universal Health Services, Inc.–Class B | 53,858 | 3,606,332 | ||||||
Health Care Services–3.84% | ||||||||
Catamaran Corp.(b) | 72,474 | 3,530,933 | ||||||
DaVita HealthCare Partners Inc.(b) | 20,140 | 2,432,912 | ||||||
Omnicare, Inc. | 68,216 | 3,254,586 | ||||||
9,218,431 | ||||||||
Health Care Technology–0.66% | ||||||||
HMS Holdings Corp.(b) | 68,095 | 1,586,614 | ||||||
Homebuilding–0.86% | ||||||||
Toll Brothers, Inc.(b) | 63,373 | 2,067,861 | ||||||
Household Appliances–0.81% | ||||||||
Whirlpool Corp. | 17,101 | 1,955,670 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Household Products–1.17% | ||||||||
Church & Dwight Co., Inc. | 45,651 | $ | 2,817,123 | |||||
Industrial Machinery–1.61% | ||||||||
Flowserve Corp. | 71,856 | 3,880,943 | ||||||
Internet Retail–0.43% | ||||||||
Netflix Inc.(b) | 4,944 | 1,043,629 | ||||||
Internet Software & Services–2.09% | ||||||||
Equinix, Inc.(b) | 18,947 | 3,499,890 | ||||||
LinkedIn Corp.–Class A(b) | 8,590 | 1,531,597 | ||||||
5,031,487 | ||||||||
IT Consulting & Other Services–0.25% | ||||||||
Teradata Corp.(b) | 12,116 | 608,587 | ||||||
Movies & Entertainment–1.66% | ||||||||
Cinemark Holdings, Inc. | 142,896 | 3,989,656 | ||||||
Oil & Gas Equipment & Services–3.32% | ||||||||
Cameron International Corp.(b) | 60,912 | 3,725,378 | ||||||
FMC Technologies, Inc.(b) | 35,674 | 1,986,328 | ||||||
Superior Energy Services, Inc.(b) | 87,393 | 2,266,975 | ||||||
7,978,681 | ||||||||
Oil & Gas Exploration & Production–4.03% | ||||||||
EQT Corp. | 38,369 | 3,045,347 | ||||||
Gulfport Energy Corp.(b) | 38,384 | 1,806,735 | ||||||
Pioneer Natural Resources Co. | 33,372 | 4,830,597 | ||||||
9,682,679 | ||||||||
Packaged Foods & Meats–1.04% | ||||||||
Mead Johnson Nutrition Co. | 31,440 | 2,490,991 | ||||||
Paper Packaging–1.05% | ||||||||
Sealed Air Corp. | 104,951 | 2,513,576 | ||||||
Pharmaceuticals–1.01% | ||||||||
Shire PLC–ADR (Ireland) | 25,550 | 2,430,060 | ||||||
Railroads–1.26% | ||||||||
Kansas City Southern | 28,462 | 3,015,834 | ||||||
Regional Banks–1.21% | ||||||||
First Republic Bank | 75,516 | 2,905,856 | ||||||
Research & Consulting Services–1.45% | ||||||||
Verisk Analytics, Inc.–Class A(b) | 58,449 | 3,489,405 | ||||||
Restaurants–1.46% | ||||||||
Panera Bread Co.–Class A(b) | 18,876 | 3,509,803 | ||||||
Semiconductors–3.08% | ||||||||
Avago Technologies Ltd. | 74,613 | 2,789,034 | ||||||
Cavium Inc.(b) | 41,237 | 1,458,553 |
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
NXP Semiconductors N.V. (Netherlands)(b) | 82,798 | $ | 2,565,082 | |||||
Semtech Corp.(b) | 16,972 | 594,529 | ||||||
7,407,198 | ||||||||
Specialized Finance–0.96% | ||||||||
CME Group Inc.–Class A | 30,243 | 2,297,863 | ||||||
Specialty Chemicals–1.54% | ||||||||
Albemarle Corp. | 59,281 | 3,692,613 | ||||||
Specialty Stores–3.58% | ||||||||
Dick’s Sporting Goods, Inc. | 73,711 | 3,689,973 | ||||||
Tractor Supply Co. | 29,853 | 3,511,011 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc.(b) | 13,981 | 1,400,337 | ||||||
8,601,321 | ||||||||
Steel–1.04% | ||||||||
Nucor Corp. | 57,679 | 2,498,654 | ||||||
Systems Software–0.41% | ||||||||
Red Hat, Inc.(b) | 20,633 | 986,670 | ||||||
Trading Companies & Distributors–1.56% | ||||||||
Fastenal Co. | 81,707 | 3,746,266 | ||||||
Trucking–1.30% | ||||||||
J.B. Hunt Transport Services, Inc. | 43,199 | 3,120,696 | ||||||
Wireless Telecommunication Services–3.60% | ||||||||
NII Holdings Inc.(b)(c) | 258,394 | 1,723,488 | ||||||
SBA Communications Corp.–Class A(b) | 62,078 | 4,601,221 | ||||||
Sprint Communications Inc.(b) | 330,270 | 2,318,496 | ||||||
8,643,205 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $180,461,739) |
| 238,546,006 | ||||||
Money Market Funds–0.37% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 443,627 | 443,627 | ||||||
Premier Portfolio–Institutional Class(d) | 443,627 | 443,627 | ||||||
Total Money Market Funds (Cost $887,254) | 887,254 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.64% (Cost $181,348,993) |
| 239,433,260 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–1.21% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,909,290)(d)(e) | 2,909,290 | 2,909,290 | ||||||
TOTAL INVESTMENTS–100.85% (Cost $184,258,283) | 242,342,550 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.85)% |
| (2,052,760 | ) | |||||
NET ASSETS–100.00% | $ | 240,289,790 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Investment Abbreviations:
ADR | — American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at June 30, 2013. |
(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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Consumer Discretionary | 23.4 | % | ||
Industrials | 18.0 | |||
Information Technology | 13.6 | |||
Health Care | 12.6 | |||
Materials | 7.9 | |||
Financials | 7.7 | |||
Energy | 7.4 | |||
Consumer Staples | 5.1 | |||
Telecommunication Services | 3.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: | ||||
Investments, at value (Cost $180,461,739)* | $ | 238,546,006 | ||
Investments in affiliated money market funds, at value and cost | 3,796,544 | |||
Total investments, at value (Cost $184,258,283) | 242,342,550 | |||
Receivable for: | ||||
Investments sold | 2,523,573 | |||
Fund shares sold | 27,100 | |||
Dividends | 112,138 | |||
Investment for trustee deferred compensation and retirement plans | 67,601 | |||
Other assets | 83,698 | |||
Total assets | 245,156,660 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,346,792 | |||
Fund shares reacquired | �� | 232,850 | ||
Collateral upon return of securities loaned | 2,909,290 | |||
Accrued fees to affiliates | 244,881 | |||
Accrued trustees’ and officers’ fees and benefits | 728 | |||
Accrued other operating expenses | 16,275 | |||
Trustee deferred compensation and retirement plans | 116,054 | |||
Total liabilities | 4,866,870 | |||
Net assets applicable to shares outstanding | $ | 240,289,790 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 222,424,891 | ||
Undistributed net investment income (loss) | (162,016 | ) | ||
Undistributed net realized gain (loss) | (40,057,352 | ) | ||
Unrealized appreciation | 58,084,267 | |||
$ | 240,289,790 | |||
Net Assets: | ||||
Series I | $ | 92,411,844 | ||
Series II | $ | 147,877,946 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 20,922,393 | |||
Series II | 33,625,286 | |||
Series I: | ||||
Net asset value per share | $ | 4.42 | ||
Series II: | ||||
Net asset value per share | $ | 4.40 |
* | At June 30, 2013, securities with an aggregate value of $2,841,803 were on loan to brokers. |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $4,245) | $ | 693,590 | ||
Dividends from affiliated money market funds (includes securities lending income of $5,869) | 7,795 | |||
Total investment income | 701,385 | |||
Expenses: | ||||
Advisory fees | 914,081 | |||
Administrative services fees | 322,406 | |||
Custodian fees | 4,635 | |||
Distribution fees — Series II | 188,729 | |||
Transfer agent fees | 22,907 | |||
Trustees’ and officers’ fees and benefits | 17,301 | |||
Other | 29,604 | |||
Total expenses | 1,499,663 | |||
Less: Fees waived | (3,896 | ) | ||
Net expenses | 1,495,767 | |||
Net investment income (loss) | (794,382 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $24,786) | 13,271,502 | |||
Foreign currencies | (29 | ) | ||
13,271,473 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 16,093,769 | |||
Foreign currencies | 11 | |||
16,093,780 | ||||
Net realized and unrealized gain | 29,365,253 | |||
Net increase in net assets resulting from operations | $ | 28,570,871 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (794,382 | ) | $ | 688,401 | |||
Net realized gain (loss) | 13,271,473 | (4,820,673 | ) | |||||
Change in net unrealized appreciation | 16,093,780 | 7,527,957 | ||||||
Net increase in net assets resulting from operations | 28,570,871 | 3,395,685 | ||||||
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 | (6,561,547 | ) | 90,879,821 | |||||
Series ll | (13,398,140 | ) | 75,715,072 | |||||
Net increase (decrease) in net assets resulting from share transactions | (19,959,687 | ) | 166,594,893 | |||||
Net increase in net assets | 8,611,184 | 166,587,913 | ||||||
Net assets: | ||||||||
Beginning of period | 231,678,606 | 65,090,693 | ||||||
End of period (includes undistributed net investment income (loss) of $(162,016) and $632,366, respectively) | $ | 240,289,790 | $ | 231,678,606 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Growth Fund (the “Fund”), formerly Invesco Van Kampen V.I. Mid Cap Growth 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-four 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),
Invesco V.I. Mid Cap Growth 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 trades 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 of 1986, as amended (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 Growth Fund
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 $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).
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. 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
Invesco V.I. Mid Cap Growth Fund
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, 2014. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $3,896.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $30,511 for accounting and fund administrative services and reimbursed $291,895 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended, June 30, 2013, the Fund incurred $1,962 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. |
As of June 30, 2013, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). 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.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities sales of $157,370, which resulted in net realized gains of $24,786.
Invesco V.I. Mid Cap Growth Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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. |
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2013 was $81,204,450 and $98,711,157, 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 | $ | 60,297,834 | ||
Aggregate unrealized (depreciation) of investment securities | (2,377,501 | ) | ||
Net unrealized appreciation of investment securities | $ | 57,920,333 | ||
Cost of investments for tax purposes is $184,422,217. |
Invesco V.I. Mid Cap Growth Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,303,648 | $ | 5,572,545 | 2,853,873 | $ | 11,082,336 | ||||||||||
Series II | 1,102,506 | 4,717,492 | 3,697,327 | 13,808,375 | ||||||||||||
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 | (2,827,911 | ) | (12,134,092 | ) | (8,073,601 | ) | (30,568,097 | ) | ||||||||
Series II | (4,178,135 | ) | (18,115,632 | ) | (5,855,175 | ) | (22,344,719 | ) | ||||||||
Net increase (decrease) in share activity | (4,599,892 | ) | $ | (19,959,687 | ) | 41,468,197 | $ | 166,594,893 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 60% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 27, 2012. 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. Assuming the reorganization had been completed on January 1, 2012, the beginning of the annual reporting period, the pro forma results of operations for the year ended December 31, 2012 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 V.I. Mid Cap Growth Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
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) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 3.92 | $ | (0.01 | ) | $ | 0.51 | $ | 0.50 | $ | — | $ | 4.42 | 12.76 | % | $ | 92,412 | 1.08 | %(e) | 1.08 | %(e) | (0.50 | )%(e) | 34 | % | |||||||||||||||||||||||
Year ended 12/31/12 | 3.69 | 0.02 | (d) | 0.41 | 0.43 | (0.20 | ) | 3.92 | 11.60 | 88,091 | 1.06 | 1.12 | 0.54 | (d) | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 3.91 | (0.02 | ) | 0.51 | �� | 0.49 | — | 4.40 | 12.53 | 147,878 | 1.33 | (e) | 1.33 | (e) | (0.75 | )(e) | 34 | |||||||||||||||||||||||||||||||
Year ended 12/31/12 | 3.68 | 0.01 | (d) | 0.42 | 0.43 | (0.20 | ) | 3.91 | 11.63 | 143,588 | 1.31 | 1.37 | 0.29 | (d) | 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 ratio of net investment income (loss) to average net assets include special cash dividends received of $392 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 annualized and based on average daily net assets (000’s omitted) of $93,541 and $152,234 for Series I and Series II shares, respectively. |
(f) | Commencement date of June 1, 2010. |
(g) | Amount is less than $0.01 per share. |
(h) | Annualized. |
Invesco V.I. Mid Cap Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,127.60 | $ | 5.70 | $ | 1,019.44 | $ | 5.41 | 1.08 | % | ||||||||||||
Series II | 1,000.00 | 1,125.30 | 7.01 | 1,018.20 | 6.66 | 1.33 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Growth Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid-Cap Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the fourth quintile of the performance universe for the one and five year periods and the fifth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers noted that abrupt market changes have created a challenging environment for the trend driven process employed by the portfolio management team leading to a high probability of relative underperformance.
Invesco V.I. Mid Cap Growth Fund |
The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rates of two other mutual funds with comparable strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board noted that Invesco Advisers has contractually agreed to limit expenses of the Fund through at least June 30, 2014 in an amount necessary to limit total annual operating expenses to
a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an
annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Mid Cap Growth Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Money Market Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
About your Fund
Invesco V.I. Money Market Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
Invesco V.I. Money Market Fund
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.
Schedule of Investments
June 30, 2013
(Unaudited)
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Commercial Paper–62.78%(a) |
| |||||||||||||||
Asset-Backed Securities-Consumer Receivables–2.55% | ||||||||||||||||
Old Line Funding, LLC(b) | 0.18 | % | 07/15/13 | $ | 500 | $ | 499,965 | |||||||||
Thunder Bay Funding, LLC(b) | 0.20 | % | 09/10/13 | 2,000 | 1,999,211 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.20 | % | 10/09/13 | 3,000 | 2,998,333 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.20 | % | 10/23/13 | 3,000 | 2,998,100 | |||||||||||
8,495,609 | ||||||||||||||||
Asset-Backed Securities-Diversified Banks–1.32% | ||||||||||||||||
Collateralized Commercial Paper Co., LLC | 0.38 | % | 07/31/13 | 700 | 699,779 | |||||||||||
Collateralized Commercial Paper Co., LLC | 0.38 | % | 08/01/13 | 400 | 399,869 | |||||||||||
Collateralized Commercial Paper Co., LLC | 0.45 | % | 10/28/13 | 1,300 | 1,298,066 | |||||||||||
Collateralized Commercial Paper II Co., LLC(b) | 0.35 | % | 08/26/13 | 2,000 | 1,998,911 | |||||||||||
4,396,625 | ||||||||||||||||
Asset-Backed Securities-Fully Supported–0.90% | ||||||||||||||||
Kells Funding LLC (CEP-Federal Republic of Germany)(b)(c) | 0.24 | % | 11/20/13 | 2,000 | 1,998,107 | |||||||||||
Kells Funding LLC (CEP-Federal Republic of Germany)(b)(c) | 0.23 | % | 11/21/13 | 1,000 | 999,086 | |||||||||||
2,997,193 | ||||||||||||||||
Asset-Backed Securities-Fully Supported Bank–12.29% | ||||||||||||||||
Concord Minutemen Capital Co. LLC (CEP-Guggenheim Treasury Services, LLC)(b)(c) | 0.23 | % | 08/16/13 | 5,000 | 4,998,531 | |||||||||||
Lexington Parker Capital Co., LLC (Multi-CEP’s-Guggenheim Treasury Services, LLC)(b)(c) | 0.24 | % | 07/11/13 | 1,000 | 999,933 | |||||||||||
Manhattan Asset Funding Co. LLC (CEP-Sumitomo Mitsui Banking Corp.)(b)(c) | 0.18 | % | 07/19/13 | 10,000 | 9,999,100 | |||||||||||
Matchpoint Master Trust (CEP-BNP Paribas S.A.)(b)(c) | 0.22 | % | 09/13/13 | 10,000 | 9,995,478 | |||||||||||
Working Capital Management Co. (CEP-Mizuho Corp. Bank Ltd.)(b)(c) | 0.18 | % | 07/22/13 | 15,000 | 14,998,425 | |||||||||||
40,991,467 | ||||||||||||||||
Asset-Backed Securities-Multi-Purpose–8.41% | ||||||||||||||||
Atlantic Asset Securitization LLC(b) | 0.15 | % | 07/03/13 | 6,991 | 6,990,942 | |||||||||||
Atlantic Asset Securitization LLC(b) | 0.17 | % | 07/18/13 | 2,059 | 2,058,835 | |||||||||||
Chariot Funding, LLC(b) | 0.27 | % | 08/29/13 | 3,000 | 2,998,672 | |||||||||||
Chariot Funding, LLC(b) | 0.26 | % | 09/04/13 | 1,000 | 999,531 | |||||||||||
Chariot Funding, LLC(b) | 0.25 | % | 10/18/13 | 1,000 | 999,243 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.22 | % | 10/04/13 | 1,000 | 999,419 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.24 | % | 11/06/13 | 1,000 | 999,147 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.24 | % | 12/05/13 | 1,500 | 1,498,430 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.30 | % | 02/18/14 | 500 | 499,033 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.15 | % | 07/19/13 | 3,000 | 2,999,775 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.16 | % | 07/26/13 | 7,000 | 6,999,222 | |||||||||||
28,042,249 | ||||||||||||||||
Asset-Backed Securities-Securities–7.50% | ||||||||||||||||
Cancara Asset Securitisation LLC(b)(c) | 0.19 | % | 07/22/13 | 5,000 | 4,999,446 | |||||||||||
Cancara Asset Securitisation LLC(b)(c) | 0.19 | % | 08/23/13 | 5,000 | 4,998,601 | |||||||||||
Scaldis Capital LLC(b)(c) | 0.18 | % | 08/09/13 | 10,000 | 9,998,050 | |||||||||||
Scaldis Capital LLC(b)(c) | 0.17 | % | 08/19/13 | 5,000 | 4,998,843 | |||||||||||
24,994,940 |
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 | |||||||||||||
Asset-Backed Securities-Trade Receivables–1.78% | ||||||||||||||||
Market Street Funding LLC(b) | 0.14 | % | 07/25/13 | $ | 5,434 | $ | 5,433,493 | |||||||||
Market Street Funding LLC(b) | 0.18 | % | 08/08/13 | 500 | 499,905 | |||||||||||
5,933,398 | ||||||||||||||||
Consumer Finance–1.08% | ||||||||||||||||
Toyota Motor Credit Corp.(c) | 0.23 | % | 07/05/13 | 2,600 | 2,599,933 | |||||||||||
Toyota Motor Credit Corp.(c) | 0.22 | % | 12/11/13 | 1,000 | 999,004 | |||||||||||
3,598,937 | ||||||||||||||||
Diversified Banks–17.63% | ||||||||||||||||
BNP Paribas Finance, Inc.(c) | 0.24 | % | 07/05/13 | 2,000 | 1,999,947 | |||||||||||
BNZ International Funding Ltd.(b)(c) | 0.18 | % | 08/14/13 | 1,000 | 999,780 | |||||||||||
BNZ International Funding Ltd.(b)(c) | 0.19 | % | 09/13/13 | 4,000 | 3,998,438 | |||||||||||
Caisse des Depots et Consignations(b)(c) | 0.14 | % | 07/18/13 | 5,000 | 4,999,669 | |||||||||||
Caisse des Depots et Consignations(b)(c) | 0.20 | % | 09/13/13 | 1,000 | 999,589 | |||||||||||
DBS Bank Ltd.(b)(c) | 0.26 | % | 09/12/13 | 1,000 | 999,483 | |||||||||||
ING (US) Funding LLC(c) | 0.18 | % | 07/29/13 | 1,000 | 999,860 | |||||||||||
Mizuho Funding, LLC(b)(c) | 0.24 | % | 07/15/13 | 1,000 | 999,909 | |||||||||||
National Australia Funding Delaware Inc.(b)(c) | 0.17 | % | 09/10/13 | 10,000 | 9,996,647 | |||||||||||
Oversea-Chinese Banking Corp. Ltd.(c) | 0.22 | % | 07/01/13 | 5,000 | 5,000,000 | |||||||||||
Societe Generale North America, Inc.(c) | 0.22 | % | 08/02/13 | 2,000 | 1,999,609 | |||||||||||
Standard Chartered Bank(b)(c) | 0.22 | % | 09/10/13 | 800 | 799,653 | |||||||||||
Standard Chartered Bank(b)(c) | 0.21 | % | 10/04/13 | 2,000 | 1,998,892 | |||||||||||
Standard Chartered Bank(b)(c) | 0.21 | % | 10/07/13 | 1,000 | 999,428 | |||||||||||
Standard Chartered Bank(b)(c) | 0.21 | % | 10/09/13 | 5,000 | 4,997,083 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(c) | 0.23 | % | 07/17/13 | 2,000 | 1,999,795 | |||||||||||
United Overseas Bank Ltd.(b)(c) | 0.18 | % | 09/05/13 | 5,000 | 4,998,350 | |||||||||||
United Overseas Bank Ltd.(b)(c) | 0.18 | % | 09/10/13 | 10,000 | 9,996,450 | |||||||||||
58,782,582 | ||||||||||||||||
Household Products–1.27% | ||||||||||||||||
Reckitt Benckiser Treasury Services PLC(b)(c) | 0.42 | % | 09/06/13 | 250 | 249,805 | |||||||||||
Reckitt Benckiser Treasury Services PLC(b)(c) | 0.34 | % | 11/05/13 | 4,000 | 3,995,202 | |||||||||||
4,245,007 | ||||||||||||||||
Life & Health Insurance–2.10% | ||||||||||||||||
MetLife Short Term Funding LLC(b) | 0.12 | % | 07/12/13 | 7,000 | 6,999,743 | |||||||||||
Regional Banks–4.92% | ||||||||||||||||
Australia & New Zealand Banking Group, Ltd.(b)(c) | 0.18 | % | 08/06/13 | 1,000 | 999,825 | |||||||||||
Australia & New Zealand Banking Group, Ltd.(b)(c) | 0.17 | % | 08/28/13 | 900 | 899,761 | |||||||||||
Commonwealth Bank of Australia(b)(c) | 0.17 | % | 08/13/13 | 500 | 499,898 | |||||||||||
Macquarie Bank Ltd.(b)(c) | 0.25 | % | 07/24/13 | 4,000 | 3,999,361 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(b)(c) | 0.17 | % | 08/12/13 | 10,000 | 9,998,017 | |||||||||||
16,396,862 | ||||||||||||||||
Soft Drinks–0.54% | ||||||||||||||||
Coca-Cola Co.(b) | 0.17 | % | 09/10/13 | 800 | 799,732 | |||||||||||
Coca-Cola Co.(b) | 0.16 | % | 10/04/13 | 1,000 | 999,578 | |||||||||||
1,799,310 |
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 | |||||||||||||
Specialized Finance–0.49% | ||||||||||||||||
Kreditanstalt fur Wiederaufbau(b)(c) | 0.19 | % | 08/05/13 | $ | 500 | $ | 499,908 | |||||||||
Kreditanstalt fur Wiederaufbau(b)(c) | 0.19 | % | 08/13/13 | 500 | 499,886 | |||||||||||
Kreditanstalt fur Wiederaufbau(b)(c) | 0.19 | % | 08/15/13 | 125 | 124,970 | |||||||||||
Kreditanstalt fur Wiederaufbau(b)(c) | 0.24 | % | 10/01/13 | 498 | 497,701 | |||||||||||
1,622,465 | ||||||||||||||||
Total Commercial Paper (Cost $209,296,387) | 209,296,387 | |||||||||||||||
Certificates of Deposit–10.94% | ||||||||||||||||
Bank of Nova Scotia(c) | 0.23 | % | 10/03/13 | 300 | 300,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.22 | % | 10/08/13 | 500 | 500,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.34 | % | 06/30/14 | 700 | 700,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.31 | % | 11/29/13 | 4,000 | 4,000,000 | |||||||||||
Bank of Tokyo-Mitsubishi UFJ, Ltd. (The)(c) | 0.22 | % | 09/30/13 | 2,000 | 2,000,000 | |||||||||||
Barclays Bank PLC(c)(d) | 0.25 | % | 03/11/14 | 3,000 | 3,000,000 | |||||||||||
Landesbank Hessen-Thuringen Girozentrale(c) | 0.24 | % | 08/08/13 | 500 | 500,000 | |||||||||||
Natixis(c)(d) | 0.30 | % | 06/25/14 | 4,000 | 4,000,000 | |||||||||||
Nordea Bank Finland PLC(c) | 0.15 | % | 09/03/13 | 3,000 | 3,000,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.25 | % | 07/12/13 | 1,000 | 1,000,000 | |||||||||||
Royal Bank of Canada(c)(d) | 0.33 | % | 07/03/14 | 2,000 | 2,000,000 | |||||||||||
Svenska Handelsbanken A.B.(c) | 0.21 | % | 07/17/13 | 1,086 | 1,086,003 | |||||||||||
Svenska Handelsbanken A.B.(c) | 0.18 | % | 09/11/13 | 14,000 | 14,000,000 | |||||||||||
Toronto-Dominion Bank(c) | 0.22 | % | 08/13/13 | 400 | 400,000 | |||||||||||
Total Certificates of Deposit (Cost $36,486,003) | 36,486,003 | |||||||||||||||
Variable Rate Demand Notes–7.16%(e) | ||||||||||||||||
Credit Enhanced–7.16% | ||||||||||||||||
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC-Wells Fargo Bank, N.A.)(f) | 0.20 | % | 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.)(f) | 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.)(f)(g) | 0.11 | % | 10/01/25 | 1,000 | 1,000,000 | |||||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC–PNC Bank, N.A.)(f) | 0.06 | % | 05/15/17 | 600 | 600,000 | |||||||||||
M3 Realty, LLC; Series 2007, VRD RN (LOC–General Electric Capital Corp.)(b)(f) | 0.26 | % | 01/01/33 | 2,100 | 2,100,000 | |||||||||||
Massachusetts (State of) Development Finance Agency (Milton Academy); Series 2009 B, VRD Taxable RB (LOC–TD Bank, N.A.)(f) | 0.17 | % | 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.)(f)(g) | 0.07 | % | 03/01/26 | 360 | 360,000 | |||||||||||
Nuevo Oaxaca LLC (Village by the Park Apartments); Series 2013 A, MFH Taxable VRD RB (LOC–FHLB of San Francisco)(f) | 0.17 | % | 03/01/53 | 4,500 | 4,500,000 | |||||||||||
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC–Wells Fargo Bank, N.A.)(f) | 0.20 | % | 12/01/27 | 2,330 | 2,330,000 | |||||||||||
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.)(f)(g) | 0.25 | % | 12/01/18 | 310 | 310,000 | |||||||||||
St. Jean Industries, Inc.; Series 2006, VRD Taxable Notes (LOC–General Electric Capital Corp.)(b)(f) | 0.22 | % | 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)(c)(f) | 0.12 | % | 03/01/29 | 400 | 400,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $23,860,000) | 23,860,000 | |||||||||||||||
Medium-Term Notes–6.60% | ||||||||||||||||
Consumer Finance–4.50% | ||||||||||||||||
American Honda Finance Corp., Sr. Unsec. Floating Rate MTN(b)(c)(d) | 0.27 | % | 05/20/14 | 15,000 | 14,999,703 |
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 | |||||||||||||
Diversified Banks–2.10% | ||||||||||||||||
U.S. Bancorp, Sr. Unsec. MTN | 1.38 | % | 09/13/13 | $ | 2,000 | $ | 2,003,270 | |||||||||
U.S. Bancorp, Sr. Unsec. MTN | 1.13 | % | 10/30/13 | 2,000 | 2,004,235 | |||||||||||
Wells Fargo Bank, N.A., Unsec. Floating Rate MTN(d) | 0.32 | % | 07/18/14 | 3,000 | 3,000,000 | |||||||||||
7,007,505 | ||||||||||||||||
Total Medium-Term Notes (Cost $22,007,208) | 22,007,208 | |||||||||||||||
U.S. Treasury Bills–0.90% | ||||||||||||||||
U.S. Treasury Bills(a) (Cost $2,998,517) | 0.10 | % | 12/26/13 | 3,000 | 2,998,517 | |||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–88.38% (Cost $294,648,115) | 294,648,115 | |||||||||||||||
Repurchase Amount | ||||||||||||||||
Repurchase Agreements–16.56%(h) | ||||||||||||||||
Credit Agricole Corporate & Investment Bank, Joint agreement dated 06/28/13, aggregate maturing value of $500,005,000 (collateralized by U.S. Government sponsored agency obligations valued at $510,000,000; 2.50%-4.00%, 12/01/27-07/0143) | 0.12 | % | 07/01/13 | 1,196,058 | 1,196,046 | |||||||||||
Credit Suisse Securities (USA) LLC, Agreement dated 06/28/13, maturing value of $4,000,043 (collateralized by U.S. Government sponsored agency obligation valued at $4,080,233; 1.16%, 01/16/53)(c) | 0.13 | % | 07/01/13 | 4,000,043 | 4,000,000 | |||||||||||
Societe Generale, Joint agreement dated 06/28/13, aggregate maturing value of $500,005,000 (collateralized by U.S. Government sponsored agency obligations valued at $510,000,001; 3.00%-3.50%, 05/01/42-05/01/43) | 0.12 | % | 07/01/13 | 50,000,500 | 50,000,000 | |||||||||||
Total Repurchase Agreements (Cost $55,196,046) | 55,196,046 | |||||||||||||||
TOTAL INVESTMENTS(i)(j)–104.94% (Cost $349,844,161) | 349,844,161 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(4.94)% | (16,462,384 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 333,381,777 |
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
FHLB | – Federal Home Loan Bank | |
IDR | – Industrial Development Revenue Bonds | |
LOC | – Letter of Credit |
MFH | – Multi-Family Housing | |
MTN | – Medium-Term Notes | |
RB | – Revenue Bonds | |
RN | – Revenue Notes |
Sr. | – Senior | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
Notes to Schedule of Investments:
(a) | Securities may be traded on a discount basis. The interest rates shown represent the discount rate at the time of purchase by the Fund. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2013 was $211,200,023, which represented 63.35% of the Fund’s Net Assets. |
(c) | The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: Japan: 18.0%; France 11.7%; United Kingdom: 9.6%; Australia 6.4%; Singapore 6.3%; Sweden 5.4%; other countries less than 5% each: 7.3%. |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2013. |
(e) | Demand securities payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rates are redetermined periodically. Rates shown are the rates in effect on June 30, 2013. |
(f) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. |
(g) | Security subject to the alternative minimum tax. |
(h) | Principal amount equals value at period end. See Note 1I. |
(i) | Also represents cost for federal income tax purposes. |
(j) | Entities may either issue, guarantee, back or otherwise enhance the credit quality of a security. The entities are not primarily responsible for the issuer’s obligation but may be called upon to satisfy the issuer’s obligations. No concentration of any single entity was greater than 5%. |
Portfolio Composition*
Number of days to maturity as of June 30, 2013
1-7 | 28.2 | % | ||
8-30 | 20.0 | |||
31-60 | 13.2 | |||
61-90 | 20.8 | |||
91-180 | 10.9 | |||
181+ | 6.9 |
* | The number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 of the Investment Company Act of 1940. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, excluding repurchase agreements, at cost and value | $ | 294,648,115 | ||
Repurchase agreements, at cost and value | 55,196,046 | |||
Total investments, at cost and value | 349,844,161 | |||
Receivable for: | ||||
Investments sold | 10,000 | |||
Fund shares sold | 97,789 | |||
Interest | 30,494 | |||
Fund expenses absorbed | 27,736 | |||
Investment for trustee deferred compensation and retirement plans | 42,018 | |||
Other assets | 2,489 | |||
Total assets | 350,054,687 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 16,479,805 | |||
Dividends | 956 | |||
Accrued fees to affiliates | 109,380 | |||
Accrued trustees’ and officers’ fees and benefits | 513 | |||
Accrued other operating expenses | 22,128 | |||
Trustee deferred compensation and retirement plans | 60,128 | |||
Total liabilities | 16,672,910 | |||
Net assets applicable to shares outstanding | $ | 333,381,777 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 333,384,824 | ||
Undistributed net investment income | (2,496 | ) | ||
Undistributed net realized gain (loss) | (551 | ) | ||
$ | 333,381,777 | |||
Net Assets: |
| |||
Series I | $ | 332,575,938 | ||
Series II | $ | 805,839 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 332,575,065 | |||
Series II | 805,837 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 |
Investment income: |
| |||
Interest | $ | 197,227 | ||
Expenses: | ||||
Advisory fees | 358,479 | |||
Administrative services fees | 208,747 | |||
Custodian fees | 29,344 | |||
Distribution fees — Series II | 931 | |||
Transfer agent fees | 9,092 | |||
Trustees’ and officers’ fees and benefits | 15,645 | |||
Professional services fees | 60,688 | |||
Other | 21,179 | |||
Total expenses | 704,105 | |||
Less: Fees waived | (544,156 | ) | ||
Net expenses | 159,949 | |||
Net investment income | 37,278 | |||
Net realized gain from investment securities | 194 | |||
Net increase in net assets resulting from operations | $ | 37,472 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 37,278 | $ | 65,699 | ||||
Net realized gain | 194 | 1,398 | ||||||
Net increase in net assets resulting from operations | 37,472 | 67,097 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (37,133 | ) | (65,457 | ) | ||||
Series ll | (145 | ) | (242 | ) | ||||
Total distributions from net investment income | (37,278 | ) | (65,699 | ) | ||||
Share transactions–net: | ||||||||
Series l | 175,644,374 | (41,602,983 | ) | |||||
Series ll | 60,368 | (276,342 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 175,704,742 | (41,879,325 | ) | |||||
Net increase (decrease) in net assets | 175,704,936 | (41,877,927 | ) | |||||
Net assets: | ||||||||
Beginning of period | 157,676,841 | 199,554,768 | ||||||
End of period (includes undistributed net investment income of $(2,496) and $(2,496), respectively) | $ | 333,381,777 | $ | 157,676,841 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Money Market Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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.
Invesco V.I. Money Market Fund
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income are declared daily and paid monthly to separate accounts of participating insurance companies. Distributions from net realized gain, if any, are generally 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 of 1986, as amended (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).
Effective May 1, 2013, 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 operating expenses after fee waivers and/or expense reimbursements (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 May 1, 2013, the Adviser had contractually agreed 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. Unless the Board of the Trustees and Invesco mutually
Invesco V.I. Money Market Fund
agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
The Adviser and/or Invesco Distributors, Inc., (“IDI”) voluntarily agreed to waive fees and/or reimburse expenses in order to increase the Fund’s yield. Voluntary fee waivers and/or reimbursements may be modified at any time upon consultation with the Board of Trustees without further notice to investors.
For the six months ended June 30, 2013, Invesco voluntarily waived advisory fees of $543,225 and reimbursed class level expenses of $0 and $931 for Series I and Series II shares, respectively, 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 six months ended June 30, 2013, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $183,952 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, 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 six months ended June 30, 2013, 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. |
As of June 30, 2013, all of the securities in this Fund were valued based on Level 2 inputs (see the Schedule of Investments for security categories). 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.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities sales of $625,170, which did not result in any net realized gains (losses).
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 V.I. Money Market Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 406,033,663 | $ | 406,033,663 | 690,431,189 | $ | 690,431,189 | ||||||||||
Series II | 71,293 | 71,293 | 9,878 | 9,878 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 33,118 | 33,118 | 26,307 | 26,307 | ||||||||||||
Series II | 145 | 145 | 242 | 242 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (230,422,407 | ) | (230,422,407 | ) | (732,060,479 | ) | (732,060,479 | ) | ||||||||
Series II | (11,070 | ) | (11,070 | ) | (286,462 | ) | (286,462 | ) | ||||||||
Net increase (decrease) in share activity | 175,704,742 | $ | 175,704,742 | (41,879,325 | ) | $ | (41,879,325 | ) |
(a) | There is an entity that is a record owner of more than 5% of the outstanding shares of the Fund and owns 92% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby this entity sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to this entity, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by this entity are also owned beneficially. |
In addition, 6% 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 9—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 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 | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 1.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.02 | % | $ | 332,576 | 0.18 | %(c) | 0.78 | %(c) | 0.04 | %(c) | |||||||||||||||||||||
Year ended 12/31/12 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 156,931 | 0.23 | 0.54 | 0.03 | ||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 1.00 | 0.00 | 0.00 | 0.00 | $ | (0.00 | ) | 1.00 | 0.02 | 806 | 0.18 | (c) | 1.03 | (c) | 0.04 | (c) | ||||||||||||||||||||||||||||
Year ended 12/31/12 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 746 | 0.23 | 0.79 | 0.03 | ||||||||||||||||||||||||||||||||
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 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) | Ratios are annualized and based on average daily net assets (000’s omitted) of $179,974 and $751 for Series I and Series II shares, respectively. |
Invesco V.I. Money Market Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.20 | $ | 0.89 | $ | 1,023.91 | $ | 0.90 | 0.18 | % | ||||||||||||
Series II | 1,000.00 | 1,000.20 | 0.89 | 1,023.91 | 0.90 | 0.18 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Money Market Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Money Market Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of its performance universe for the one and three year periods and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the
Invesco V.I. Money Market Fund |
worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one and three year periods and below the Index for the five year period. Invesco Advisers noted the low interest rate environment which results in expense waivers, limited investment vehicles and performance challenges. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund with comparable investment strategies. The Board also noted that Invesco Advisers and its affiliates advise two off-shore money market funds with similar investment strategies, both of which had effective advisory fee rates before waivers lower than the Fund.
Other than the funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers is currently waiving expenses to maintain a positive yield by the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board
concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the
usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
Invesco V.I. Money Market Fund
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. S&P 500 Index Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 13.65 | % | |||
Series II Shares | 13.41 | ||||
S&P 500 Index‚ (Broad Market/Style-Specific Index) | 13.82 | ||||
Lipper VUF S&P 500 Funds Indexn (Peer Group Index) | 13.62 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc. |
|
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 the S&P 500 variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
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 0.39% and 0.64%, 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
Inception (5/18/98) | 4.08 | % | |||
10 Years | 7.04 | ||||
5 Years | 6.79 | ||||
1 Year | 20.25 | ||||
Series II Shares | |||||
Inception (6/5/00) | 2.08 | % | |||
10 Years | 6.77 | ||||
5 Years | 6.51 | ||||
1 Year |
| 19.86
|
|
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.41% |
| |||||||
Advertising–0.16% | ||||||||
Interpublic Group of Cos., Inc. (The) | 2,974 | $ | 43,272 | |||||
Omnicom Group Inc. | 1,809 | 113,732 | ||||||
157,004 | ||||||||
Aerospace & Defense–2.52% | ||||||||
Boeing Co. (The) | 4,741 | 485,668 | ||||||
General Dynamics Corp. | 2,298 | 180,002 | ||||||
Honeywell International Inc. | 5,463 | 433,434 | ||||||
L-3 Communications Holdings, Inc. | 628 | 53,845 | ||||||
Lockheed Martin Corp. | 1,853 | 200,976 | ||||||
Northrop Grumman Corp. | 1,640 | 135,792 | ||||||
Precision Castparts Corp. | 1,013 | 228,948 | ||||||
Raytheon Co. | 2,251 | 148,836 | ||||||
Rockwell Collins, Inc. | 945 | 59,923 | ||||||
Textron Inc. | 1,899 | 49,469 | ||||||
United Technologies Corp. | 5,873 | 545,837 | ||||||
2,522,730 | ||||||||
Agricultural Products–0.16% | ||||||||
Archer-Daniels-Midland Co. | 4,558 | 154,562 | ||||||
Air Freight & Logistics–0.75% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,126 | 63,405 | ||||||
Expeditors International of Washington, Inc. | 1,428 | 54,278 | ||||||
FedEx Corp. | 2,045 | 201,596 | ||||||
United Parcel Service, Inc.–Class B | 4,933 | 426,606 | ||||||
745,885 | ||||||||
Airlines–0.06% | ||||||||
Southwest Airlines Co. | 4,974 | 64,115 | ||||||
Aluminum–0.06% | ||||||||
Alcoa Inc. | 7,475 | 58,455 | ||||||
Apparel Retail–0.57% | ||||||||
Abercrombie & Fitch Co.–Class A | 543 | 24,571 | ||||||
Gap, Inc. (The) | 2,012 | 83,961 | ||||||
L Brands, Inc. | 1,674 | 82,444 | ||||||
Ross Stores, Inc. | 1,525 | 98,835 | ||||||
TJX Cos., Inc. (The) | 4,998 | 250,200 | ||||||
Urban Outfitters, Inc.(b) | 773 | 31,090 | ||||||
571,101 | ||||||||
Apparel, Accessories & Luxury Goods–0.41% | ||||||||
Coach, Inc. | 1,943 | 110,926 | ||||||
Fossil Group, Inc.(b) | 369 | 38,121 | ||||||
PVH Corp. | 561 | 70,153 | ||||||
Ralph Lauren Corp. | 424 | 73,666 | ||||||
VF Corp. | 607 | 117,188 | ||||||
410,054 | ||||||||
Application Software–0.55% | ||||||||
Adobe Systems Inc.(b) | 3,485 | 158,776 | ||||||
Autodesk, Inc.(b) | 1,571 | 53,320 |
Shares | Value | |||||||
Application Software–(continued) | ||||||||
Citrix Systems, Inc.(b) | 1,303 | $ | 78,610 | |||||
Intuit Inc. | 1,928 | 117,666 | ||||||
Salesforce.com, Inc.(b) | 3,768 | 143,862 | ||||||
552,234 | ||||||||
Asset Management & Custody Banks–1.24% | ||||||||
Ameriprise Financial, Inc. | 1,407 | 113,798 | ||||||
Bank of New York Mellon Corp. (The) | 8,060 | 226,083 | ||||||
BlackRock, Inc. | 870 | 223,459 | ||||||
Franklin Resources, Inc. | 956 | 130,035 | ||||||
Invesco Ltd.(c) | 3,087 | 98,167 | ||||||
Legg Mason, Inc. | 773 | 23,971 | ||||||
Northern Trust Corp. | 1,522 | 88,124 | ||||||
State Street Corp. | 3,162 | 206,194 | ||||||
T. Rowe Price Group Inc. | 1,792 | 131,085 | ||||||
1,240,916 | ||||||||
Auto Parts & Equipment–0.34% | ||||||||
BorgWarner, Inc.(b) | 808 | 69,609 | ||||||
Delphi Automotive PLC (United Kingdom) | 2,018 | 102,292 | ||||||
Johnson Controls, Inc. | 4,736 | 169,502 | ||||||
341,403 | ||||||||
Automobile Manufacturers–0.60% | ||||||||
Ford Motor Co. | 27,304 | 422,393 | ||||||
General Motors Co.(b) | 5,345 | 178,042 | ||||||
600,435 | ||||||||
Automotive Retail–0.28% | ||||||||
AutoNation, Inc.(b) | 280 | 12,149 | ||||||
AutoZone, Inc.(b) | 253 | 107,194 | ||||||
CarMax, Inc.(b) | 1,558 | 71,917 | ||||||
O’Reilly Automotive, Inc.(b) | 766 | 86,267 | ||||||
277,527 | ||||||||
Biotechnology–2.00% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 1,350 | 124,524 | ||||||
Amgen Inc. | 5,208 | 513,821 | ||||||
Biogen Idec Inc.(b) | 1,647 | 354,434 | ||||||
Celgene Corp.(b) | 2,898 | 338,805 | ||||||
Gilead Sciences, Inc.(b) | 10,593 | 542,468 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 533 | 119,861 | ||||||
1,993,913 | ||||||||
Brewers–0.05% | ||||||||
Molson Coors Brewing Co.–Class B | 1,079 | 51,641 | ||||||
Broadcasting–0.36% | ||||||||
CBS Corp. –Class B | 3,948 | 192,939 | ||||||
Discovery Communications, Inc.–Class A(b) | 1,697 | 131,025 | ||||||
Scripps Networks Interactive Inc.–Class A | 601 | 40,123 | ||||||
364,087 |
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. | 2,466 | $ | 48,062 | |||||
Cable & Satellite–1.26% | ||||||||
Cablevision Systems Corp.–Class A | 1,534 | 25,802 | ||||||
Comcast Corp.–Class A | 18,269 | 765,106 | ||||||
DIRECTV(b) | 3,865 | 238,161 | ||||||
Time Warner Cable Inc. | 2,019 | 227,097 | ||||||
1,256,166 | ||||||||
Casinos & Gaming–0.10% | ||||||||
International Game Technology | 1,815 | 30,329 | ||||||
Wynn Resorts Ltd. | 551 | 70,528 | ||||||
100,857 | ||||||||
Coal & Consumable Fuels–0.07% | ||||||||
CONSOL Energy Inc. | 1,595 | 43,224 | ||||||
Peabody Energy Corp. | 1,904 | 27,875 | ||||||
71,099 | ||||||||
Commodity Chemicals–0.17% | ||||||||
LyondellBasell Industries N.V.–Class A | 2,627 | 174,065 | ||||||
Communications Equipment–1.91% | ||||||||
Cisco Systems, Inc. | 37,119 | 902,363 | ||||||
F5 Networks, Inc.(b) | 549 | 37,771 | ||||||
Harris Corp. | 760 | 37,430 | ||||||
JDS Uniphase Corp.(b) | 1,676 | 24,101 | ||||||
Juniper Networks, Inc.(b) | 3,520 | 67,971 | ||||||
Motorola Solutions, Inc. | 1,885 | 108,821 | ||||||
QUALCOMM, Inc. | 12,000 | 732,960 | ||||||
1,911,417 | ||||||||
Computer & Electronics Retail–0.09% | ||||||||
Best Buy Co., Inc. | 1,860 | 50,834 | ||||||
GameStop Corp.–Class A | 838 | 35,221 | ||||||
86,055 | ||||||||
Computer Hardware–3.05% | ||||||||
Apple Inc. | 6,519 | 2,582,046 | ||||||
Dell Inc. | 10,208 | 136,277 | ||||||
Hewlett-Packard Co. | 13,394 | 332,171 | ||||||
3,050,494 | ||||||||
Computer Storage & Peripherals–0.73% | ||||||||
EMC Corp. | 14,566 | 344,049 | ||||||
NetApp, Inc.(b) | 2,494 | 94,223 | ||||||
SanDisk Corp.(b) | 1,691 | 103,320 | ||||||
Seagate Technology PLC | 2,234 | 100,150 | ||||||
Western Digital Corp. | 1,476 | 91,645 | ||||||
733,387 | ||||||||
Construction & Engineering–0.16% | ||||||||
Fluor Corp. | 1,136 | 67,376 | ||||||
Jacobs Engineering Group, Inc.(b) | 902 | 49,727 | ||||||
Quanta Services, Inc.(b) | 1,475 | 39,029 | ||||||
156,132 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.90% | ||||||||
Caterpillar Inc. | 4,565 | 376,567 | ||||||
Cummins Inc. | 1,221 | 132,429 |
Shares | Value | |||||||
Construction & Farm Machinery & Heavy Trucks–(continued) | ||||||||
Deere & Co. | 2,696 | $ | 219,050 | |||||
Joy Global Inc. | 734 | 35,621 | ||||||
PACCAR Inc. | 2,445 | 131,199 | ||||||
894,866 | ||||||||
Construction Materials–0.04% | ||||||||
Vulcan Materials Co. | 898 | 43,472 | ||||||
Consumer Electronics–0.05% | ||||||||
Garmin Ltd. | 765 | 27,662 | ||||||
Harman International Industries, Inc. | 474 | 25,691 | ||||||
53,353 | ||||||||
Consumer Finance–0.99% | ||||||||
American Express Co. | 6,651 | 497,229 | ||||||
Capital One Financial Corp. | 4,056 | 254,757 | ||||||
Discover Financial Services | 3,405 | 162,214 | ||||||
SLM Corp. | 3,110 | 71,095 | ||||||
985,295 | ||||||||
Data Processing & Outsourced Services–1.68% | ||||||||
Automatic Data Processing, Inc. | 3,356 | 231,094 | ||||||
Computer Sciences Corp. | 1,042 | 45,608 | ||||||
Fidelity National Information Services, Inc. | 2,051 | 87,865 | ||||||
Fiserv, Inc.(b) | 933 | 81,554 | ||||||
MasterCard, Inc.–Class A | 725 | 416,513 | ||||||
Paychex, Inc. | 2,264 | 82,681 | ||||||
Total System Services, Inc. | 1,135 | 27,785 | ||||||
Visa Inc.–Class A | 3,518 | 642,914 | ||||||
Western Union Co. (The) | 3,904 | 66,797 | ||||||
1,682,811 | ||||||||
Department Stores–0.28% | ||||||||
J. C. Penney Co., Inc.(b) | 1,011 | 17,268 | ||||||
Kohl’s Corp. | 1,414 | 71,421 | ||||||
Macy’s, Inc. | 2,663 | 127,824 | ||||||
Nordstrom, Inc. | 1,046 | 62,697 | ||||||
279,210 | ||||||||
Distillers & Vintners–0.20% | ||||||||
Beam Inc. | 1,108 | 69,926 | ||||||
Brown-Forman Corp.–Class B | 1,059 | 71,535 | ||||||
Constellation Brands, Inc.–Class A(b) | 1,055 | 54,987 | ||||||
196,448 | ||||||||
Distributors–0.08% | ||||||||
Genuine Parts Co. | 1,083 | 84,550 | ||||||
Diversified Banks–1.93% | ||||||||
Comerica Inc. | 1,295 | 51,580 | ||||||
U.S. Bancorp | 12,846 | 464,383 | ||||||
Wells Fargo & Co. | 34,211 | 1,411,888 | ||||||
1,927,851 | ||||||||
Diversified Chemicals–0.88% | ||||||||
Dow Chemical Co. (The) | 8,419 | 270,839 | ||||||
E. I. du Pont de Nemours & Co. | 6,392 | 335,580 | ||||||
Eastman Chemical Co. | 1,065 | 74,561 |
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–(continued) | ||||||||
FMC Corp. | 944 | $ | 57,641 | |||||
PPG Industries, Inc. | 988 | 144,653 | ||||||
883,274 | ||||||||
Diversified Metals & Mining–0.20% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 7,184 | 198,350 | ||||||
Diversified REIT’s–0.10% | ||||||||
Vornado Realty Trust | 1,184 | 98,094 | ||||||
Diversified Support Services–0.07% | ||||||||
Cintas Corp. | 725 | 33,017 | ||||||
Iron Mountain Inc. | 1,192 | 31,719 | ||||||
64,736 | ||||||||
Drug Retail–0.75% | ||||||||
CVS Caremark Corp. | 8,506 | 486,373 | ||||||
Walgreen Co. | 5,987 | 264,625 | ||||||
750,998 | ||||||||
Electric Utilities–1.87% | ||||||||
American Electric Power Co., Inc. | 3,360 | 150,461 | ||||||
Duke Energy Corp. | 4,900 | 330,750 | ||||||
Edison International | 2,279 | 109,756 | ||||||
Entergy Corp. | 1,231 | 85,776 | ||||||
Exelon Corp. | 5,917 | 182,717 | ||||||
FirstEnergy Corp. | 2,894 | 108,062 | ||||||
NextEra Energy, Inc. | 2,948 | 240,203 | ||||||
Northeast Utilities | 2,199 | 92,402 | ||||||
Pepco Holdings, Inc. | 1,768 | 35,643 | ||||||
Pinnacle West Capital Corp. | 776 | 43,045 | ||||||
PPL Corp. | 4,134 | 125,095 | ||||||
Southern Co. (The) | 6,044 | 266,722 | ||||||
Xcel Energy, Inc. | 3,483 | 98,708 | ||||||
1,869,340 | ||||||||
Electrical Components & Equipment–0.65% | ||||||||
Eaton Corp. PLC | 3,285 | 216,186 | ||||||
Emerson Electric Co. | 4,997 | 272,536 | ||||||
Rockwell Automation, Inc. | 967 | 80,396 | ||||||
Roper Industries, Inc. | 684 | 84,967 | ||||||
654,085 | ||||||||
Electronic Components–0.23% | ||||||||
Amphenol Corp.–Class A | 1,116 | 86,981 | ||||||
Corning Inc. | 10,291 | 146,441 | ||||||
233,422 | ||||||||
Electronic Equipment & Instruments–0.03% | ||||||||
FLIR Systems, Inc. | 984 | 26,538 | ||||||
Electronic Manufacturing Services–0.19% | ||||||||
Jabil Circuit, Inc. | 1,328 | 27,065 | ||||||
Molex Inc. | 979 | 28,724 | ||||||
TE Connectivity Ltd. (Switzerland) | 2,884 | 131,337 | ||||||
187,126 | ||||||||
Environmental & Facilities Services–0.26% | ||||||||
Republic Services, Inc. | 2,080 | 70,595 | ||||||
Stericycle, Inc.(b) | 601 | 66,368 |
Shares | Value | |||||||
Environmental & Facilities Services–(continued) | ||||||||
Waste Management, Inc. | 3,026 | $ | 122,039 | |||||
259,002 | ||||||||
Fertilizers & Agricultural Chemicals–0.54% | ||||||||
CF Industries Holdings, Inc. | 409 | 70,144 | ||||||
Monsanto Co. | 3,708 | 366,350 | ||||||
Mosaic Co. (The) | 1,915 | 103,046 | ||||||
539,540 | ||||||||
Food Distributors–0.14% | ||||||||
Sysco Corp. | 4,121 | 140,773 | ||||||
Food Retail–0.29% | ||||||||
Kroger Co. (The) | 3,598 | 124,275 | ||||||
Safeway Inc. | 1,676 | 39,654 | ||||||
Whole Foods Market, Inc. | 2,385 | 122,780 | ||||||
286,709 | ||||||||
Footwear–0.32% | ||||||||
NIKE, Inc.–Class B | 5,021 | 319,737 | ||||||
Gas Utilities–0.10% | ||||||||
AGL Resources Inc. | 840 | 36,003 | ||||||
ONEOK, Inc. | 1,417 | 58,536 | ||||||
94,539 | ||||||||
General Merchandise Stores–0.53% | ||||||||
Dollar General Corp.(b) | 2,091 | 105,449 | ||||||
Dollar Tree, Inc.(b) | 1,572 | 79,921 | ||||||
Family Dollar Stores, Inc. | 671 | 41,810 | ||||||
Target Corp. | 4,456 | 306,840 | ||||||
534,020 | ||||||||
Gold–0.10% | ||||||||
Newmont Mining Corp. | 3,437 | 102,938 | ||||||
Health Care Distributors–0.40% | ||||||||
AmerisourceBergen Corp. | 1,610 | 89,886 | ||||||
Cardinal Health, Inc. | 2,358 | 111,298 | ||||||
McKesson Corp. | 1,572 | 179,994 | ||||||
Patterson Cos. Inc. | 578 | 21,733 | ||||||
402,911 | ||||||||
Health Care Equipment–2.07% | ||||||||
Abbott Laboratories | 10,826 | 377,611 | ||||||
Baxter International Inc. | 3,778 | 261,702 | ||||||
Becton, Dickinson & Co. | 1,341 | 132,531 | ||||||
Boston Scientific Corp.(b) | 9,364 | 86,804 | ||||||
C.R. Bard, Inc. | 526 | 57,166 | ||||||
CareFusion Corp.(b) | 1,525 | 56,196 | ||||||
Covidien PLC(b) | 3,266 | 186,815 | ||||||
Edwards Lifesciences Corp.(b) | 789 | 53,021 | ||||||
Intuitive Surgical, Inc.(b) | 279 | 141,336 | ||||||
Medtronic, Inc. | 7,023 | 361,474 | ||||||
St. Jude Medical, Inc. | 1,978 | 90,256 | ||||||
Stryker Corp. | 2,001 | 129,424 | ||||||
Varian Medical Systems, Inc.(b) | 762 | 51,397 | ||||||
Zimmer Holdings, Inc. | 1,168 | 87,530 | ||||||
2,073,263 |
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 Facilities–0.03% | ||||||||
Tenet Healthcare Corp.(b) | 728 | $ | 33,561 | |||||
Health Care Services–0.55% | ||||||||
DaVita HealthCare Partners Inc.(b) | 589 | 71,151 | ||||||
Express Scripts Holding Co.(b) | 5,664 | 349,412 | ||||||
Laboratory Corp. of America Holdings(b) | 644 | 64,465 | ||||||
Quest Diagnostics Inc. | 1,094 | 66,329 | ||||||
551,357 | ||||||||
Health Care Supplies–0.04% | ||||||||
DENTSPLY International Inc. | 998 | 40,878 | ||||||
Health Care Technology–0.10% | ||||||||
Cerner Corp.(b) | 1,023 | 98,300 | ||||||
Home Entertainment Software–0.05% | ||||||||
Electronic Arts Inc.(b) | 2,103 | 48,306 | ||||||
Home Furnishings–0.03% | ||||||||
Leggett & Platt, Inc. | 1,018 | 31,650 | ||||||
Home Improvement Retail–1.09% | ||||||||
Home Depot, Inc. (The) | 10,145 | 785,933 | ||||||
Lowe’s Cos., Inc. | 7,447 | 304,582 | ||||||
1,090,515 | ||||||||
Homebuilding–0.13% | ||||||||
D.R. Horton, Inc. | 1,977 | 42,070 | ||||||
Lennar Corp.–Class A | 1,141 | 41,122 | ||||||
PulteGroup Inc.(b) | 2,402 | 45,566 | ||||||
128,758 | ||||||||
Homefurnishing Retail–0.11% | ||||||||
Bed Bath & Beyond Inc.(b) | 1,517 | 107,555 | ||||||
Hotels, Resorts & Cruise Lines–0.31% | ||||||||
Carnival Corp. | 3,108 | 106,573 | ||||||
Marriott International Inc.–Class A | 1,662 | 67,095 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,340 | 84,675 | ||||||
Wyndham Worldwide Corp. | 945 | 54,082 | ||||||
312,425 | ||||||||
Household Appliances–0.06% | ||||||||
Whirlpool Corp. | 543 | 62,097 | ||||||
Household Products–2.15% | ||||||||
Clorox Co. (The) | 906 | 75,325 | ||||||
Colgate-Palmolive Co. | 6,085 | 348,610 | ||||||
Kimberly-Clark Corp. | 2,670 | 259,364 | ||||||
Procter & Gamble Co. (The) | 19,035 | 1,465,504 | ||||||
2,148,803 | ||||||||
Housewares & Specialties–0.05% | ||||||||
Newell Rubbermaid Inc. | 1,982 | 52,028 | ||||||
Human Resource & Employment Services–0.03% | ||||||||
Robert Half International, Inc. | 975 | 32,399 | ||||||
Hypermarkets & Super Centers–1.18% | ||||||||
Costco Wholesale Corp. | 3,032 | 335,248 | ||||||
Wal-Mart Stores, Inc. | 11,378 | 847,547 | ||||||
1,182,795 |
Shares | Value | |||||||
Independent Power Producers & Energy Traders–0.11% | ||||||||
AES Corp. (The) | 4,263 | $ | 51,113 | |||||
NRG Energy, Inc. | 2,223 | 59,354 | ||||||
110,467 | ||||||||
Industrial Conglomerates–2.41% | ||||||||
3M Co. | 4,409 | 482,124 | ||||||
Danaher Corp. | 4,040 | 255,732 | ||||||
General Electric Co.(d) | 71,818 | 1,665,460 | ||||||
2,403,316 | ||||||||
Industrial Gases–0.41% | ||||||||
Air Products & Chemicals, Inc. | 1,446 | 132,410 | ||||||
Airgas, Inc. | 456 | 43,530 | ||||||
Praxair, Inc. | 2,050 | 236,078 | ||||||
412,018 | ||||||||
Industrial Machinery–0.84% | ||||||||
Dover Corp. | 1,187 | 92,182 | ||||||
Flowserve Corp. | 990 | 53,470 | ||||||
Illinois Tool Works Inc. | 2,874 | 198,795 | ||||||
Ingersoll-Rand PLC | 1,929 | 107,098 | ||||||
Pall Corp. | 776 | 51,550 | ||||||
Parker Hannifin Corp. | 1,043 | 99,502 | ||||||
Pentair Ltd. | 1,418 | 81,804 | ||||||
Snap-on Inc. | 406 | 36,288 | ||||||
Stanley Black & Decker Inc. | 1,120 | 86,576 | ||||||
Xylem, Inc. | 1,287 | 34,672 | ||||||
841,937 | ||||||||
Industrial REIT’s–0.13% | ||||||||
Prologis, Inc. | 3,459 | 130,473 | ||||||
Insurance Brokers–0.29% | ||||||||
Aon PLC | 2,155 | 138,675 | ||||||
Marsh & McLennan Cos., Inc. | 3,822 | 152,574 | ||||||
291,249 | ||||||||
Integrated Oil & Gas–5.10% | ||||||||
Chevron Corp. | 13,466 | 1,593,566 | ||||||
Exxon Mobil Corp. | 30,882 | 2,790,189 | ||||||
Hess Corp. | 2,073 | 137,834 | ||||||
Murphy Oil Corp. | 1,266 | 77,087 | ||||||
Occidental Petroleum Corp. | 5,594 | 499,152 | ||||||
5,097,828 | ||||||||
Integrated Telecommunication Services–2.53% | ||||||||
AT&T Inc. | 37,366 | 1,322,756 | ||||||
CenturyLink Inc. | 4,229 | 149,495 | ||||||
Frontier Communications Corp. | 6,978 | 28,261 | ||||||
Verizon Communications Inc. | 19,884 | 1,000,961 | ||||||
Windstream Corp. | 4,076 | 31,426 | ||||||
2,532,899 | ||||||||
Internet Retail–1.17% | ||||||||
Amazon.com, Inc.(b) | 2,528 | 702,000 | ||||||
Expedia, Inc. | 646 | 38,857 | ||||||
Netflix Inc.(b) | 390 | 82,325 | ||||||
Priceline.com Inc.(b) | 358 | 296,113 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Internet Retail–(continued) | ||||||||
TripAdvisor Inc.(b) | 761 | $ | 46,322 | |||||
1,165,617 | ||||||||
Internet Software & Services–2.33% | ||||||||
Akamai Technologies, Inc.(b) | 1,230 | 52,336 | ||||||
eBay Inc.(b) | 8,111 | 419,501 | ||||||
Google Inc.–Class A(b) | 1,865 | 1,641,890 | ||||||
VeriSign, Inc.(b) | 1,056 | 47,161 | ||||||
Yahoo! Inc.(b) | 6,616 | 166,128 | ||||||
2,327,016 | ||||||||
Investment Banking & Brokerage–0.87% | ||||||||
Charles Schwab Corp. (The) | 7,664 | 162,707 | ||||||
E*TRADE Financial Corp.(b) | 1,970 | 24,940 | ||||||
Goldman Sachs Group, Inc. (The) | 2,992 | 452,540 | ||||||
Morgan Stanley | 9,497 | 232,012 | ||||||
872,199 | ||||||||
IT Consulting & Other Services–1.93% | ||||||||
Accenture PLC–Class A | 4,514 | 324,827 | ||||||
Cognizant Technology Solutions Corp. | 2,088 | 130,730 | ||||||
International Business Machines Corp. | 7,238 | 1,383,254 | ||||||
SAIC, Inc. | 1,958 | 27,275 | ||||||
Teradata Corp.(b) | 1,146 | 57,564 | ||||||
1,923,650 | ||||||||
Leisure Products–0.14% | ||||||||
Hasbro, Inc. | 810 | 36,312 | ||||||
Mattel, Inc. | 2,383 | 107,974 | ||||||
144,286 | ||||||||
Life & Health Insurance–1.01% | ||||||||
Aflac, Inc. | 3,236 | 188,076 | ||||||
Lincoln National Corp. | 1,863 | 67,944 | ||||||
MetLife, Inc. | 7,604 | 347,959 | ||||||
Principal Financial Group, Inc. | 1,908 | 71,455 | ||||||
Prudential Financial, Inc. | 3,235 | 236,252 | ||||||
Torchmark Corp. | 654 | 42,601 | ||||||
Unum Group | 1,867 | 54,834 | ||||||
1,009,121 | ||||||||
Life Sciences Tools & Services–0.49% | ||||||||
Agilent Technologies, Inc. | 2,400 | 102,624 | ||||||
Life Technologies Corp.(b) | 1,203 | 89,034 | ||||||
PerkinElmer, Inc. | 804 | 26,130 | ||||||
Thermo Fisher Scientific, Inc. | 2,492 | 210,898 | ||||||
Waters Corp.(b) | 594 | 59,430 | ||||||
488,116 | ||||||||
Managed Health Care–1.04% | ||||||||
Aetna Inc. | 2,631 | 167,174 | ||||||
Cigna Corp. | 1,979 | 143,458 | ||||||
Humana Inc. | 1,092 | 92,143 | ||||||
UnitedHealth Group Inc. | 7,094 | 464,515 | ||||||
WellPoint, Inc. | 2,085 | 170,636 | ||||||
1,037,926 |
Shares | Value | |||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp. | 1,045 | $ | 43,409 | |||||
Owens-Illinois, Inc.(b) | 1,169 | 32,487 | ||||||
75,896 | ||||||||
Motorcycle Manufacturers–0.09% | ||||||||
Harley-Davidson, Inc. | 1,555 | 85,245 | ||||||
Movies & Entertainment–1.37% | ||||||||
Time Warner Inc. | 6,469 | 374,037 | ||||||
Viacom Inc. –Class B | 3,097 | 210,751 | ||||||
Walt Disney Co. (The) | 12,496 | 789,122 | ||||||
1,373,910 | ||||||||
Multi-Line Insurance–0.72% | ||||||||
American International Group, Inc.(b) | 10,253 | 458,309 | ||||||
Assurant, Inc. | 533 | 27,135 | ||||||
Genworth Financial Inc.–Class A(b) | 3,434 | 39,182 | ||||||
Hartford Financial Services Group, Inc. (The) | 3,165 | 97,862 | ||||||
Loews Corp. | 2,133 | 94,705 | ||||||
717,193 | ||||||||
Multi-Sector Holdings–0.05% | ||||||||
Leucadia National Corp. | 2,052 | 53,803 | ||||||
Multi-Utilities–1.22% | ||||||||
Ameren Corp. | 1,697 | 58,445 | ||||||
CenterPoint Energy, Inc. | 2,983 | 70,071 | ||||||
CMS Energy Corp. | 1,852 | 50,319 | ||||||
Consolidated Edison, Inc. | 2,027 | 118,194 | ||||||
Dominion Resources, Inc. | 4,011 | 227,905 | ||||||
DTE Energy Co. | 1,193 | 79,943 | ||||||
Integrys Energy Group, Inc. | 542 | 31,723 | ||||||
NiSource Inc. | 2,177 | 62,349 | ||||||
PG&E Corp. | 3,070 | 140,391 | ||||||
Public Service Enterprise Group Inc. | 3,501 | 114,343 | ||||||
SCANA Corp. | 972 | 47,725 | ||||||
Sempra Energy | 1,565 | 127,955 | ||||||
TECO Energy, Inc. | 1,444 | 24,822 | ||||||
Wisconsin Energy Corp. | 1,601 | 65,625 | ||||||
1,219,810 | ||||||||
Office Electronics–0.08% | ||||||||
Xerox Corp. | 8,521 | 77,285 | ||||||
Office REIT’s–0.11% | ||||||||
Boston Properties, Inc. | 1,060 | 111,798 | ||||||
Office Services & Supplies–0.05% | ||||||||
Avery Dennison Corp. | 707 | 30,231 | ||||||
Pitney Bowes Inc. | 1,373 | 20,156 | ||||||
50,387 | ||||||||
Oil & Gas Drilling–0.30% | ||||||||
Diamond Offshore Drilling, Inc. | 480 | 33,019 | ||||||
Ensco PLC–Class A | 1,626 | 94,503 | ||||||
Helmerich & Payne, Inc. | 751 | 46,900 | ||||||
Nabors Industries Ltd. | 2,025 | 31,003 | ||||||
Noble Corp. | 1,767 | 66,404 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Oil & Gas Drilling–(continued) | ||||||||
Rowan Cos. PLC–Class A(b) | 878 | $ | 29,913 | |||||
301,742 | ||||||||
Oil & Gas Equipment & Services–1.48% | ||||||||
Baker Hughes Inc. | 3,058 | 141,066 | ||||||
Cameron International Corp.(b) | 1,733 | 105,990 | ||||||
FMC Technologies, Inc.(b) | 1,663 | 92,596 | ||||||
Halliburton Co. | 6,472 | 270,012 | ||||||
National Oilwell Varco Inc. | 2,966 | 204,357 | ||||||
Schlumberger Ltd. | 9,232 | 661,565 | ||||||
1,475,586 | ||||||||
Oil & Gas Exploration & Production–2.45% | ||||||||
Anadarko Petroleum Corp. | 3,482 | 299,208 | ||||||
Apache Corp. | 2,711 | 227,263 | ||||||
Cabot Oil & Gas Corp. | 1,471 | 104,470 | ||||||
Chesapeake Energy Corp. | 3,652 | 74,428 | ||||||
ConocoPhillips | 8,491 | 513,706 | ||||||
Denbury Resources Inc.(b) | 2,561 | 44,357 | ||||||
Devon Energy Corp. | 2,613 | 135,562 | ||||||
EOG Resources, Inc. | 1,888 | 248,612 | ||||||
EQT Corp. | 1,042 | 82,704 | ||||||
Marathon Oil Corp. | 4,898 | 169,373 | ||||||
Newfield Exploration Co.(b) | 911 | 21,764 | ||||||
Noble Energy, Inc. | 2,485 | 149,199 | ||||||
Pioneer Natural Resources Co. | 947 | 137,078 | ||||||
QEP Resources Inc. | 1,235 | 34,308 | ||||||
Range Resources Corp. | 1,138 | 87,990 | ||||||
Southwestern Energy Co.(b) | 2,456 | 89,718 | ||||||
WPX Energy Inc.(b) | 1,435 | 27,179 | ||||||
2,446,919 | ||||||||
Oil & Gas Refining & Marketing–0.60% | ||||||||
Marathon Petroleum Corp. | 2,254 | 160,169 | ||||||
Phillips 66 | 4,301 | 253,372 | ||||||
Tesoro Corp. | 951 | 49,757 | ||||||
Valero Energy Corp. | 3,786 | 131,639 | ||||||
594,937 | ||||||||
Oil & Gas Storage & Transportation–0.48% | ||||||||
Kinder Morgan Inc. | 4,372 | 166,792 | ||||||
Spectra Energy Corp. | 4,624 | 159,343 | ||||||
Williams Cos., Inc. (The) | 4,716 | 153,128 | ||||||
479,263 | ||||||||
Other Diversified Financial Services–3.37% | ||||||||
Bank of America Corp. | 74,896 | 963,163 | ||||||
Citigroup Inc. | 21,134 | 1,013,798 | ||||||
JPMorgan Chase & Co. | 26,251 | 1,385,790 | ||||||
3,362,751 | ||||||||
Packaged Foods & Meats–1.51% | ||||||||
Campbell Soup Co. | 1,253 | 56,122 | ||||||
ConAgra Foods, Inc. | 2,895 | 101,122 | ||||||
General Mills, Inc. | 4,474 | 217,123 | ||||||
Hershey Co. (The) | 1,039 | 92,762 |
Shares | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Hormel Foods Corp. | 940 | $ | 36,265 | |||||
JM Smucker Co. (The) | 742 | 76,537 | ||||||
Kellogg Co. | 1,761 | 113,109 | ||||||
Kraft Foods Group, Inc. | 4,128 | 230,632 | ||||||
McCormick & Co., Inc. | 918 | 64,591 | ||||||
Mead Johnson Nutrition Co. | 1,401 | 111,001 | ||||||
Mondelez International Inc.–Class A | 12,408 | 354,000 | ||||||
Tyson Foods, Inc.–Class A | 1,970 | 50,590 | ||||||
1,503,854 | ||||||||
Paper Packaging–0.10% | ||||||||
Bemis Co., Inc. | 712 | 27,868 | ||||||
MeadWestvaco Corp. | 1,215 | 41,444 | ||||||
Sealed Air Corp. | 1,332 | 31,901 | ||||||
101,213 | ||||||||
Paper Products–0.14% | ||||||||
International Paper Co. | 3,088 | 136,829 | ||||||
Personal Products–0.17% | ||||||||
Avon Products, Inc. | 3,019 | 63,490 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,676 | 110,230 | ||||||
173,720 | ||||||||
Pharmaceuticals–5.91% | ||||||||
AbbVie Inc. | 10,999 | 454,699 | ||||||
Actavis Inc.(b) | 893 | 112,715 | ||||||
Allergan, Inc. | 2,057 | 173,282 | ||||||
Bristol-Myers Squibb Co. | 11,407 | 509,779 | ||||||
Eli Lilly & Co. | 6,884 | 338,142 | ||||||
Forest Laboratories, Inc.(b) | 1,639 | 67,199 | ||||||
Hospira, Inc.(b) | 1,156 | 44,286 | ||||||
Johnson & Johnson | 19,508 | 1,674,957 | ||||||
Mallinckrodt PLC(b) | — | 11 | ||||||
Merck & Co., Inc. | 20,972 | 974,149 | ||||||
Mylan Inc.(b) | 2,636 | 81,795 | ||||||
Perrigo Co. | 611 | 73,931 | ||||||
Pfizer Inc. | 46,632 | 1,306,162 | ||||||
Zoetis Inc. | 3,191 | 98,566 | ||||||
5,909,673 | ||||||||
Property & Casualty Insurance–2.36% | ||||||||
ACE Ltd. | 2,361 | 211,262 | ||||||
Allstate Corp. (The) | 3,254 | 156,582 | ||||||
Berkshire Hathaway Inc.–Class B(b) | 12,669 | 1,417,915 | ||||||
Chubb Corp. (The) | 1,806 | 152,878 | ||||||
Cincinnati Financial Corp. | 1,039 | 47,690 | ||||||
Progressive Corp. (The) | 3,862 | 98,172 | ||||||
Travelers Cos., Inc. (The) | 2,615 | 208,991 | ||||||
XL Group PLC | 2,011 | 60,974 | ||||||
2,354,464 | ||||||||
Publishing–0.51% | ||||||||
Gannett Co., Inc. | 1,588 | 38,842 | ||||||
News Corp.–Class A | 13,841 | 451,217 | ||||||
Washington Post Co. (The)–Class B | 32 | 15,481 | ||||||
505,540 |
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 | |||||||
Railroads–0.91% | ||||||||
CSX Corp. | 7,134 | $ | 165,438 | |||||
Kansas City Southern | 771 | 81,695 | ||||||
Norfolk Southern Corp. | 2,176 | 158,086 | ||||||
Union Pacific Corp. | 3,247 | 500,947 | ||||||
906,166 | ||||||||
Real Estate Services–0.05% | ||||||||
CBRE Group, Inc.–Class A(b) | 2,090 | 48,822 | ||||||
Regional Banks–1.00% | ||||||||
BB&T Corp. | 4,843 | 164,081 | ||||||
Fifth Third Bancorp | 6,039 | 109,004 | ||||||
Huntington Bancshares Inc. | 5,811 | 45,791 | ||||||
KeyCorp | 6,358 | 70,192 | ||||||
M&T Bank Corp. | 846 | 94,541 | ||||||
PNC Financial Services Group, Inc. | 3,676 | 268,054 | ||||||
Regions Financial Corp. | 9,780 | 93,203 | ||||||
SunTrust Banks, Inc. | 3,743 | 118,167 | ||||||
Zions Bancorp. | 1,313 | 37,919 | ||||||
1,000,952 | ||||||||
Research & Consulting Services–0.08% | ||||||||
Dun & Bradstreet Corp. (The) | 276 | 26,896 | ||||||
Equifax Inc. | 851 | 50,150 | ||||||
77,046 | ||||||||
Residential REIT’s–0.27% | ||||||||
Apartment Investment & Management Co.–Class A | 1,019 | 30,611 | ||||||
AvalonBay Communities, Inc. | 845 | 113,999 | ||||||
Equity Residential | 2,216 | 128,661 | ||||||
273,271 | ||||||||
Restaurants–1.37% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 214 | 77,971 | ||||||
Darden Restaurants, Inc. | 915 | 46,189 | ||||||
McDonald’s Corp. | 6,962 | 689,238 | ||||||
Starbucks Corp. | 5,186 | 339,631 | ||||||
Yum! Brands, Inc. | 3,119 | 216,272 | ||||||
1,369,301 | ||||||||
Retail REIT’s–0.46% | ||||||||
Kimco Realty Corp. | 2,854 | 61,161 | ||||||
Macerich Co. (The) | 960 | 58,531 | ||||||
Simon Property Group, Inc. | 2,158 | 340,792 | ||||||
460,484 | ||||||||
Security & Alarm Services–0.17% | ||||||||
ADT Corp. (The)(b) | 1,542 | 61,449 | ||||||
Tyco International Ltd. | 3,224 | 106,231 | ||||||
167,680 | ||||||||
Semiconductor Equipment–0.26% | ||||||||
Applied Materials, Inc. | 8,379 | 124,931 | ||||||
KLA-Tencor Corp. | 1,149 | 64,034 | ||||||
Lam Research Corp.(b) | 1,122 | 49,749 | ||||||
Teradyne, Inc.(b) | 1,346 | 23,649 | ||||||
262,363 |
Shares | Value | |||||||
Semiconductors–1.80% | ||||||||
Advanced Micro Devices, Inc.(b) | 4,220 | $ | 17,218 | |||||
Altera Corp. | 2,237 | 73,799 | ||||||
Analog Devices, Inc. | 2,140 | 96,428 | ||||||
Broadcom Corp.–Class A | 3,622 | 122,279 | ||||||
First Solar, Inc.(b) | 460 | 20,576 | ||||||
Intel Corp. | 34,526 | 836,220 | ||||||
Linear Technology Corp. | 1,609 | 59,275 | ||||||
LSI Corp.(b) | 3,784 | 27,018 | ||||||
Microchip Technology Inc. | 1,381 | 51,442 | ||||||
Micron Technology, Inc.(b) | 7,126 | 102,115 | ||||||
NVIDIA Corp. | 4,000 | 56,120 | ||||||
Texas Instruments Inc. | 7,702 | 268,569 | ||||||
Xilinx, Inc. | 1,810 | 71,694 | ||||||
1,802,753 | ||||||||
Soft Drinks–2.14% | ||||||||
Coca-Cola Co. (The) | 26,602 | 1,067,006 | ||||||
Coca-Cola Enterprises, Inc. | 1,788 | 62,866 | ||||||
Dr Pepper Snapple Group, Inc. | 1,424 | 65,404 | ||||||
Monster Beverage Corp.(b) | 1,007 | 61,196 | ||||||
PepsiCo, Inc. | 10,739 | 878,343 | ||||||
2,134,815 | ||||||||
Specialized Consumer Services–0.05% | ||||||||
H&R Block, Inc. | 1,877 | 52,087 | ||||||
Specialized Finance–0.53% | ||||||||
CME Group Inc.–Class A | 2,124 | 161,382 | ||||||
IntercontinentalExchange Inc.(b) | 507 | 90,124 | ||||||
McGraw Hill Financial, Inc. | 1,902 | 101,167 | ||||||
Moody’s Corp. | 1,355 | 82,560 | ||||||
NASDAQ OMX Group, Inc. (The) | 822 | 26,953 | ||||||
NYSE Euronext | 1,681 | 69,594 | ||||||
531,780 | ||||||||
Specialized REIT’s–1.02% | ||||||||
American Tower Corp. | 2,734 | 200,047 | ||||||
HCP, Inc. | 3,138 | 142,591 | ||||||
Health Care REIT, Inc. | 1,974 | 132,317 | ||||||
Host Hotels & Resorts Inc. | 5,171 | 87,235 | ||||||
Plum Creek Timber Co., Inc. | 1,135 | 52,970 | ||||||
Public Storage | 998 | 153,023 | ||||||
Ventas, Inc. | 2,035 | 141,351 | ||||||
Weyerhaeuser Co. | 3,789 | 107,949 | ||||||
1,017,483 | ||||||||
Specialty Chemicals–0.37% | ||||||||
Ecolab Inc. | 1,849 | 157,516 | ||||||
International Flavors & Fragrances Inc. | 564 | 42,390 | ||||||
Sherwin-Williams Co. (The) | 599 | 105,784 | ||||||
Sigma-Aldrich Corp. | 833 | 66,940 | ||||||
372,630 | ||||||||
Specialty Stores–0.18% | ||||||||
PetSmart, Inc. | 716 | 47,965 | ||||||
Staples, Inc. | 4,625 | 73,352 |
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 | |||||||
Specialty Stores–(continued) | ||||||||
Tiffany & Co. | 833 | $ | 60,676 | |||||
181,993 | ||||||||
Steel–0.15% | ||||||||
Allegheny Technologies, Inc. | 760 | 19,996 | ||||||
Cliffs Natural Resources Inc. | 1,016 | 16,510 | ||||||
Nucor Corp. | 2,222 | 96,257 | ||||||
United States Steel Corp. | 976 | 17,109 | ||||||
149,872 | ||||||||
Systems Software–2.87% | ||||||||
BMC Software, Inc.(b) | 909 | 41,032 | ||||||
CA, Inc. | 2,328 | 66,651 | ||||||
Microsoft Corp. | 52,181 | 1,801,810 | ||||||
Oracle Corp. | 25,519 | 783,944 | ||||||
Red Hat, Inc.(b) | 1,315 | 62,883 | ||||||
Symantec Corp. | 4,837 | 108,687 | ||||||
2,865,007 | ||||||||
Thrifts & Mortgage Finance–0.07% | ||||||||
Hudson City Bancorp, Inc. | 3,256 | 29,825 | ||||||
People’s United Financial Inc. | 2,385 | 35,536 | ||||||
65,361 | ||||||||
Tires & Rubber–0.03% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 1,688 | 25,810 | ||||||
Tobacco–1.70% | ||||||||
Altria Group, Inc. | 13,950 | 488,110 | ||||||
Lorillard, Inc. | 2,625 | 114,660 |
Shares | Value | |||||||
Tobacco–(continued) | ||||||||
Philip Morris International Inc. | 11,358 | $ | 983,830 | |||||
Reynolds American Inc. | 2,226 | 107,672 | ||||||
1,694,272 | ||||||||
Trading Companies & Distributors–0.19% | ||||||||
Fastenal Co. | 1,888 | 86,565 | ||||||
W.W. Grainger, Inc. | 417 | 105,159 | ||||||
191,724 | ||||||||
Trucking–0.02% | ||||||||
Ryder System, Inc. | 363 | 22,067 | ||||||
Wireless Telecommunication Services–0.29% | ||||||||
Crown Castle International Corp.(b) | 2,029 | 146,880 | ||||||
Sprint Communications Inc.(b) | 20,961 | 147,146 | ||||||
294,026 | ||||||||
Total Common Stocks & Other Equity Interests |
| 99,350,175 | ||||||
Money Market Funds–0.63% |
| |||||||
Liquid Assets Portfolio–Institutional Class(e) | 316,999 | 316,999 | ||||||
Premier Portfolio–Institutional Class(e) | 316,999 | 316,999 | ||||||
Total Money Market Funds |
| 633,998 | ||||||
TOTAL INVESTMENTS–100.04% |
| 99,984,173 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.04)% |
| (41,527 | ) | |||||
NET ASSETS–100.00% |
| $ | 99,942,646 |
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 5. |
(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 4. |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets as of June 30, 2013
Information Technology | 17.7 | % | ||
Financials | 16.5 | |||
Health Care | 12.6 | |||
Consumer Discretionary | 12.3 | |||
Energy | 10.5 | |||
Consumer Staples | 10.4 | |||
Industrials | 10.0 | |||
Materials | 3.3 | |||
Utilities | 3.3 | |||
Telecommunication Services | 2.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $47,528,113) | $ | 99,252,008 | ||
Investments in affiliates, at value (Cost $710,857) | 732,165 | |||
Total investments, at value (Cost $48,238,970) | 99,984,173 | |||
Receivable for: | ||||
Investments sold | 30,921 | |||
Fund shares sold | 46,154 | |||
Dividends | 123,288 | |||
Investment for trustee deferred compensation and retirement plans | 11,807 | |||
Total assets | 100,196,343 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 118,279 | |||
Variation margin | 3,285 | |||
Accrued fees to affiliates | 69,090 | |||
Accrued trustees’ and officers’ fees and benefits | 702 | |||
Accrued other operating expenses | 38,280 | |||
Trustee deferred compensation and retirement plans | 24,061 | |||
Total liabilities | 253,697 | |||
Net assets applicable to shares outstanding | $ | 99,942,646 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 55,605,287 | ||
Undistributed net investment income | 2,634,230 | |||
Undistributed net realized gain (loss) | (10,029,838 | ) | ||
Unrealized appreciation | 51,732,967 | |||
$ | 99,942,646 | |||
Net Assets: |
| |||
Series I | $ | 34,521,465 | ||
Series II | $ | 65,421,181 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,356,717 | |||
Series II | 4,494,911 | |||
Series I: | ||||
Net asset value per share | $ | 14.65 | ||
Series II: | ||||
Net asset value per share | $ | 14.55 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $367) | $ | 1,080,196 | ||
Dividends from affiliates | 1,577 | |||
Total investment income | 1,081,773 | |||
Expenses: | ||||
Advisory fees | 60,722 | |||
Administrative services fees | 77,705 | |||
Custodian fees | 11,419 | |||
Distribution fees — Series II | 83,685 | |||
Transfer agent fees | 2,045 | |||
Trustees’ and officers’ fees and benefits | 14,607 | |||
Professional services fees | 24,795 | |||
Other | 20,178 | |||
Total expenses | 295,156 | |||
Less: Fees waived | (549 | ) | ||
Net expenses | 294,607 | |||
Net investment income | 787,166 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 4,096,890 | |||
Futures contracts | 137,968 | |||
4,234,858 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 7,873,926 | |||
Futures contracts | (6,037 | ) | ||
7,867,889 | ||||
Net realized and unrealized gain | 12,102,747 | |||
Net increase in net assets resulting from operations | $ | 12,889,913 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 787,166 | $ | 1,834,024 | ||||
Net realized gain | 4,234,858 | 5,885,396 | ||||||
Change in net unrealized appreciation | 7,867,889 | 7,087,203 | ||||||
Net increase in net assets resulting from operations | 12,889,913 | 14,806,623 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (676,218 | ) | |||||
Series ll | — | (1,184,153 | ) | |||||
Total distributions from net investment income | — | (1,860,371 | ) | |||||
Share transactions–net: | ||||||||
Series l | (2,462,959 | ) | (4,542,914 | ) | ||||
Series ll | (7,775,747 | ) | (11,378,357 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (10,238,706 | ) | (15,921,271 | ) | ||||
Net increase (decrease) in net assets | 2,651,207 | (2,975,019 | ) | |||||
Net assets: | ||||||||
Beginning of period | 97,291,439 | 100,266,458 | ||||||
End of period (includes undistributed net investment income of $2,634,230 and $1,847,064, respectively) | $ | 99,942,646 | $ | 97,291,439 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. S&P 500 Index Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. S&P 500 Index 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 trades 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 of 1986, as amended (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).
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 2.00% and Series II shares to 2.25% 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $549.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $52,911 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, 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
Invesco V.I. S&P 500 Index Fund
0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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 June 30, 2013. 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 | $ | 99,984,173 | $ | — | $ | — | $ | 99,984,173 | ||||||||
Futures* | (12,236 | ) | — | — | (12,236 | ) | ||||||||||
Total Investments | $ | 99,971,937 | $ | — | $ | — | $ | 99,971,937 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2013:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | — | $ | (12,236 | ) |
(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 Investments for the six months ended June 30, 2013
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Market risk | $ | 137,968 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Market risk | $ | (6,037 | ) | |
Total | $ | 131,931 |
* | The average notional value of futures outstanding during the period was $863,453. |
Open Futures Contracts | ||||||||||||||||
Long Contracts | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
E-Mini S&P 500 Index | 9 | September-2013 | $ | 719,685 | $ | (12,236 | ) |
Invesco V.I. S&P 500 Index Fund
Offsetting Assets and Liabilities
Effective with the beginning of the Fund’s fiscal year, the Fund has adopted Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. This update is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Funds enter into netting agreements and collateral agreements in an attempt to reduce the Fund’s counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2013.
Assets: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of assets
| Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts
| Gross amounts
| Net amounts of
| Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | 12,236 | $ | — | $ | 12,236 | $ | (12,236 | ) | $ | — | $ | — |
NOTE 5—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 six months ended June 30, 2013.
Value 12/31/12 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain | Value 06/30/13 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 87,506 | $ | 1,181 | $ | (9,132 | ) | $ | 17,280 | $ | 1,332 | $ | 98,167 | $ | 1,273 |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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. S&P 500 Index Fund
The Fund had 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 six months ended June 30, 2013 was $1,365,395 and $10,250,234, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 47,557,882 | ||
Aggregate unrealized (depreciation) of investment securities | (1,495,343 | ) | ||
Net unrealized appreciation of investment securities | $ | 46,062,539 |
Cost of investments for tax purposes is $53,921,634.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 28,357 | $ | 405,920 | 105,935 | $ | 1,307,486 | ||||||||||
Series II | 217,680 | 2,993,949 | 276,994 | 3,486,131 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 51,977 | 676,218 | ||||||||||||
Series II | — | — | 91,440 | 1,184,153 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (202,892 | ) | (2,868,879 | ) | (520,544 | ) | (6,526,618 | ) | ||||||||
Series II | (763,895 | ) | (10,769,696 | ) | (1,288,365 | ) | (16,048,641 | ) | ||||||||
Net increase (decrease) in share activity | (720,750 | ) | $ | (10,238,706 | ) | (1,282,563 | ) | $ | (15,921,271 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 90% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or 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 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 feewaivers and/orexpenses 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 12.89 | $ | 0.12 | $ | 1.64 | $ | 1.76 | $ | – | $ | 14.65 | 13.65 | % | $ | 34,521 | 0.42 | %(d) | 0.42 | %(d) | 1.72 | %(d) | 1 | % | ||||||||||||||||||||||||
Year ended 12/31/12 | 11.36 | 0.25 | 1.54 | 1.79 | (0.26 | ) | 12.89 | 15.77 | 32,634 | 0.33 | 0.39 | 1.97 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 12.83 | 0.10 | 1.62 | 1.72 | – | 14.55 | 13.41 | 65,421 | 0.67 | (d) | 0.67 | (d) | 1.47 | (d) | 1 | |||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.30 | 0.22 | 1.54 | 1.76 | (0.23 | ) | 12.83 | 15.52 | 64,657 | 0.58 | 0.64 | 1.72 | 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 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 the periods less than one year, if applicable. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $34,540 and $67,502 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
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,136.50 | $ | 2.22 | $ | 1,022.71 | $ | 2.11 | 0.42 | % | ||||||||||||
Series II | 1,000.00 | 1,134.10 | 3.55 | 1,021.47 | 3.36 | 0.67 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. S&P 500 Index Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. S&P 500 Index Fund |
performance universe and against the Lipper VA Underlying Funds – S&P 500 Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of the performance universe for the one year period and the first quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I share of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was the same as the effective advisory fee rate of the other mutual Fund managed by Invesco Advisers in a manner comparable to the Fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements
shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. S&P 500 Index Fund |
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Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. Small Cap Equity Fund | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED I MAY LOSE VALUE I NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes |
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 14.82 | % | |||
Series II Shares | 14.64 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 2000 Indexn (Style-Specific Index) | 15.86 | ||||
Lipper VUF Small-Cap Core Funds Index¿ (Peer Group Index) | 15.00 | ||||
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nInvesco, Russell via FactSet Research Systems Inc.; ¨Lipper Inc. |
|
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 Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% 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 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.
Average Annual Total Returns
As of 6/30/13
Series I Shares | |||||
Inception (8/29/03) | 8.90 | % | |||
5 Years | 7.83 | ||||
1 Year | 25.06 | ||||
Series II Shares | |||||
Inception (8/29/03) | 8.65 | % | |||
5 Years | 7.57 | ||||
1 Year |
| 24.72
|
|
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.07% |
| |||||||
Advertising–1.00% | ||||||||
Interpublic Group of Cos., Inc. (The) | 220,622 | $ | 3,210,050 | |||||
Aerospace & Defense–1.01% | ||||||||
Aerovironment Inc.(b) | 9,301 | 187,694 | ||||||
Triumph Group, Inc. | 38,620 | 3,056,773 | ||||||
3,244,467 | ||||||||
Air Freight & Logistics–0.62% | ||||||||
UTi Worldwide, Inc. | 120,684 | 1,987,666 | ||||||
Apparel Retail–0.49% | ||||||||
bebe stores, inc. | 281,123 | 1,577,100 | ||||||
Apparel, Accessories & Luxury Goods–0.95% | ||||||||
PVH Corp. | 24,383 | 3,049,094 | ||||||
Application Software–4.09% | ||||||||
Actuate Corp.(b) | 189,235 | 1,256,520 | ||||||
Cadence Design Systems, Inc.(b) | 234,369 | 3,393,663 | ||||||
Informatica Corp.(b) | 85,455 | 2,989,216 | ||||||
MicroStrategy Inc.–Class A(b) | 19,994 | 1,738,678 | ||||||
SS&C Techonologies Holdings, Inc.(b) | 115,575 | 3,802,418 | ||||||
13,180,495 | ||||||||
Asset Management & Custody Banks–1.27% | ||||||||
Affiliated Managers Group, Inc.(b) | 19,921 | 3,265,849 | ||||||
Artisan Partners Asset Management, Inc.(b) | 16,404 | 818,723 | ||||||
4,084,572 | ||||||||
Auto Parts & Equipment–1.95% | ||||||||
Dana Holding Corp. | 153,138 | 2,949,438 | ||||||
TRW Automotive Holdings Corp.(b) | 50,083 | 3,327,514 | ||||||
6,276,952 | ||||||||
Automobile Manufacturers–1.20% | ||||||||
Thor Industries, Inc. | 78,347 | 3,853,106 | ||||||
Automotive Retail–0.89% | ||||||||
Penske Automotive Group, Inc. | 93,833 | 2,865,660 | ||||||
Biotechnology–0.86% | ||||||||
Cubist Pharmaceuticals, Inc.(b) | 57,261 | 2,765,706 | ||||||
Broadcasting–1.13% | ||||||||
Nexstar Broadcasting Group, Inc.–Class A | 102,339 | 3,628,941 | ||||||
Building Products–1.06% | ||||||||
Trex Co., Inc.(b) | 71,821 | 3,410,779 | ||||||
Casinos & Gaming–1.07% | ||||||||
Bally Technologies Inc.(b) | 60,955 | 3,439,081 |
Shares | Value | |||||||
Communications Equipment–1.73% | ||||||||
ARRIS Group Inc.(b) | 187,057 | $ | 2,684,268 | |||||
JDS Uniphase Corp.(b) | 201,344 | 2,895,327 | ||||||
5,579,595 | ||||||||
Computer Hardware–1.13% | ||||||||
Cray, Inc.(b) | 185,023 | 3,633,852 | ||||||
Construction & Engineering–0.77% | ||||||||
Foster Wheeler AG (Switzerland)(b) | 113,753 | 2,469,578 | ||||||
Construction & Farm Machinery & Heavy Trucks–0.63% | ||||||||
Titan International, Inc. | 120,458 | 2,032,127 | ||||||
Construction Materials–1.00% | ||||||||
Eagle Materials Inc. | 48,572 | 3,218,867 | ||||||
Data Processing & Outsourced Services–2.02% | ||||||||
Jack Henry & Associates, Inc. | 71,425 | 3,366,260 | ||||||
MAXIMUS, Inc. | 42,039 | 3,131,065 | ||||||
6,497,325 | ||||||||
Diversified Chemicals–0.95% | ||||||||
FMC Corp. | 50,270 | 3,069,486 | ||||||
Diversified Metals & Mining–0.68% | ||||||||
Compass Minerals International, Inc. | 26,084 | 2,204,881 | ||||||
Diversified REIT’s–0.99% | ||||||||
Lexington Realty Trust(c) | 274,000 | 3,200,320 | ||||||
Electrical Components & Equipment–2.13% | ||||||||
Belden Inc. | 63,887 | 3,189,878 | ||||||
EnerSys | 74,738 | 3,665,151 | ||||||
6,855,029 | ||||||||
Electronic Equipment & Instruments–0.00% | ||||||||
Electro Scientific Industries, Inc. | 1,116 | 12,008 | ||||||
Electronic Equipment Manufacturers–0.72% | ||||||||
FEI Co. | 31,730 | 2,315,973 | ||||||
Electronic Manufacturing Services–1.07% | ||||||||
Sanmina Corp.(b) | 240,272 | 3,447,903 | ||||||
Environmental & Facilities Services–2.22% | ||||||||
Team, Inc.(b) | 90,804 | 3,436,931 | ||||||
Waste Connections, Inc. | 90,398 | 3,718,974 | ||||||
7,155,905 | ||||||||
Food Distributors–0.78% | ||||||||
United Natural Foods, Inc.(b) | 46,484 | 2,509,671 | ||||||
Gas Utilities–1.03% | ||||||||
UGI Corp. | 84,667 | 3,311,326 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Health Care Equipment–1.91% | ||||||||
Teleflex Inc. | 34,672 | $ | 2,686,733 | |||||
Wright Medical Group, Inc.(b) | 132,509 | 3,473,061 | ||||||
6,159,794 | ||||||||
Health Care Facilities–3.15% | ||||||||
Amsurg Corp.(b) | 95,805 | 3,362,755 | ||||||
LifePoint Hospitals, Inc.(b) | 68,845 | 3,362,390 | ||||||
Universal Health Services, Inc.–Class B | 51,173 | 3,426,544 | ||||||
10,151,689 | ||||||||
Health Care Services–0.88% | ||||||||
IPC The Hospitalist Co.(b) | 54,860 | 2,817,610 | ||||||
Health Care Supplies–1.79% | ||||||||
Haemonetics Corp.(b) | 69,621 | 2,878,828 | ||||||
West Pharmaceutical Services, Inc. | 41,156 | 2,891,621 | ||||||
5,770,449 | ||||||||
Home Furnishings–1.06% | ||||||||
La-Z-Boy Inc. | 168,224 | 3,409,901 | ||||||
Homefurnishing Retail–1.00% | ||||||||
Pier 1 Imports, Inc. | 136,968 | 3,217,378 | ||||||
Industrial Machinery–3.22% | ||||||||
TriMas Corp.(b) | 107,177 | 3,995,558 | ||||||
Valmont Industries, Inc. | 22,675 | 3,244,566 | ||||||
Watts Water Technologies, Inc.–Class A | 68,970 | 3,127,100 | ||||||
10,367,224 | ||||||||
Industrial REIT’s–0.90% | ||||||||
DCT Industrial Trust Inc. | 407,200 | 2,911,480 | ||||||
Insurance Brokers–1.01% | ||||||||
Arthur J. Gallagher & Co. | 74,118 | 3,238,215 | ||||||
Internet Software & Services–1.28% | ||||||||
ValueClick, Inc.(b) | 167,303 | 4,129,038 | ||||||
Investment Banking & Brokerage–2.10% | ||||||||
E*TRADE Financial Corp.(b) | 300,723 | 3,807,153 | ||||||
Evercore Partners Inc.–Class A | 75,335 | 2,959,159 | ||||||
6,766,312 | ||||||||
Life Sciences Tools & Services–1.59% | ||||||||
Bio-Rad Laboratories, Inc.–Class A(b) | 22,437 | 2,517,432 | ||||||
Charles River Laboratories International, Inc.(b) | 63,543 | 2,607,169 | ||||||
5,124,601 | ||||||||
Multi-Line Insurance–1.04% | ||||||||
American Financial Group, Inc. | 68,457 | 3,348,232 | ||||||
Office REIT’s–0.88% | ||||||||
Douglas Emmett, Inc. | 113,500 | 2,831,825 | ||||||
Office Services & Supplies–1.11% | ||||||||
Interface, Inc. | 210,090 | 3,565,227 |
Shares | Value | |||||||
Oil & Gas Equipment & Services–3.91% | ||||||||
Dresser-Rand Group, Inc.(b) | 47,255 | $ | 2,834,355 | |||||
Helix Energy Solutions Group Inc.(b) | 145,108 | 3,343,288 | ||||||
Oceaneering International, Inc. | 44,307 | 3,198,965 | ||||||
Oil States International, Inc.(b) | 34,570 | 3,202,565 | ||||||
12,579,173 | ||||||||
Oil & Gas Exploration & Production–2.56% | ||||||||
Energen Corp. | 46,944 | 2,453,293 | ||||||
Rosetta Resources, Inc.(b) | 59,457 | 2,528,112 | ||||||
Ultra Petroleum Corp.(b)(c) | 165,419 | 3,278,605 | ||||||
8,260,010 | ||||||||
Oil & Gas Storage & Transportation–1.01% | ||||||||
Targa Resources Corp. | 50,319 | 3,237,021 | ||||||
Packaged Foods & Meats–0.79% | ||||||||
TreeHouse Foods, Inc.(b) | 38,997 | 2,555,863 | ||||||
Paper Packaging–1.24% | ||||||||
Graphic Packaging Holding Co.(b) | 516,710 | 3,999,335 | ||||||
Paper Products–1.17% | ||||||||
Schweitzer-Mauduit International, Inc. | 75,749 | 3,778,360 | ||||||
Pharmaceuticals–2.22% | ||||||||
Auxilium Pharmaceuticals Inc.(b) | 94,463 | 1,570,920 | ||||||
Endo Health Solutions Inc.(b) | 70,266 | 2,585,086 | ||||||
Medicines Co. (The)(b) | 97,363 | 2,994,886 | ||||||
7,150,892 | ||||||||
Real Estate Services–0.95% | ||||||||
Jones Lang LaSalle Inc. | 33,704 | 3,071,783 | ||||||
Regional Banks–8.50% | ||||||||
Boston Private Financial Holdings, Inc. | 258,798 | 2,753,611 | ||||||
CVB Financial Corp. | 245,680 | 2,889,197 | ||||||
East West Bancorp, Inc. | 112,753 | 3,100,707 | ||||||
F.N.B. Corp. | 211,489 | 2,554,787 | ||||||
Glacier Bancorp, Inc. | 65,321 | 1,449,473 | ||||||
Susquehanna Bancshares, Inc. | 281,085 | 3,611,942 | ||||||
Texas Capital Bancshares, Inc.(b) | 57,464 | 2,549,103 | ||||||
Webster Financial Corp. | 114,526 | 2,941,028 | ||||||
Wintrust Financial Corp. | 77,417 | 2,963,523 | ||||||
Zions Bancorp. | 88,909 | 2,567,692 | ||||||
27,381,063 | ||||||||
Residential REIT’s–0.44% | ||||||||
Mid-America Apartment Communities, Inc. | 21,000 | 1,423,170 | ||||||
Restaurants–3.82% | ||||||||
Cracker Barrel Old Country Store, Inc. | 33,981 | 3,216,641 | ||||||
DineEquity, Inc. | 39,564 | 2,724,773 | ||||||
Papa John’s International, Inc.(b) | 47,737 | 3,120,568 | ||||||
Red Robin Gourmet Burgers Inc.(b) | 58,720 | 3,240,169 | ||||||
12,302,151 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Semiconductor Equipment–0.83% | ||||||||
Veeco Instruments Inc.(b)(c) | 75,410 | $ | 2,671,022 | |||||
Semiconductors–3.98% | ||||||||
Fairchild Semiconductor International, Inc.(b) | 200,400 | 2,765,520 | ||||||
Hittite Microwave Corp.(b) | 48,224 | 2,796,992 | ||||||
Lattice Semiconductor Corp.(b) | 414,399 | 2,101,003 | ||||||
Power Integrations, Inc. | 32,832 | 1,331,666 | ||||||
Semtech Corp.(b) | 109,555 | 3,837,712 | ||||||
12,832,893 | ||||||||
Specialized REIT’s–0.83% | ||||||||
LaSalle Hotel Properties | 108,688 | 2,684,594 | ||||||
Specialty Chemicals–2.11% | ||||||||
Innophos Holdings, Inc. | 50,186 | 2,367,274 | ||||||
PolyOne Corp. | 179,162 | 4,439,634 | ||||||
6,806,908 | ||||||||
Specialty Stores–0.95% | ||||||||
GNC Holdings, Inc.–Class A | 68,946 | 3,048,103 | ||||||
Steel–0.66% | ||||||||
Haynes International, Inc. | 44,728 | 2,141,129 | ||||||
Trading Companies & Distributors–1.89% | ||||||||
Beacon Roofing Supply, Inc.(b) | 83,509 | 3,163,321 | ||||||
MRC Global Inc.(b) | 106,117 | 2,930,952 | ||||||
6,094,273 |
Shares | Value | |||||||
Trucking–1.85% | ||||||||
Landstar System, Inc. | 43,388 | $ | 2,234,482 | |||||
Old Dominion Freight Line, Inc.(b) | 89,189 | 3,712,046 | ||||||
5,946,528 | ||||||||
Total Common Stocks & Other Equity Interests |
| 315,860,761 | ||||||
Money Market Funds–1.63% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 2,625,872 | 2,625,872 | ||||||
Premier Portfolio–Institutional Class(d) | 2,625,872 | 2,625,872 | ||||||
Total Money Market Funds |
| 5,251,744 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.70% (Cost $237,857,973) |
| 321,112,505 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–2.19% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $7,054,140)(d)(e) | 7,054,140 | 7,054,140 | ||||||
TOTAL INVESTMENTS–101.89% |
| 328,166,645 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.89)% |
| (6,098,676 | ) | |||||
NET ASSETS—100.00% |
| $ | 322,067,969 |
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 June 30, 2013. |
(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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Financials | 18.9 | % | ||
Information Technology | 16.9 | |||
Industrials | 16.5 | |||
Consumer Discretionary | 15.5 | |||
Health Care | 12.4 | |||
Materials | 7.8 | |||
Energy | 6.7 | |||
Utilities | 1.8 | |||
Consumer Staples | 1.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $232,606,229)* | $ | 315,860,761 | ||
Investments in affiliated money market funds, at value and cost | 12,305,884 | |||
Total investments, at value (Cost $244,912,113) | 328,166,645 | |||
Receivable for: | ||||
Investments sold | 1,959,783 | |||
Fund shares sold | 149,436 | |||
Dividends | 149,197 | |||
Investment for trustee deferred compensation and retirement plans | 33,978 | |||
Other assets | 3,349 | |||
Total assets | 330,462,388 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 728,548 | |||
Fund shares reacquired | 276,904 | |||
Collateral upon return of securities loaned | 7,054,140 | |||
Accrued fees to affiliates | 254,203 | |||
Accrued trustees’ and officers’ fees and benefits | 734 | |||
Accrued other operating expenses | 17,487 | |||
Trustee deferred compensation and retirement plans | 62,403 | |||
Total liabilities | 8,394,419 | |||
Net assets applicable to shares outstanding | $ | 322,067,969 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 218,636,855 | ||
Undistributed net investment income (loss) | (491,613 | ) | ||
Undistributed net realized gain | 20,668,195 | |||
Unrealized appreciation | 83,254,532 | |||
$ | 322,067,969 | |||
Net Assets: |
| |||
Series I | $ | 219,205,733 | ||
Series II | $ | 102,862,236 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 10,215,126 | |||
Series II | 4,900,277 | |||
Series I: | ||||
Net asset value per share | $ | 21.46 | ||
Series II: | ||||
Net asset value per share | $ | 20.99 |
* | At June 30, 2013, securities with an aggregate value of $6,824,601 were on loan to brokers. |
Investment income: |
| |||
Dividends | $ | 1,285,394 | ||
Dividends from affiliated money market funds (includes securities lending income of $5,477) | 7,733 | |||
Total investment income | 1,293,127 | |||
Expenses: | ||||
Advisory fees | 1,150,178 | |||
Administrative services fees | 413,064 | |||
Custodian fees | 7,340 | |||
Distribution fees — Series II | 117,310 | |||
Transfer agent fees | 14,733 | |||
Trustees’ and officers’ fees and benefits | 18,631 | |||
Other | 25,050 | |||
Total expenses | 1,746,306 | |||
Less: Fees waived and expense offset arrangement(s) | (3,981 | ) | ||
Net expenses | 1,742,325 | |||
Net investment income (loss) | (449,198 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $3,042,142) | 18,249,772 | |||
Foreign currencies | (458 | ) | ||
18,249,314 | ||||
Change in net unrealized appreciation of investment securities | 23,963,332 | |||
Net realized and unrealized gain | 42,212,646 | |||
Net increase in net assets resulting from operations | $ | 41,763,448 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (449,198 | ) | $ | (4,350 | ) | ||
Net realized gain | 18,249,314 | 23,944,272 | ||||||
Change in net unrealized appreciation | 23,963,332 | 11,974,353 | ||||||
Net increase in net assets resulting from operations | 41,763,448 | 35,914,275 | ||||||
Share transactions–net: | ||||||||
Series l | (15,791,536 | ) | (39,139,088 | ) | ||||
Series ll | 7,434,917 | 19,908,002 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (8,356,619 | ) | (19,231,086 | ) | ||||
Net increase in net assets | 33,406,829 | 16,683,189 | ||||||
Net assets: | ||||||||
Beginning of period | 288,661,140 | 271,977,951 | ||||||
End of period (includes undistributed net investment income (loss) of $(491,613) and $(42,415), respectively) | $ | 322,067,969 | $ | 288,661,140 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Small Cap Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. Small Cap Equity Fund
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 trades 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 of 1986, as amended (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. | 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 $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).
Effective May 1, 2013, 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 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, 2013, 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
Invesco V.I. Small Cap Equity Fund
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. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $3,863.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $38,132 for accounting and fund administrative services and reimbursed $374,932 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, 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. |
As of June 30, 2013, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). 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.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2013, the Fund engaged in securities purchases of $1,910,088 and securities sales of $12,549,680, which resulted in net realized gains of $3,042,142.
NOTE 5—Expense Offset Arrangement(s)
The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2013, the Fund received credits from this arrangement, which resulted in the reduction of the Fund’s total expenses of $118.
Invesco V.I. Small Cap Equity Fund
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did not have a 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 six months ended June 30, 2013 was $59,049,972 and $66,736,036, 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 | $ | 88,257,352 | ||
Aggregate unrealized (depreciation) of investment securities | (5,987,028 | ) | ||
Net unrealized appreciation of investment securities | $ | 82,270,324 |
Cost of investments for tax purposes is $245,896,321.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,110,389 | $ | 23,138,375 | 1,730,024 | $ | 30,750,303 | ||||||||||
Series II | 723,249 | 14,688,921 | 1,905,358 | 33,006,752 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,892,257 | ) | (38,929,911 | ) | (3,973,525 | ) | (69,889,391 | ) | ||||||||
Series II | (361,752 | ) | (7,254,004 | ) | (760,691 | ) | (13,098,750 | ) | ||||||||
Net increase (decrease) in share activity | (420,371 | ) | $ | (8,356,619 | ) | (1,098,834 | ) | $ | (19,231,086 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 68% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Small Cap Equity Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains on securities | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 18.69 | $ | (0.02 | ) | $ | 2.79 | $ | 2.77 | $ | — | $ | — | $ | — | $ | 21.46 | 14.82 | % | $ | 219,206 | 1.05 | %(d) | 1.05 | %(d) | (0.21 | )%(d) | 19 | % | |||||||||||||||||||||||||||
Year ended 12/31/12 | 16.41 | 0.01 | 2.27 | 2.28 | — | — | — | 18.69 | 13.89 | 205,566 | 1.06 | 1.06 | 0.05 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 18.31 | (0.05 | ) | 2.73 | 2.68 | — | — | — | 20.99 | 14.64 | 102,862 | 1.30 | (d) | 1.30 | (d) | (0.46 | )(d) | 19 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.11 | (0.03 | ) | 2.23 | 2.20 | — | — | — | 18.31 | 13.66 | 83,096 | 1.31 | 1.31 | (0.20 | ) | 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 annualized and based on average daily net assets (000’s omitted) of $217,966 and $94,626 for Series I and Series II shares, respectively. |
Invesco V.I. Small Cap Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,148.20 | $ | 5.59 | $ | 1,019.59 | $ | 5.26 | 1.05 | % | ||||||||||||
Series II | 1,000.00 | 1,146.40 | 6.92 | 1,018.35 | 6.51 | 1.30 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Small Cap Equity Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the
process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight,
independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Small-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one year period and the second quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Small Cap Equity Fund |
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee rate waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisers. The Board also noted that Invesco Advisers sub-advises mutual funds and that the sub-advisory effective fee rate was below the effective advisory fee rate of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to a client account with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients, and the Board did not place significant weight on these fee comparisons.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The
Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary
charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Small Cap Equity Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Technology Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.51 | % | |||
Series II Shares | 4.36 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Bank of America Merrill Lynch 100 Technology Index (price only)n (Style-Specific Index) | 12.94 | ||||
Lipper VUF Science & Technology Funds Classification Averagen (Peer Group) | 8.93 |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Bank of America 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (5/20/97) | 3.65 | % | |||
10 Years | 6.14 | ||||
5 Years | 5.91 | ||||
1 Year | 6.65 | ||||
Series II Shares | |||||
10 Years | 5.85 | % | |||
5 Years | 5.63 | ||||
1 Year | 6.36 |
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 1.16% and 1.41%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Technology Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.59% |
| |||||||
Application Software–12.10% | ||||||||
Aspen Technology, Inc.(b) | 37,732 | $ | 1,086,304 | |||||
Autodesk, Inc.(b) | 24,080 | 817,275 | ||||||
Cadence Design Systems, Inc.(b) | 101,148 | 1,464,623 | ||||||
Citrix Systems, Inc.(b) | 32,132 | 1,938,524 | ||||||
Informatica Corp.(b) | 28,543 | 998,434 | ||||||
MicroStrategy Inc.–Class A(b) | 8,882 | 772,379 | ||||||
Nuance Communications, Inc.(b) | 34,668 | 637,198 | ||||||
Salesforce.com, Inc.(b) | 41,162 | 1,571,565 | ||||||
SolarWinds, Inc.(b) | 12,572 | 487,919 | ||||||
SS&C Techonologies Holdings, Inc.(b) | 42,374 | 1,394,105 | ||||||
11,168,326 | ||||||||
Communications Equipment–12.85% | ||||||||
ARRIS Group Inc.(b) | 64,160 | 920,696 | ||||||
Ciena Corp.(b) | 30,901 | 600,098 | ||||||
Cisco Systems, Inc. | 80,371 | 1,953,819 | ||||||
F5 Networks, Inc.(b) | 7,468 | 513,799 | ||||||
Finisar Corp.(b) | 34,062 | 577,351 | ||||||
JDS Uniphase Corp.(b) | 107,542 | 1,546,454 | ||||||
Juniper Networks, Inc.(b) | 25,543 | 493,235 | ||||||
QUALCOMM, Inc. | 74,392 | 4,543,863 | ||||||
Telefonaktiebolaget LM Ericsson–ADR (Sweden) | 62,465 | 704,605 | ||||||
11,853,920 | ||||||||
Computer Hardware–5.85% | ||||||||
Apple Inc. | 11,463 | 4,540,265 | ||||||
Hewlett-Packard Co. | 34,723 | 861,130 | ||||||
5,401,395 | ||||||||
Computer Storage & Peripherals–2.36% | ||||||||
EMC Corp. | 92,268 | 2,179,370 | ||||||
Data Processing & Outsourced Services–8.98% | ||||||||
Alliance Data Systems Corp.(b)(c) | 12,065 | 2,184,127 | ||||||
Genpact Ltd. | 63,740 | 1,226,358 | ||||||
MasterCard, Inc.–Class A | 3,045 | 1,749,353 | ||||||
Visa Inc.–Class A | 17,126 | 3,129,776 | ||||||
8,289,614 | ||||||||
Electronic Manufacturing Services–3.03% | ||||||||
Jabil Circuit, Inc. | 56,273 | 1,146,844 | ||||||
Sanmina Corp.(b) | 114,990 | 1,650,106 | ||||||
2,796,950 | ||||||||
Internet Retail–3.15% | ||||||||
Amazon.com, Inc.(b) | 5,040 | 1,399,558 | ||||||
Priceline.com Inc.(b) | 1,816 | 1,502,068 | ||||||
2,901,626 |
Shares | Value | |||||||
Internet Software & Services–15.77% | ||||||||
eBay Inc.(b) | 31,030 | $ | 1,604,872 | |||||
ExactTarget Inc.(b) | 49,659 | 1,674,501 | ||||||
Facebook Inc.–Class A(b) | 75,201 | 1,869,497 | ||||||
Google Inc.–Class A(b) | 5,739 | 5,052,443 | ||||||
ValueClick, Inc.(b) | 41,401 | 1,021,777 | ||||||
VeriSign, Inc.(b) | 32,965 | 1,472,217 | ||||||
Web.com Group Inc.(b) | 72,422 | 1,854,003 | ||||||
14,549,310 | ||||||||
IT Consulting & Other Services–3.28% | ||||||||
Accenture PLC–Class A | 16,992 | 1,222,745 | ||||||
International Business Machines Corp. | 9,429 | 1,801,976 | ||||||
3,024,721 | ||||||||
Other Diversified Financial Services–0.28% | ||||||||
BlueStream Ventures L.P. (Acquired 08/03/00-06/13/08; Acquisition Cost $3,149,655)(b)(d)(e) | — | 261,851 | ||||||
Research & Consulting Services–0.56% | ||||||||
Acacia Research | 23,087 | 515,994 | ||||||
Semiconductor Equipment–2.68% | ||||||||
Applied Materials, Inc. | 93,084 | 1,387,882 | ||||||
Teradyne, Inc.(b)(c) | 61,982 | 1,089,024 | ||||||
2,476,906 | ||||||||
Semiconductors–17.17% | ||||||||
ARM Holdings PLC–ADR (United Kingdom) | 8,205 | 296,857 | ||||||
Avago Technologies Ltd. | 30,381 | 1,135,642 | ||||||
Broadcom Corp.–Class A | 18,488 | 624,155 | ||||||
Diodes Inc.(b) | 31,054 | 806,472 | ||||||
Fairchild Semiconductor International, Inc.(b) | 112,633 | 1,554,336 | ||||||
Intermolecular Inc.(b) | 64,316 | 467,577 | ||||||
Lattice Semiconductor Corp.(b) | 246,253 | 1,248,503 | ||||||
Maxim Integrated Products, Inc. | 34,180 | 949,520 | ||||||
Microsemi Corp.(b) | 96,560 | 2,196,740 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 47,536 | 1,472,665 | ||||||
ON Semiconductor Corp.(b) | 154,374 | 1,247,342 | ||||||
Semtech Corp.(b) | 54,789 | 1,919,259 | ||||||
Skyworks Solutions, Inc.(b) | 48,107 | 1,053,062 | ||||||
Texas Instruments Inc. | 25,070 | 874,191 | ||||||
15,846,321 | ||||||||
Systems Software–9.53% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 18,862 | 937,064 | ||||||
CommVault Systems, Inc.(b) | 12,276 | 931,626 | ||||||
Fortinet Inc.(b) | 51,059 | 893,532 | ||||||
Infoblox, Inc.(b) | 13,588 | 397,585 | ||||||
MICROS Systems, Inc.(b) | 12,919 | 557,455 | ||||||
Microsoft Corp. | 30,580 | 1,055,927 |
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) | ||||||||
Oracle Corp. | 64,374 | $ | 1,977,569 | |||||
Red Hat, Inc.(b) | 9,589 | 458,546 | ||||||
Rovi Corp.(b) | 19,606 | 447,801 | ||||||
Symantec Corp. | 50,499 | 1,134,713 | ||||||
8,791,818 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $74,747,314) |
| 90,058,122 | ||||||
Money Market Funds–1.82% |
| |||||||
Liquid Assets Portfolio–Institutional Class(f) | 837,684 | 837,684 | ||||||
Premier Portfolio–Institutional Class(f) | 837,684 | 837,684 | ||||||
Total Money Market Funds |
| 1,675,368 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.41% (Cost $76,422,682) |
| 91,733,490 |
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–2.69% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,479,670)(f)(g) | 2,479,670 | $ | 2,479,670 | |||||
TOTAL INVESTMENTS–102.10% |
| 94,213,160 | ||||||
OTHER ASSETS LESS LIABILITIES–(2.10)% |
| (1,935,808 | ) | |||||
NET ASSETS–100.00% |
| $ | 92,277,352 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at June 30, 2013. |
(d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2013 represented less than 1% of the Fund’s Net Assets. |
(e) | The Fund has a remaining commitment of $101,250 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. |
(f) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(g) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Information Technology | 93.6 | % | ||
Consumer Discretionary | 3.1 | |||
Industrials | 0.6 | |||
Financials | 0.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $74,747,314)* | $ | 90,058,122 | ||
Investments in affiliated money market funds, at value and cost | 4,155,038 | |||
Total investments, at value (Cost $78,902,352) | 94,213,160 | |||
Receivable for: | ||||
Investments sold | 678,659 | |||
Fund shares sold | 10,609 | |||
Dividends | 14,394 | |||
Investment for trustee deferred compensation and retirement plans | 38,645 | |||
Total assets | 94,955,467 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 59,532 | |||
Collateral upon return of securities loaned | 2,479,670 | |||
Accrued fees to affiliates | 58,423 | |||
Accrued trustees’ and officers’ fees and benefits | 754 | |||
Accrued other operating expenses | 18,555 | |||
Trustee deferred compensation and retirement plans | 61,181 | |||
Total liabilities | 2,678,115 | |||
Net assets applicable to shares outstanding | $ | 92,277,352 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 61,389,536 | ||
Undistributed net investment income | 1,851,849 | |||
Undistributed net realized gain | 13,725,159 | |||
Unrealized appreciation | 15,310,808 | |||
$ | 92,277,352 | |||
Net Assets: |
| |||
Series I | $ | 89,886,548 | ||
Series II | $ | 2,390,804 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,097,616 | |||
Series II | 138,819 | |||
Series I: | ||||
Net asset value per share | $ | 17.63 | ||
Series II: | ||||
Net asset value per share | $ | 17.22 |
* | At June 30, 2013, securities with an aggregate value of $2,444,518 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $3,713) | $ | 325,011 | ||
Dividends from affiliated money market funds (includes securities lending income of $253) | 1,209 | |||
Total investment income | 326,220 | |||
Expenses: | ||||
Advisory fees | 356,393 | |||
Administrative services fees | 137,521 | |||
Custodian fees | 2,362 | |||
Distribution fees — Series II | 2,869 | |||
Transfer agent fees | 11,474 | |||
Trustees’ and officers’ fees and benefits | 14,599 | |||
Other | 27,362 | |||
Total expenses | 552,580 | |||
Less: Fees waived | (1,584 | ) | ||
Net expenses | 550,996 | |||
Net investment income (loss) | (224,776 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 5,751,631 | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,207,551 | ) | ||
Net realized and unrealized gain | 4,544,080 | |||
Net increase in net assets resulting from operations | $ | 4,319,304 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (224,776 | ) | $ | (450,495 | ) | ||
Net realized gain | 5,751,631 | 9,554,276 | ||||||
Change in net unrealized appreciation (depreciation) | (1,207,551 | ) | 2,176,313 | |||||
Net increase in net assets resulting from operations | 4,319,304 | 11,280,094 | ||||||
Share transactions–net: | ||||||||
Series l | (9,709,385 | ) | (16,315,465 | ) | ||||
Series ll | 178,598 | 331,851 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (9,530,787 | ) | (15,983,614 | ) | ||||
Net increase (decrease) in net assets | (5,211,483 | ) | (4,703,520 | ) | ||||
Net assets: | ||||||||
Beginning of period | 97,488,835 | 102,192,355 | ||||||
End of period (includes undistributed net investment income of $1,851,849 and $2,076,625, respectively) | $ | 92,277,352 | $ | 97,488,835 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Technology Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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
Invesco V.I. Technology Fund
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 trades 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 of 1986, as amended (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. Technology 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. | 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).
Effective May 1, 2013, 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 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, 2013, 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 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. Unless the Board of Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2014. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $1,584.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $112,727 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
Invesco V.I. Technology Fund
course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $11 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 June 30, 2013. 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 | $ | 93,951,309 | $ | — | $ | 261,851 | $ | 94,213,160 |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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
Invesco V.I. Technology Fund
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 did 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 six months ended June 30, 2013 was $17,296,428 and $26,924,729, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 23,191,193 | ||
Aggregate unrealized (depreciation) of investment securities | (5,843,666 | ) | ||
Net unrealized appreciation of investment securities | $ | 17,347,527 |
Cost of investments for tax purposes is $76,865,633.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 206,897 | $ | 3,599,602 | 678,900 | $ | 11,607,559 | ||||||||||
Series II | 22,986 | 393,573 | 65,426 | 1,097,512 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (760,995 | ) | (13,308,987 | ) | (1,662,300 | ) | (27,923,024 | ) | ||||||||
Series II | (12,510 | ) | (214,975 | ) | (45,637 | ) | (765,661 | ) | ||||||||
Net increase (decrease) in share activity | (543,622 | ) | $ | (9,530,787 | ) | (963,611 | ) | $ | (15,983,614 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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 9—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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 16.87 | $ | (0.04 | ) | $ | 0.80 | $ | 0.76 | $ | — | $ | 17.63 | 4.51 | % | $ | 89,887 | 1.16 | %(d) | 1.16 | %(d) | (0.47 | )%(d) | 18 | % | |||||||||||||||||||||||
Year ended 12/31/12 | 15.16 | (0.07 | ) | 1.78 | 1.71 | — | 16.87 | 11.28 | 95,371 | 1.16 | 1.16 | (0.42 | ) | 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 16.50 | (0.06 | ) | 0.78 | 0.72 | — | 17.22 | 4.36 | 2,391 | 1.41 | (d) | 1.41 | (d) | (0.72 | )(d) | 18 | ||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 14.86 | (0.11 | ) | 1.75 | 1.64 | — | 16.50 | 11.04 | 2,118 | 1.41 | 1.41 | (0.67 | ) | 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 annualized and based on average daily net assets (000’s omitted) of $93,512 and $2,314 for Series I and Series II, respectively. |
Invesco V.I. Technology Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,045.10 | $ | 5.88 | $ | 1,019.04 | $ | 5.81 | 1.16 | % | ||||||||||||
Series II | 1,000.00 | 1,043.60 | 7.14 | 1,017.80 | 7.05 | 1.41 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Technology Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Technology Fund |
performance universe and against the Lipper VA Underlying Funds – Technology Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of the two mutual funds advised by Invesco Advisers with comparable investment strategies. The Board noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, which had an effective advisory fee rate higher than the Fund’s rate.
Other than the funds described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the
nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Technology Fund |
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Semiannual Report to Shareholders
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June 30, 2013
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Invesco V.I. Utilities Fund | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes |
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. |
Series I Shares | 8.21 | % | |||
Series II Shares | 8.08 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
S&P 500 Utilities Sector Total Return Index‚ (Style-Specific Index) | 9.93 | ||||
Lipper VUF Utility Funds Classification Averagen (Peer Group) | 9.60 | ||||
‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.; nLipper Inc. |
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 classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II shares. 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 1.03% 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. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns |
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As of 6/30/13 | |||||
Series I Shares | |||||
Inception (12/30/94) | 7.11 | % | |||
10 Years | 9.73 | ||||
5 Years | 2.15 | ||||
1 Year | 7.98 | ||||
Series II Shares | |||||
10 Years | 9.46 | % | |||
5 Years | 1.88 | ||||
1 Year |
| 7.68
|
|
Invesco V.I. Utilities Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks–95.16% | ||||||||
Electric Utilities–51.54% | ||||||||
American Electric Power Co., Inc. | 76,377 | $ | 3,420,162 | |||||
Duke Energy Corp. | 42,209 | 2,849,108 | ||||||
Edison International | 51,883 | 2,498,685 | ||||||
Entergy Corp. | 30,660 | 2,136,389 | ||||||
Exelon Corp. | 108,475 | 3,349,708 | ||||||
FirstEnergy Corp. | 10,018 | 374,072 | ||||||
NextEra Energy, Inc. | 9,968 | 812,193 | ||||||
Northeast Utilities | 54,720 | 2,299,334 | ||||||
Pepco Holdings, Inc. | 172,078 | 3,469,092 | ||||||
Pinnacle West Capital Corp. | 26,689 | 1,480,439 | ||||||
Portland General Electric Co. | 121,192 | 3,707,263 | ||||||
PPL Corp. | 58,635 | 1,774,295 | ||||||
Southern Co. (The) | 65,092 | 2,872,510 | ||||||
Xcel Energy, Inc. | 108,924 | 3,086,906 | ||||||
34,130,156 | ||||||||
Gas Utilities–7.09% | ||||||||
AGL Resources Inc. | 48,831 | 2,092,897 | ||||||
Atmos Energy Corp. | 20,530 | 842,962 | ||||||
UGI Corp. | 45,021 | 1,760,771 | ||||||
4,696,630 | ||||||||
Independent Power Producers & Energy Traders–4.72% | ||||||||
Calpine Corp.(b) | 56,123 | 1,191,491 | ||||||
NRG Energy, Inc. | 72,467 | 1,934,869 | ||||||
3,126,360 |
Shares | Value | |||||||
Integrated Telecommunication Services–6.53% | ||||||||
AT&T Inc. | 29,361 | $ | 1,039,379 | |||||
CenturyLink Inc. | 37,172 | 1,314,030 | ||||||
Deutsche Telekom AG (Germany) | 43,520 | 507,772 | ||||||
Verizon Communications Inc. | 28,967 | 1,458,199 | ||||||
4,319,380 | ||||||||
Multi-Utilities–25.28% | ||||||||
CMS Energy Corp. | 44,866 | 1,219,009 | ||||||
Consolidated Edison, Inc. | 20,420 | 1,190,690 | ||||||
Dominion Resources, Inc. | 49,226 | 2,797,021 | ||||||
DTE Energy Co. | 25,619 | 1,716,729 | ||||||
National Grid PLC (United Kingdom) | 225,049 | 2,545,723 | ||||||
NiSource Inc. | 27,525 | 788,316 | ||||||
Public Service Enterprise Group Inc. | 52,901 | 1,727,747 | ||||||
Sempra Energy | 29,931 | 2,447,159 | ||||||
TECO Energy, Inc. | 134,338 | 2,309,270 | ||||||
16,741,664 | ||||||||
Total Common Stocks & Other Equity Interests |
| 63,014,190 | ||||||
Money Market Funds–4.38% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 1,448,834 | 1,448,834 | ||||||
Premier Portfolio–Institutional Class(c) | 1,448,835 | 1,448,835 | ||||||
Total Money Market Funds | 2,897,669 | |||||||
TOTAL INVESTMENTS–99.54% (Cost $50,567,747) | 65,911,859 | |||||||
OTHER ASSETS LESS LIABILITIES–0.46% |
| 305,092 | ||||||
NET ASSETS–100.00% | $ | 66,216,951 |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Utilities | 88.7 | % | ||
Telecommunication Services | 6.5 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Utilities Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: | ||||
Investments, at value (Cost $47,670,078) | $ | 63,014,190 | ||
Investments in affiliated money market funds, at value and cost | 2,897,669 | |||
Total investments, at value (Cost $50,567,747) | 65,911,859 | |||
Receivable for: | ||||
Investments sold | 33,254 | |||
Fund shares sold | 106,456 | |||
Dividends | 264,665 | |||
Investment for trustee deferred compensation and retirement plans | 50,747 | |||
Other assets | 3,032 | |||
Total assets | 66,370,013 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 26,516 | |||
Accrued fees to affiliates | 42,031 | |||
Accrued trustees’ and officers’ fees and benefits | 518 | |||
Accrued other operating expenses | 16,366 | |||
Trustee deferred compensation and retirement plans | 67,631 | |||
Total liabilities | 153,062 | |||
Net assets applicable to shares outstanding | $ | 66,216,951 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 45,176,593 | ||
Undistributed net investment income | 3,074,895 | |||
Undistributed net realized gain | 2,623,001 | |||
Unrealized appreciation | 15,342,462 | |||
$ | 66,216,951 | |||
Net Assets: | ||||
Series I | $ | 64,520,510 | ||
Series II | $ | 1,696,441 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,680,103 | |||
Series II | 97,534 | |||
Series I: | ||||
Net asset value per share | $ | 17.53 | ||
Series II: | ||||
Net asset value per share | $ | 17.39 |
Investment income: |
| |||
Dividends | $ | 1,313,207 | ||
Dividends from affiliated money market funds | 1,900 | |||
Total investment income | 1,315,107 | |||
Expenses: | ||||
Advisory fees | 204,922 | |||
Administrative services fees | 103,317 | |||
Custodian fees | 2,910 | |||
Distribution fees — Series II | 2,147 | |||
Transfer agent fees | 10,486 | |||
Trustees’ and officers’ fees and benefits | 13,998 | |||
Other | 22,661 | |||
Total expenses | 360,441 | |||
Less: Fees waived | (3,312 | ) | ||
Net expenses | 357,129 | |||
Net investment income | 957,978 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 1,366,576 | |||
Foreign currencies | 4,850 | |||
1,371,426 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 3,050,786 | |||
Foreign currencies | (4,024 | ) | ||
3,046,762 | ||||
Net realized and unrealized gain | 4,418,188 | |||
Net increase in net assets resulting from operations | $ | 5,376,166 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Utilities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: | ||||||||
Net investment income | $ | 957,978 | $ | 2,152,558 | ||||
Net realized gain | 1,371,426 | 1,529,973 | ||||||
Change in net unrealized appreciation (depreciation) | 3,046,762 | (1,257,024 | ) | |||||
Net increase in net assets resulting from operations | 5,376,166 | 2,425,507 | ||||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | — | (2,101,069 | ) | |||||
Series II | — | (47,190 | ) | |||||
Total distributions from net investment income | — | (2,148,259 | ) | |||||
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 | (4,882,728 | ) | (4,662,802 | ) | ||||
Series II | (71,294 | ) | (195,495 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (4,954,022 | ) | (4,858,297 | ) | ||||
Net increase (decrease) in net assets | 422,144 | (7,038,706 | ) | |||||
Net assets: |
| |||||||
Beginning of period | 65,794,807 | 72,833,513 | ||||||
End of period (includes undistributed net investment income of $3,074,895 and $2,116,917, respectively) | $ | 66,216,951 | $ | 65,794,807 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Utilities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four 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”).
Invesco V.I. Utilities Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (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 trades 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Utilities Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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).
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 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. 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. 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, 2014, 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 V.I. Utilities Fund
For the six months ended June 30, 2013, the Adviser waived advisory fees of $3,312.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $78,522 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $134 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 June 30, 2013. 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 | $ | 63,366,136 | $ | 2,545,723 | $ | — | $ | 65,911,859 |
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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 did 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 six months ended June 30, 2013 was $3,265,180 and $6,928,831, 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 | $ | 16,371,147 | ||
Aggregate unrealized (depreciation) of investment securities | (1,276,509 | ) | ||
Net unrealized appreciation of investment securities | $ | 15,094,638 |
Cost of investments for tax purposes is $50,817,221.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 228,422 | $ | 3,997,478 | 613,174 | $ | 10,279,764 | ||||||||||
Series II | 3,305 | 57,270 | 23,507 | 400,727 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 273,870 | 4,499,686 | ||||||||||||
Series II | — | — | 6,506 | 106,230 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (508,512 | ) | (8,880,206 | ) | (1,166,463 | ) | (19,442,252 | ) | ||||||||
Series II | (7,468 | ) | (128,564 | ) | (41,247 | ) | (702,452 | ) | ||||||||
Net increase (decrease) in share activity | (284,253 | ) | $ | (4,954,022 | ) | (290,653 | ) | $ | (4,858,297 | ) |
(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. |
Invesco V.I. Utilities Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 16.20 | $ | 0.24 | $ | 1.09 | $ | 1.33 | $ | — | $ | — | $ | — | $ | 17.53 | 8.21 | % | $ | 64,521 | 1.04 | %(d) | 1.05 | %(d) | 2.81 | %(d) | 5 | % | ||||||||||||||||||||||||||||
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 | 1.03 | 3.10 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 16.09 | 0.22 | 1.08 | 1.30 | — | — | — | 17.39 | 8.08 | 1,696 | 1.29 | (d) | 1.30 | (d) | 2.56 | (d) | 5 | |||||||||||||||||||||||||||||||||||||||
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 | 1.28 | 2.85 | 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 annualized and based on average daily net assets (000’s omitted) of $67,142 and $1,732 for Series I and Series II shares, respectively. |
Invesco V.I. Utilities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2013 through June 30, 2013.
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 (01/01/13) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,082.10 | $ | 5.37 | $ | 1,019.64 | $ | 5.21 | 1.04 | % | ||||||||||||
Series II | 1,000.00 | 1,080.80 | 6.66 | 1,018.40 | 6.46 | 1.29 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Utilities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Utilities Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared
by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Utilities Fund |
performance universe and against the Lipper VA Underlying Funds – Utility Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the Lipper performance universe for the one and five year periods and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was below the effective advisory rate of the other mutual fund with investment strategies comparable to those of the Fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from advisory services Invesco Advisers provides to the Fund, but that overall Invesco Advisers and its affiliates did not make a profit from managing the Fund as a result of the size of the Fund and allocated expenses. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements.
The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Utilities Fund |
| ||||
![]() | Semiannual Report to Shareholders
| June 30, 2013 | ||
Invesco V.I. Value Opportunities Fund | ||||
Effective April 29, 2013, Invesco Van Kampen V.I. Value Opportunities Fund was renamed Invesco V.I. Value Opportunities Fund. |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 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 most recent 12-month period ended June 30 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-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/12 to 6/30/13, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 15.49 | % | |||
Series II Shares | 15.13 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.82 | ||||
Russell 3000 Value Indexn (Style-Specific Index) | 15.78 | ||||
Lipper VUF Multi-Cap Value Funds Index¿ (Peer Group Index) | 15.38 |
Source(s): ‚Invesco, S&P-Dow Jones via FactSet Research Systems Inc.;
nInvesco, Russell via FactSet Research Systems Inc.; ¿Lipper Inc.
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 US 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 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 Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns | |||||
As of 6/30/13 | |||||
Series I Shares | |||||
Inception (9/10/01) | 3.23 | % | |||
10 Years | 4.88 | ||||
5 Years | 4.05 | ||||
1 Year | 24.73 | ||||
Series II Shares | |||||
Inception (9/10/01) | 2.97 | % | |||
10 Years | 4.60 | ||||
5 Years | 3.77 | ||||
1 Year | 24.22 |
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 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 1.02% and 1.27%, 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. 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 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. Value Opportunities Fund
Schedule of Investments(a)
June 30, 2013
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.34% |
| |||||||
Advertising–4.48% | ||||||||
Omnicom Group Inc. | 162,031 | $ | 10,186,889 | |||||
Apparel Retail–1.07% | ||||||||
Vera Bradley, Inc.(b)(c) | 112,900 | 2,445,414 | ||||||
Asset Management & Custody Banks–1.47% | ||||||||
Bank of New York Mellon Corp. (The) | 118,970 | 3,337,108 | ||||||
Automobile Manufacturers–2.69% | ||||||||
Renault S.A. (France) | 91,723 | 6,127,115 | ||||||
Cable & Satellite–2.68% | ||||||||
Time Warner Cable Inc. | 54,239 | 6,100,803 | ||||||
Coal & Consumable Fuels–1.57% | ||||||||
Peabody Energy Corp. | 243,334 | 3,562,410 | ||||||
Computer Hardware–3.14% | ||||||||
Apple Inc. | 6,183 | 2,448,962 | ||||||
Hewlett-Packard Co. | 189,616 | 4,702,477 | ||||||
7,151,439 | ||||||||
Department Stores–4.50% | ||||||||
Macy’s, Inc. | 125,095 | 6,004,560 | ||||||
Nordstrom, Inc. | 70,550 | 4,228,767 | ||||||
10,233,327 | ||||||||
Diversified Banks–7.22% | ||||||||
Comerica Inc. | 95,282 | 3,795,082 | ||||||
U.S. Bancorp | 96,102 | 3,474,087 | ||||||
Wells Fargo & Co. | 221,768 | 9,152,366 | ||||||
16,421,535 | ||||||||
Food Retail–2.06% | ||||||||
Kroger Co. (The) | 135,434 | 4,677,890 | ||||||
General Merchandise Stores–1.52% | ||||||||
Target Corp. | 50,177 | 3,455,188 | ||||||
Household Products–1.71% | ||||||||
Procter & Gamble Co. (The) | 50,516 | 3,889,227 | ||||||
Industrial Conglomerates–2.01% | ||||||||
General Electric Co. | 197,504 | 4,580,118 | ||||||
Integrated Oil & Gas–13.58% | ||||||||
Chevron Corp. | 78,145 | 9,247,679 | ||||||
Exxon Mobil Corp. | 32,722 | 2,956,433 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 348,767 | 4,680,453 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 140,229 | 8,946,610 | ||||||
Total S.A.–ADR (France) | 104,206 | 5,074,832 | ||||||
30,906,007 |
Shares | Value | |||||||
Investment Banking & Brokerage–3.40% | ||||||||
Goldman Sachs Group, Inc. (The) | 22,872 | $ | 3,459,390 | |||||
Morgan Stanley | 174,666 | 4,267,090 | ||||||
7,726,480 | ||||||||
Life & Health Insurance–5.70% | ||||||||
Aflac, Inc. | 56,972 | 3,311,213 | ||||||
MetLife, Inc. | 97,443 | 4,458,992 | ||||||
Unum Group | 176,793 | 5,192,410 | ||||||
12,962,615 | ||||||||
Managed Health Care–4.40% | ||||||||
UnitedHealth Group Inc. | 88,191 | 5,774,747 | ||||||
WellPoint, Inc. | 51,837 | 4,242,340 | ||||||
10,017,087 | ||||||||
Marine–0.52% | ||||||||
Diana Shipping Inc. (Greece)(c) | 117,594 | 1,180,644 | ||||||
Oil & Gas Drilling–1.15% | ||||||||
Noble Corp. | 69,739 | 2,620,792 | ||||||
Other Diversified Financial Services–11.87% | ||||||||
Bank of America Corp. | 378,767 | 4,870,944 | ||||||
Citigroup Inc. | 150,439 | 7,216,559 | ||||||
ING U.S. Inc.(c) | 67,038 | 1,814,048 | ||||||
JPMorgan Chase & Co. | 248,157 | 13,100,208 | ||||||
27,001,759 | ||||||||
Pharmaceuticals–4.30% | ||||||||
Bristol-Myers Squibb Co. | 69,206 | 3,092,816 | ||||||
Pfizer Inc. | 239,196 | 6,699,880 | ||||||
9,792,696 | ||||||||
Property & Casualty Insurance–9.54% | ||||||||
Allied World Assurance Co. Holdings AG | 46,743 | 4,277,452 | ||||||
Allstate Corp. (The) | 167,166 | 8,044,028 | ||||||
Aspen Insurance Holdings Ltd. | 142,783 | 5,295,822 | ||||||
Chubb Corp. (The) | 48,282 | 4,087,071 | ||||||
21,704,373 | ||||||||
Steel–1.27% | ||||||||
POSCO–ADR (South Korea) | 44,598 | 2,902,438 | ||||||
Technology Distributors–0.96% | ||||||||
CDW Corp.(c) | 117,202 | 2,182,301 | ||||||
Wireless Telecommunication Services–1.53% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 120,993 | 3,477,339 | ||||||
Total Common Stocks & Other Equity Interests |
| 214,642,994 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Shares | Value | |||||||
Money Market Funds–2.11% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 2,400,609 | $ | 2,400,609 | |||||
Premier Portfolio–Institutional Class(d) | 2,400,610 | 2,400,610 | ||||||
Total Money Market Funds |
| 4,801,219 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–96.45% (Cost $164,701,368) |
| 219,444,213 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.80% |
| |||||||
Liquid Assets Portfolio–Institutional Class | 1,820,513 | 1,820,513 | ||||||
TOTAL INVESTMENTS–97.25% |
| 221,264,726 | ||||||
OTHER ASSETS LESS LIABILITIES–2.75% |
| 6,251,876 | ||||||
NET ASSETS–100.00% |
| $ | 227,516,602 |
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) | All or a portion of this security was out on loan at June 30, 2013. |
(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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2013
Financials | 39.2 | % | ||
Consumer Discretionary | 16.9 | |||
Energy | 16.3 | |||
Health Care | 8.7 | |||
Information Technology | 4.1 | |||
Consumer Staples | 3.8 | |||
Industrials | 2.5 | |||
Telecommunication Services | 1.5 | |||
Materials | 1.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Statement of Assets and Liabilities
June 30, 2013
(Unaudited)
Statement of Operations
For the six months ended June 30, 2013
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $159,900,149)* | $ | 214,642,994 | ||
Investments in affiliated money market funds, at value and cost | 6,621,732 | |||
Total investments, at value (Cost $166,521,881) | 221,264,726 | |||
Cash | 28,826 | |||
Receivable for: | ||||
Investments sold | 10,107,528 | |||
Fund shares sold | 2,806 | |||
Dividends | 642,207 | |||
Investment for trustee deferred compensation and retirement plans | 37,359 | |||
Other assets | 4,174 | |||
Total assets | 232,087,626 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,108,235 | |||
Fund shares reacquired | 314,470 | |||
Collateral upon return of securities loaned | 1,820,513 | |||
Accrued fees to affiliates | 207,414 | |||
Accrued trustees’ and officers’ fees and benefits | 708 | |||
Accrued other operating expenses | 12,620 | |||
Trustee deferred compensation and retirement plans | 107,064 | |||
Total liabilities | 4,571,024 | |||
Net assets applicable to shares outstanding | $ | 227,516,602 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 199,786,044 | ||
Undistributed net investment income | 4,522,820 | |||
Undistributed net realized gain (loss) | (31,532,751 | ) | ||
Unrealized appreciation | 54,740,489 | |||
$ | 227,516,602 | |||
Net Assets: | ||||
Series I | $ | 130,219,620 | ||
Series II | $ | 97,296,982 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 15,889,867 | |||
Series II | 11,946,935 | |||
Series I: | ||||
Net asset value per share | $ | 8.20 | ||
Series II: | ||||
Net asset value per share | $ | 8.14 |
* | At June 30, 2013, securities with an aggregate value of $1,834,061 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $121,757) | $ | 2,832,425 | ||
Dividends from affiliated money market funds (includes securities lending income of $83,908) | 90,753 | |||
Total investment income | 2,923,178 | |||
Expenses: | ||||
Advisory fees | 816,257 | |||
Administrative services fees | 320,697 | |||
Custodian fees | 2,124 | |||
Distribution fees — Series II | 127,366 | |||
Transfer agent fees | 8,333 | |||
Trustees’ and officers’ fees and benefits | 17,366 | |||
Other | 12,941 | |||
Total expenses | 1,305,084 | |||
Less: Fees waived | (12,492 | ) | ||
Net expenses | 1,292,592 | |||
Net investment income | 1,630,586 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 18,411,713 | |||
Foreign currencies | (3,972 | ) | ||
18,407,741 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 13,548,876 | |||
Foreign currencies | (2,356 | ) | ||
13,546,520 | ||||
Net realized and unrealized gain | 31,954,261 | |||
Net increase in net assets resulting from operations | $ | 33,584,847 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2013 and the year ended December 31, 2012
(Unaudited)
June 30, 2013 | December 31, 2012 | |||||||
Operations: |
| |||||||
Net investment income | $ | 1,630,586 | $ | 2,991,365 | ||||
Net realized gain | 18,407,741 | 20,484,242 | ||||||
Change in net unrealized appreciation | 13,546,520 | 15,820,217 | ||||||
Net increase in net assets resulting from operations | 33,584,847 | 39,295,824 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,005,611 | ) | |||||
Series II | — | (1,209,493 | ) | |||||
Total distributions from net investment income | — | (3,215,104 | ) | |||||
Share transactions-net: | ||||||||
Series I | (19,229,211 | ) | (25,455,179 | ) | ||||
Series ll | (15,236,224 | ) | (21,410,450 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (34,465,435 | ) | (46,865,629 | ) | ||||
Net increase (decrease) in net assets | (880,588 | ) | (10,784,909 | ) | ||||
Net assets: | ||||||||
Beginning of period | 228,397,190 | 239,182,099 | ||||||
End of period (includes undistributed net investment income of $4,522,820 and $2,892,234, respectively) | $ | 227,516,602 | $ | 228,397,190 |
Notes to Financial Statements
June 30, 2013
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Value Opportunities Fund (the “Fund”), formerly Invesco Van Kampen V.I. Value Opportunities 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-four 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. Value Opportunities 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 trades 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 of 1986, as amended (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. Value Opportunities 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 $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).
Invesco V.I. Value Opportunities Fund
Effective May 1, 2013, 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 2.00% and Series II shares to 2.25% of average daily net assets. Prior to May 1, 2013, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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. 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, 2014, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2013, the Adviser waived advisory fees of $12,492.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2013, Invesco was paid $29,492 for accounting and fund administrative services and reimbursed $291,205 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2013, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2013, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2013, the Fund incurred $893 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 June 30, 2013. 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 | $ | 215,137,611 | $ | 6,127,115 | $ | — | $ | 221,264,726 |
Invesco V.I. Value Opportunities Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with 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—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund’s fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The Regulated Investment Company Modernization Act of 2010 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 had 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 six months ended June 30, 2013 was $23,087,880 and $54,446,618, 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 | $ | 63,539,402 | ||
Aggregate unrealized (depreciation) of investment securities | (10,192,390 | ) | ||
Net unrealized appreciation of investment securities | $ | 53,347,012 |
Cost of investments for tax purposes is $167,917,714.
Invesco V.I. Value Opportunities Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2013(a) | Year ended December 31, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 283,868 | $ | 2,261,142 | 1,784,123 | $ | 12,416,540 | ||||||||||
Series II | 333,283 | 2,643,841 | 1,339,643 | 8,704,187 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 282,878 | 2,005,611 | ||||||||||||
Series II | — | — | 171,316 | 1,209,493 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,745,977 | ) | (21,490,353 | ) | (5,892,112 | ) | (39,877,330 | ) | ||||||||
Series II | (2,251,823 | ) | (17,880,065 | ) | (4,662,117 | ) | (31,324,130 | ) | ||||||||
Net increase (decrease) in share activity | (4,380,649 | ) | $ | (34,465,435 | ) | (6,976,269 | ) | $ | (46,865,629 | ) |
(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. |
NOTE 9—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 expensesabsorbed | Ratio of absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | $ | 7.10 | $ | 0.06 | $ | 1.04 | $ | 1.10 | $ | — | $ | — | $ | — | $ | 8.20 | 15.49 | % | $ | 130,220 | 0.99 | %(d) | 1.00 | %(d) | 1.50 | %(d) | 11 | % | ||||||||||||||||||||||||||||
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 | 1.02 | 1.37 | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/13 | 7.07 | 0.05 | 1.02 | 1.07 | — | — | — | 8.14 | 15.13 | 97,297 | 1.24 | 1.25 | 1.25 | 11 | ||||||||||||||||||||||||||||||||||||||||||
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 | 1.27 | 1.12 | 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 annualized and based on average daily net assets (000’s) of $134,103 and $102,737 for Series I and Series II shares, respectively. |
Invesco 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 January 1, 2013 through June 30, 2013.
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 (01/01/13) | Actual | Hypothetical (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/13)1 | Expenses Paid During Period2 | Ending Account Value (06/30/13) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,154.90 | $ | 5.29 | $ | 1,019.89 | $ | 4.96 | 0.99 | % | ||||||||||||
Series II | 1,000.00 | 1,151.30 | 6.61 | 1,018.65 | 6.21 | 1.24 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2013 through June 30, 2013, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Value Opportunities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Value Opportunities Fund’s (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 17-19, 2013, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2013. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an
independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by different predecessor boards. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 19, 2013, and may not reflect consideration of factors that became known to the Board after that date, including, for example, changes to the Fund’s performance, advisory fees, expense limitations and/or fee waivers.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under
the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper
Invesco V.I. Value Opportunities Fund |
performance universe and against the Lipper VA Underlying Funds – Multi-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one year period, the fourth quintile for the three period and the fifth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one year period and below the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was at the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees and that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board also compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund with investment strategies comparable to those of the Fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and its affiliates do not advise other funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the compensation payable to
Invesco Advisers and the Affiliated Sub-Advisers is fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2012. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered periodic reports from the Chief Compliance Officer of the Invesco Funds demonstrating that these arrangements are consistent with regulatory requirements. The Board did not deem the soft dollar arrangements to be inappropriate.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds. The waiver is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Value Opportunities Fund |
ITEM 2. | CODE OF ETHICS. |
There were no amendments to the Code of Ethics (the “Code”) that applies to the Registrant’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | As of August 13, 2013, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of August 13, 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 the report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
12(a) (1) | Not applicable. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
By: | /s/ Philip A. Taylor | |
Philip A. Taylor | ||
Principal Executive Officer | ||
Date: | August 23, 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: | August 23, 2013 | |
By: | /s/ Sheri Morris | |
Sheri Morris | ||
Principal Financial Officer | ||
Date: | August 23, 2013 |
EXHIBIT INDEX
12(a) (1) | Not applicable. | |
12(a) (2) | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and Principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |