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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 1000 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
(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)
(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: 6/30/12
Item 1. Reports to Stockholders.
Invesco V.I. Balanced-Risk Allocation Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIIBRA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.29 | % | ||
Series II Shares | 5.13 | |||
MSCI World Index▼ (Broad Market Index) | 5.91 | |||
Custom VI Balanced Risk Allocation Index§ (Style-Specific Index) | 4.70 | |||
Source(s): ▼Lipper Inc.; §Invesco, Lipper Inc. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Custom VI Balanced Risk Allocation Index, created by Invesco to serve as a benchmark for Invesco V.I. Balanced-Risk Allocation Fund, is composed of the following indexes: (60%) MSCI World Index, (40%) Barclays U.S. Aggregate Index.
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (1/23/09) | 15.51 | % | ||||||
1 | Year | 13.78 | ||||||
Series II Shares | ||||||||
Inception (1/23/09) | 15.20 | % | ||||||
1 | Year | 13.53 |
Effective May 2, 2011, Series I and Series II shares of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund were reorganized into Series I and Series II shares, respectively of Invesco V.I. Balanced-Risk Allocation Fund. Prior to this, on June 1, 2010, Class I and Class II shares of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor funds and Invesco V.I. Balanced-Risk Allocation Fund. Share class returns will differ from the predecessor funds because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that
you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.74% and 0.99%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.24% and 1.49%, 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.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.74% and 0.99%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.24% and 1.49%, respectively.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 data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.02% 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 June 30, 2013. See current prospectus for more information. |
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
June 30, 2012
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Treasury Bills–8.84% | ||||||||
0.06%, 07/19/12(a)(b) | $ | 14,300,000 | $ | 14,299,854 | ||||
0.06%, 08/09/12(a) | 10,550,000 | 10,549,586 | ||||||
0.11%, 08/09/12(a) | 3,000,000 | 2,999,844 | ||||||
0.08%, 08/23/12(a) | 11,400,000 | 11,398,983 | ||||||
0.12%, 08/23/12(a) | 5,000,000 | 5,000,072 | ||||||
Total U.S. Treasury Bills (Cost $44,246,398) | 44,248,339 | |||||||
Shares | Value | |||||||
Money Market Funds–82.42%(c) | ||||||||
Government & Agency Portfolio–Institutional Class | 69,767,675 | $ | 69,767,675 | |||||
Invesco V.I. Money Market Fund | 9,074,424 | 9,074,424 | ||||||
Liquid Assets Portfolio–Institutional Class | 76,744,443 | 76,744,443 | ||||||
Premier Portfolio–Institutional Class | 62,790,908 | 62,790,908 | ||||||
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio (Ireland)–Institutional Class | 54,768,347 | 54,768,347 | ||||||
STIC Prime Portfolio–Institutional Class | 55,814,140 | 55,814,140 | ||||||
Treasury Portfolio–Institutional Class | 83,721,210 | 83,721,210 | ||||||
Total Money Market Funds (Cost $412,681,147) | 412,681,147 | |||||||
TOTAL INVESTMENTS–91.26% (Cost $456,927,545) | 456,929,486 | |||||||
OTHER ASSETS LESS LIABILITIES–8.74% | 43,755,784 | |||||||
NET ASSETS–100.00% | $ | 500,685,270 | ||||||
Notes to Schedule of Investments:
(a) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | All or a portion of the value was pledged as collateral for open swap agreements. See note 1J and Note 4. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Open Futures Contracts and Swap Agreements at Period-End(a) | ||||||||||||||||||
Unrealized | ||||||||||||||||||
Number of | Expiration | Notional | Appreciation | |||||||||||||||
Long Futures Contracts | Contracts | Month | Value | (Depreciation) | ||||||||||||||
Australian 10 Year Bonds | 632 | September-2012 | $ | 81,176,390 | $ | (91,488 | ) | |||||||||||
Brent Crude | 66 | August-2012 | 6,454,800 | (7,757 | ) | |||||||||||||
Canada 10 Year Bonds | 513 | September-2012 | 69,762,155 | 728,973 | ||||||||||||||
Dow Jones Eurostoxx 50 | 890 | September-2012 | 25,379,890 | 981,580 | ||||||||||||||
E-Mini S&P 500 Index | 340 | September-2012 | 23,058,800 | 583,270 | ||||||||||||||
Euro Bonds | 389 | September-2012 | 69,312,852 | (1,908,063 | ) | |||||||||||||
FTSE 100 Index | 266 | September-2012 | 23,007,857 | 285,285 | ||||||||||||||
Gas Oil | 79 | August-2012 | 6,661,675 | 23,388 | ||||||||||||||
Gasoline Reformulated Blendstock Oxygenate Blending | 60 | September-2012 | 6,444,900 | 405,782 | ||||||||||||||
Hang Seng Index | 117 | July-2012 | 14,665,719 | 377,512 | ||||||||||||||
Heating Oil | 42 | August-2012 | 4,780,264 | 314,552 | ||||||||||||||
Japan 10 Year Bonds | 37 | September-2012 | 66,506,505 | 180,232 | ||||||||||||||
LME Copper | 165 | August-2012 | 31,741,875 | 1,030,496 | ||||||||||||||
LME Primary Aluminum | 81 | July-2012 | 3,812,569 | (135,282 | ) | |||||||||||||
Long Gilt | 424 | September-2012 | 79,092,184 | 394,079 | ||||||||||||||
Russell 2000 Index Mini | 239 | September-2012 | 19,010,060 | 693,829 | ||||||||||||||
Silver | 87 | September-2012 | 12,011,220 | 339,259 | ||||||||||||||
Soybean | 172 | November-2012 | 12,278,650 | 354,887 | ||||||||||||||
Topix Tokyo Price Index | 238 | September-2012 | 22,894,921 | 2,103,891 | ||||||||||||||
U.S. Treasury Long Bonds | 236 | September-2012 | 34,920,625 | 130,058 | ||||||||||||||
Total Futures Contracts | $ | 612,973,911 | $ | 6,784,483 | ||||||||||||||
(a) Futures collateralized by $37,646,000 cash held with Goldman Sachs, the futures commission merchant. | ||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Unrealized | ||||||||||||||||||
Number of | Expiration | Notional | Appreciation | |||||||||||||||
Long Swap Agreements | Counterparty | Contracts | Month | Value | (Depreciation) | |||||||||||||
Receive a return equal to Barclays Capital Soybean Meal S2 Nearby Excess Return Index and pay the product of (i) 0.30% of the Notional Value multiplied by (ii) days in the period divided by 365 | Barclays Bank PLC | 17,950 | June-2013 | $ | 12,416,609 | $ | 882,074 | |||||||||||
Receive a return equal to Barclays Gold Excess Return Index and pay the product of (i) 0.22% of the Notional Value multiplied by (ii) days in the period divided by 365 | Barclays Bank PLC | 25,650 | April-2013 | 9,796,612 | (143,809 | ) | ||||||||||||
Receive a return equal to Barclays Live Cattle Roll Yield Excess Return Index and pay the product of (i) 0.47% of the Notional Value multiplied by (ii) days in the period divided by 365 | Barclays Bank PLC | 25,300 | April-2013 | 3,420,818 | 111,439 | |||||||||||||
Receive a return equal to Dow Jones-UBS Gold Index and pay the product of (i) 0.15% of the Notional Value multiplied by (ii) days in the period divided by 365 | Merrill Lynch | 82,100 | December-2012 | 16,307,703 | 417,028 | |||||||||||||
Receive a return equal to S&P GSCI Sugar Excess Return A141 Strategy and pay the product of (i) 0.37% of the Notional Value multiplied by (ii) days in the period divided by 365 | Goldman Sachs | 18,350 | April-2013 | 7,607,966 | 274,988 | |||||||||||||
Total Swap Agreements | $ | 49,549,708 | $ | 1,541,720 | ||||||||||||||
Risk Allocation
By asset class, based on Net Assets
as of June 30, 2012
as of June 30, 2012
% of | ||||||||
Net Assets | ||||||||
Asset Class | Risk Allocation | as of 06/30/12* | ||||||
Equity | 36.36 | % | 30.76 | % | ||||
Fixed Income | 33.69 | 81.84 | ||||||
Commodities | 29.95 | 27.21 | ||||||
* | 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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $44,246,398) | $ | 44,248,339 | ||
Investments in affiliated money market funds, at value and cost | 412,681,147 | |||
Total investments, at value (Cost $456,927,545) | 456,929,486 | |||
Foreign currencies, at value (Cost $110,094) | 108,643 | |||
Receivable for: | ||||
Deposits with brokers for open futures contracts | 37,646,000 | |||
Variation margin | 4,024,913 | |||
Fund shares sold | 5,648,514 | |||
Dividends | 33,001 | |||
Unrealized appreciation on swap agreements | 1,541,720 | |||
Investment for trustee deferred compensation and retirement plans | 12,990 | |||
Total assets | 505,945,267 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 4,479,914 | |||
Fund shares reacquired | 70,064 | |||
Dividends | 8,737 | |||
Accrued fees to affiliates | 637,320 | |||
Accrued other operating expenses | 43,064 | |||
Trustee deferred compensation and retirement plans | 20,898 | |||
Total liabilities | 5,259,997 | |||
Net assets applicable to shares outstanding | $ | 500,685,270 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 468,931,613 | ||
Undistributed net investment income | 6,762,217 | |||
Undistributed net realized gain | 16,665,026 | |||
Unrealized appreciation | 8,326,414 | |||
$ | 500,685,270 | |||
Net Assets: | ||||
Series I | $ | 7,397,108 | ||
Series II | $ | 493,288,162 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 609,503 | |||
Series II | 40,849,775 | |||
Series I: | ||||
Net asset value per share | $ | 12.14 | ||
Series II: | ||||
Net asset value per share | $ | 12.08 | ||
Consolidated Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 39,257 | ||
Dividends from affiliated money market funds | 69,853 | |||
Interest | 62,271 | |||
Total investment income | 171,381 | |||
Expenses: | ||||
Advisory fees | 1,803,587 | |||
Administrative services fees | 512,367 | |||
Custodian fees | 10,652 | |||
Distribution fees — Series II | 471,899 | |||
Transfer agent fees | 2,671 | |||
Trustees’ and officers’ fees and benefits | 16,796 | |||
Other | 46,214 | |||
Total expenses | 2,864,186 | |||
Less: Fees waived | (1,160,734 | ) | ||
Net expenses | 1,703,452 | |||
Net investment income (loss) | (1,532,071 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 198,243 | |||
Foreign currencies | (118,004 | ) | ||
Futures contracts | 7,458,336 | |||
Swap agreements | 4,967,071 | |||
12,505,646 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 429,515 | |||
Foreign currencies | (3,404 | ) | ||
Futures contracts | 3,838,139 | |||
Swap agreements | 83,182 | |||
4,347,432 | ||||
Net realized and unrealized gain | 16,853,078 | |||
Net increase in net assets resulting from operations | $ | 15,321,007 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (1,532,071 | ) | $ | (779,193 | ) | ||
Net realized gain | 12,505,646 | 17,004,994 | ||||||
Change in net unrealized appreciation (depreciation) | 4,347,432 | (3,110,200 | ) | |||||
Net increase in net assets resulting from operations | 15,321,007 | 13,115,601 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (136 | ) | |||||
Series II | — | (301,687 | ) | |||||
Total distributions from net investment income | — | (301,823 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | — | (3,582 | ) | |||||
Series II | — | (14,743,368 | ) | |||||
Total distributions from net realized gains | — | (14,746,950 | ) | |||||
Share transactions–net: | ||||||||
Series I | 2,653,641 | 4,242,158 | ||||||
Series II | 220,341,154 | 185,367,819 | ||||||
Net increase in net assets resulting from share transactions | 222,994,795 | 189,609,977 | ||||||
Net increase in net assets | 238,315,802 | 187,676,805 | ||||||
Net assets: | ||||||||
Beginning of period | 262,369,468 | 74,692,663 | ||||||
End of period (includes undistributed net investment income (loss) of $6,762,217 and $8,294,288, respectively) | $ | 500,685,270 | $ | 262,369,468 | ||||
Notes to Consolidated Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return 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, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco V.I. Balanced-Risk Allocation Fund
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Consolidated Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Consolidated Statement of Operations and the Consolidated Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Consolidated Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Consolidated Statement of Operations and Consolidated Statement of Changes in Net Assets, or the net 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. |
Invesco V.I. Balanced-Risk Allocation Fund
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. | |
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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Consolidated Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Consolidated Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Consolidated Statement of Assets and Liabilities. | |
J. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. | |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of |
Invesco V.I. Balanced-Risk Allocation Fund
the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Consolidated Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Consolidated Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
K. | Other Risks — The Fund will seek to gain exposure to commodity markets primarily through an investment in the Subsidiary and through investments in exchange traded funds. The Subsidiary, unlike the Fund, may invest without limitation in commodities, commodity-linked derivatives and other securities, such as exchange traded notes, that may provide leverage and non-leveraged exposure to commodity markets. The Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. | |
The Fund is non-diversified and may invest in securities of fewer issuers than if it were diversified. Thus, the value of the Fund’s shares may vary more widely and the Fund may be subject to greater market and credit risk than if the Fund invested more broadly. | ||
L. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .950% | ||
Next $250 million | 0 | .925% | ||
Next $500 million | 0 | .90% | ||
Next $1.5 billion | 0 | .875% | ||
Next $2.5 billion | 0 | .85% | ||
Next $2.5 billion | 0 | .825% | ||
Next $2.5 billion | 0 | .80% | ||
Over $10 billion | 0 | .775% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Subsidiary has entered into a separate contract with the Adviser whereby the Adviser provides investment advisory and other services to the Subsidiary. In consideration of these services, the Subsidiary pays an advisory fee to the Adviser based on the annual rate of the Subsidiary’s average daily net assets as set forth in the table above.
Invesco V.I. Balanced-Risk Allocation Fund
Effective May 15, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.72% and Series II shares to 0.97% of average daily net assets. Prior to May 15, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses to 0.62% and 0.87% of average net assets for Series I and Series II shares, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee 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. Acquired Fund Fees and Expenses are not fees and expenses incurred by the Fund directly but are fees and expenses, including management fees, of the investment companies in which the Fund invests. As a result, total annual fund operating expenses may exceed the expense limits above. You incur these expenses indirectly through the valuation of the Fund’s investment in those investment companies. The impact of the Acquired Fund Fees and Expenses are included in the total return of the Fund. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $1,160,734.
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, 2012, Invesco was paid $49,046 for accounting and fund administrative services and reimbursed $463,321 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, 2012, expenses incurred under the agreement are shown in the Consolidated Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Consolidated Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Balanced-Risk Allocation Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Money Market Fund | $ | 412,681,147 | $ | — | $ | — | $ | 412,681,147 | ||||||||
U.S. Treasury Securities | — | 44,248,339 | — | 44,248,339 | ||||||||||||
$ | 412,681,147 | $ | 44,248,339 | $ | — | $ | 456,929,486 | |||||||||
Futures* | 6,784,483 | — | — | 6,784,483 | ||||||||||||
Swap Agreements* | — | 1,541,720 | — | 1,541,720 | ||||||||||||
Total Investments | $ | 419,465,630 | $ | 45,790,059 | $ | — | $ | 465,255,689 | ||||||||
* | Unrealized appreciation |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Commodity risk | ||||||||
Futures contracts(a) | $ | 2,468,363 | $ | (143,039 | ) | |||
Swap agreements(b) | 1,685,531 | (143,811 | ) | |||||
Interest rate risk | ||||||||
Futures contracts(a) | 1,433,342 | (1,999,551 | ) | |||||
Market risk | ||||||||
Futures contracts(a) | 5,025,368 | — | ||||||
$ | 10,612,604 | $ | (2,286,401 | ) | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Consolidated Statement of Assets & Liabilities. | |
(b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under the Unrealized appreciation on swap agreements. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Swap | ||||||||
Futures* | Agreements* | |||||||
Realized Gain (Loss) | ||||||||
Commodity risk | $ | (8,594,381 | ) | $ | 4,967,071 | |||
Interest rate risk | 18,063,170 | — | ||||||
Market risk | (2,010,453 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Commodity risk | 3,503,106 | 83,182 | ||||||
Interest rate risk | (3,677,949 | ) | — | |||||
Market risk | 4,012,982 | — | ||||||
Total | $ | 11,296,475 | $ | 5,050,253 | ||||
* | The average notional value of futures and swap agreements outstanding during the period was $562,705,281 and $54,557,994, respectively. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2011.
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, 2012 was $387,147 and $12,072,623, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | — | ||
Aggregate unrealized (depreciation) of investment securities | (197,925 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (197,925 | ) | |
Cost of investments for tax purposes is $457,127,411. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 307,764 | $ | 3,687,925 | 258,487 | $ | 2,871,722 | ||||||||||
Series II | 19,743,171 | 236,520,149 | 12,355,475 | 139,883,748 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series II | — | — | 1,398,239 | 15,045,054 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 174,025 | 1,876,288 | ||||||||||||
Series II | — | — | 6,178,799 | 66,483,294 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (86,137 | ) | (1,034,284 | ) | (45,961 | ) | (505,852 | ) | ||||||||
Series II | (1,347,148 | ) | (16,178,995 | ) | (3,202,503 | ) | (36,044,277 | ) | ||||||||
Net increase in share activity | 18,617,650 | $ | 222,994,795 | 17,116,561 | $ | 189,609,977 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 88% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Global Multi-Asset Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders the Target Fund on April 1, 2011. The acquisition was accomplished by a taxable exchange of 6,352,824 shares of the Fund for 5,245,904 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target Fund’s net assets at that date of $68,359,582 was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $73,364,971 and $141,724,553 immediately after the acquisition. | |
The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
Net investment income (loss) | $ | (432,423 | ) | |
Net realized/unrealized gains | 14,147,497 | |||
Change in net assets resulting from operations | $ | 13,715,074 | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 10—Consolidated Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 11.53 | $ | (0.03 | ) | $ | 0.64 | $ | 0.61 | $ | — | $ | — | $ | — | $ | 12.14 | 5.29 | % | $ | 7,397 | 0.64 | %(d)(e) | 1.25 | %(e) | (0.55 | )%(e) | 70 | % | |||||||||||||||||||||||||||
Year ended 12/31/11 | 13.09 | (0.04 | ) | 1.28 | 1.24 | (0.10 | ) | (2.70 | ) | (2.80 | ) | 11.53 | 11.00 | 4,472 | 0.71 | 1.22 | (0.32 | ) | 142 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(f) | 12.00 | 0.10 | 1.15 | 1.25 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.09 | 10.57 | 17 | 0.89 | 1.29 | 0.88 | (g) | 444 | ||||||||||||||||||||||||||||||||||||||
Eleven months ended 12/31/09(h) | 10.00 | 0.04 | 2.67 | 2.71 | (0.25 | ) | (0.46 | ) | (0.71 | ) | 12.00 | 28.21 | 120 | 0.90 | (i)(j) | 1.46 | (i)(j) | 0.41 | (g)(i)(j) | 87 | ||||||||||||||||||||||||||||||||||||
Series II* | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 11.49 | (0.05 | ) | 0.64 | 0.59 | — | — | — | 12.08 | 5.13 | 493,288 | 0.89 | (e) | 1.50 | (e) | (0.80 | )(e) | 70 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 13.05 | (0.07 | ) | 1.27 | 1.20 | (0.06 | ) | (2.70 | ) | (2.76 | ) | 11.49 | 10.61 | 257,898 | 0.96 | 1.47 | (0.57 | ) | 142 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(f) | 12.10 | 0.07 | 1.04 | 1.11 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.05 | 9.32 | 75 | 1.14 | 1.54 | 0.59 | (g) | 444 | ||||||||||||||||||||||||||||||||||||||
Eleven months ended 12/31/09(h) | 10.00 | 0.05 | 2.74 | 2.79 | (0.23 | ) | (0.46 | ) | (0.69 | ) | 12.10 | 27.86 | (k) | 110 | 1.15 | (i)(j) | 1.71 | (g)(i)(j) | 0.44 | (g)(i)(j) | 87 | |||||||||||||||||||||||||||||||||||
* | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Predecessor Fund”). On such date, holders of the Acquired Fund’s Series I and Series II shares received Series I and Series II shares, respectively of the Fund. |
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | In addition to the fees and expenses which the Fund bears directly; the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Because the underlying funds have varied expenses and fee levels and the Fund may own different proportions at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. Estimated underlying fund expenses are not expenses that are incurred directly by your Fund. They are expenses that are incurred directly by the underlying funds and are deducted from the value of the funds your Fund invests in. The effect of the estimated underlying fund expenses that you bear indirectly is included in your Fund’s total return. Estimated acquired fund fees from underlying funds was 0.02%. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $5,757 and $379,593 for Series I and Series II shares, respectively. | |
(f) | On June 1, 2010, the Class I and Class II shares of the Predecessor Fund were reorganized into Series I and Series II shares, respectively of the Fund. | |
(g) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed for the year ended December 31, 2010 and the period ending December 31, 2009 was 0.48% and (0.15)% for Series I shares and 0.19% and (0.12)% for Series II shares, respectively. | |
(h) | Commencement date of January 23, 2009. | |
(i) | Does not include expenses of the Underlying Funds in which the Fund invests. The annualized weighted average ratio of expense to average net assets for the Underlying Funds was 0.08% at December 31, 2009. | |
(j) | Annualized. | |
(k) | These returns include combined 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,052.90 | $ | 3.28 | $ | 1,021.67 | $ | 3.23 | 0.64 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,051.30 | 4.55 | 1,020.42 | 4.48 | 0.89 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective May 15, 2012, the 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 0.72% and 0.97% 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 0.72% and 0.97% 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 $3.69 and $4.96 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 $3.63 and $4.89 for Series I and Series II shares, respectively. |
Invesco V.I. Balanced-Risk Allocation Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Balanced-Risk Allocation Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 two calendar years was available. The Board compared the Fund’s performance during the past two calendar years to the performance of all global flexible portfolio funds underlying variable insurance products, regardless of
Invesco V.I. Balanced-Risk Allocation Fund
asset size or primary channel of distribution. The Board noted that the Fund’s performance of Series I shares of the Fund was in the first quintile of its performance universe for the one and two year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the Fund’s contractual advisory fee rate was above the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective rate was above the fee rate for one mutual fund and above the fee rate of one off-shore fund with comparable investment strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least June 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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.
Invesco V.I. Balanced-Risk Allocation Fund
Invesco V.I. Core Equity Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VICEQ-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.54 | % | ||
Series II Shares | 5.43 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 1000 Index▼ (Style-Specific Index) | 9.38 | |||
Lipper VUF Large-Cap Core Funds Index▼ (Peer Group Index) | 8.31 | |||
Source(s): ▼Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.89% and 1.14%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (5/2/94) | 7.30 | % | ||||||
10 | Years | 5.45 | ||||||
5 | Years | 0.53 | ||||||
1 | Year | -1.83 | ||||||
Series II Shares | ||||||||
Inception (10/24/01) | 4.71 | % | ||||||
10 | Years | 5.20 | ||||||
5 | Years | 0.28 | ||||||
1 | Year | -2.07 |
Invesco V.I. Core Equity Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–89.54% | ||||||||
Air Freight & Logistics–0.99% | ||||||||
United Parcel Service, Inc.–Class B | 142,078 | $ | 11,190,063 | |||||
Application Software–2.00% | ||||||||
Adobe Systems Inc.(b) | 699,717 | 22,649,839 | ||||||
Asset Management & Custody Banks–1.87% | ||||||||
Northern Trust Corp. | 460,721 | 21,202,380 | ||||||
Biotechnology–1.07% | ||||||||
Gilead Sciences, Inc.(b) | 237,816 | 12,195,204 | ||||||
Brewers–0.58% | ||||||||
Molson Coors Brewing Co.–Class B | 158,711 | 6,603,965 | ||||||
Communications Equipment–5.68% | ||||||||
Cisco Systems, Inc. | 1,929,267 | 33,125,514 | ||||||
QUALCOMM, Inc. | 432,587 | 24,086,444 | ||||||
Telefonaktiebolaget LM Ericsson–ADR (Sweden) | 795,021 | 7,258,542 | ||||||
64,470,500 | ||||||||
Computer Hardware–0.50% | ||||||||
Hewlett-Packard Co. | 279,842 | 5,627,623 | ||||||
Construction Materials–0.52% | ||||||||
CRH PLC (Ireland) | 305,495 | 5,868,947 | ||||||
Consumer Finance–3.25% | ||||||||
American Express Co. | 633,849 | 36,896,350 | ||||||
Department Stores–1.87% | ||||||||
Macy’s, Inc. | 618,562 | 21,247,605 | ||||||
Diversified Banks–1.79% | ||||||||
U.S. Bancorp | 631,543 | 20,310,423 | ||||||
Drug Retail–1.02% | ||||||||
CVS Caremark Corp. | 247,203 | 11,551,796 | ||||||
Electric Utilities–2.40% | ||||||||
Edison International | 207,747 | 9,597,912 | ||||||
Exelon Corp. | 468,086 | 17,609,395 | ||||||
27,207,307 | ||||||||
Electrical Components & Equipment–0.75% | ||||||||
Emerson Electric Co. | 182,689 | 8,509,654 | ||||||
Electronic Manufacturing Services–1.48% | ||||||||
TE Connectivity Ltd. | 527,911 | 16,845,640 | ||||||
Environmental & Facilities Services–1.34% | ||||||||
Waste Management, Inc. | 455,011 | 15,197,367 | ||||||
Food Retail–1.73% | ||||||||
Kroger Co. (The) | 848,531 | 19,677,434 | ||||||
Gold–1.84% | ||||||||
Agnico-Eagle Mines Ltd. (Canada) | 273,433 | 11,063,099 | ||||||
Kinross Gold Corp. (Canada) | 773,909 | 6,307,359 | ||||||
Newcrest Mining Ltd. (Australia) | 150,843 | 3,512,095 | ||||||
20,882,553 | ||||||||
Health Care Equipment–2.28% | ||||||||
Baxter International Inc. | 149,682 | 7,955,598 | ||||||
Covidien PLC (Ireland) | 219,399 | 11,737,847 | ||||||
Medtronic, Inc. | 161,023 | 6,236,421 | ||||||
25,929,866 | ||||||||
Heavy Electrical Equipment–1.44% | ||||||||
ABB Ltd. (Switzerland)(b) | 999,805 | 16,307,591 | ||||||
Home Improvement Retail–0.95% | ||||||||
Lowe’s Cos., Inc. | 378,230 | 10,756,861 | ||||||
Household Products–2.31% | ||||||||
Procter & Gamble Co. (The) | 427,526 | 26,185,967 | ||||||
Hypermarkets & Super Centers–1.16% | ||||||||
Wal-Mart Stores, Inc. | 188,953 | 13,173,803 | ||||||
Industrial Conglomerates–3.73% | ||||||||
3M Co. | 97,970 | 8,778,112 | ||||||
General Electric Co. | 1,313,735 | 27,378,238 | ||||||
Koninklijke Philips Electronics N.V. (Netherlands) | 310,629 | 6,137,887 | ||||||
42,294,237 | ||||||||
Industrial Gases–1.47% | ||||||||
Air Products & Chemicals, Inc. | 206,853 | 16,699,243 | ||||||
Industrial Machinery–1.33% | ||||||||
Illinois Tool Works Inc. | 178,076 | 9,418,440 | ||||||
Ingersoll-Rand PLC (Ireland) | 133,300 | 5,622,594 | ||||||
15,041,034 | ||||||||
Insurance Brokers–1.40% | ||||||||
Marsh & McLennan Cos., Inc. | 493,879 | 15,917,720 | ||||||
Integrated Oil & Gas–0.54% | ||||||||
Hess Corp. | 139,882 | 6,077,873 | ||||||
Internet Retail–0.56% | ||||||||
Amazon.com, Inc.(b) | 27,640 | 6,311,594 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Internet Software & Services–2.04% | ||||||||
eBay Inc.(b) | 552,026 | $ | 23,190,612 | |||||
Investment Banking & Brokerage–0.41% | ||||||||
Charles Schwab Corp. (The) | 361,353 | 4,672,294 | ||||||
Life Sciences Tools & Services–2.07% | ||||||||
Agilent Technologies, Inc. | 426,567 | 16,738,489 | ||||||
Thermo Fisher Scientific, Inc. | 130,605 | 6,779,706 | ||||||
23,518,195 | ||||||||
Managed Health Care–1.03% | ||||||||
WellPoint, Inc. | 182,833 | 11,662,917 | ||||||
Movies & Entertainment–0.63% | ||||||||
Walt Disney Co. (The) | 147,155 | 7,137,018 | ||||||
Office Services & Supplies–0.61% | ||||||||
Pitney Bowes Inc. | 463,000 | 6,931,110 | ||||||
Oil & Gas Equipment & Services–4.60% | ||||||||
Baker Hughes Inc. | 318,573 | 13,093,350 | ||||||
Cameron International Corp.(b) | 94,887 | 4,052,624 | ||||||
National Oilwell Varco Inc. | 123,090 | 7,931,920 | ||||||
Schlumberger Ltd. | 125,856 | 8,169,313 | ||||||
Weatherford International Ltd.(b) | 1,497,775 | 18,916,898 | ||||||
52,164,105 | ||||||||
Oil & Gas Exploration & Production–1.59% | ||||||||
Devon Energy Corp. | 131,957 | 7,652,186 | ||||||
Talisman Energy Inc. (Canada) | 903,013 | 10,350,812 | ||||||
18,002,998 | ||||||||
Packaged Foods & Meats–1.81% | ||||||||
Danone S.A. (France) | 202,978 | 12,581,463 | ||||||
Kellogg Co. | 160,317 | 7,908,438 | ||||||
20,489,901 | ||||||||
Pharmaceuticals–9.79% | ||||||||
Merck & Co., Inc. | 530,424 | 22,145,202 | ||||||
Pfizer Inc. | 920,803 | 21,178,469 | ||||||
Roche Holding AG (Switzerland) | 140,272 | 24,200,772 | ||||||
Sanofi–ADR (France) | 606,866 | 22,927,397 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 522,528 | 20,608,504 | ||||||
111,060,344 | ||||||||
Property & Casualty Insurance–6.33% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 254 | 31,736,030 | ||||||
Progressive Corp. (The) | 1,924,873 | 40,095,105 | ||||||
71,831,135 | ||||||||
Railroads–0.80% | ||||||||
Union Pacific Corp. | 75,663 | 9,027,353 | ||||||
Semiconductors–2.25% | ||||||||
Analog Devices, Inc. | 239,305 | 9,014,619 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,047,823 | 16,560,909 | ||||||
25,575,528 | ||||||||
Systems Software–5.91% | ||||||||
Microsoft Corp. | 1,283,715 | 39,268,842 | ||||||
Symantec Corp.(b) | 1,898,290 | 27,734,017 | ||||||
67,002,859 | ||||||||
Wireless Telecommunication Services–1.82% | ||||||||
Vodafone Group PLC (United Kingdom) | 7,359,060 | 20,675,607 | ||||||
Total Common Stocks & Other Equity Interests (Cost $875,486,625) | 1,015,772,415 | |||||||
Money Market Funds–10.33% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 58,609,085 | 58,609,085 | ||||||
Premier Portfolio–Institutional Class(c) | 58,609,085 | 58,609,085 | ||||||
Total Money Market Funds (Cost $117,218,170) | 117,218,170 | |||||||
TOTAL INVESTMENTS–99.87% (Cost $992,704,795) | 1,132,990,585 | |||||||
OTHER ASSETS LESS LIABILITIES–0.13% | 1,529,930 | |||||||
NET ASSETS–100.00% | $ | 1,134,520,515 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipts |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
By sector, based on Net Assets
as of June 30, 2012
Information Technology | 19.9 | % | ||
Health Care | 16.2 | |||
Financials | 15.1 | |||
Industrials | 11.0 | |||
Consumer Staples | 8.6 | |||
Energy | 6.7 | |||
Consumer Discretionary | 4.0 | |||
Materials | 3.8 | |||
Utilities | 2.4 | |||
Telecommunication Services | 1.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 10.5 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $875,486,625) | $ | 1,015,772,415 | ||
Investments in affiliated money market funds, at value and cost | 117,218,170 | |||
Total investments, at value (Cost $992,704,795) | 1,132,990,585 | |||
Foreign currencies, at value (Cost $575,381) | 558,396 | |||
Receivable for: | ||||
Investments sold | 523,943 | |||
Fund shares sold | 153,504 | |||
Dividends | 2,580,540 | |||
Investment for trustee deferred compensation and retirement plans | 151,665 | |||
Other assets | 191 | |||
Total assets | 1,136,958,824 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 1,147,582 | |||
Accrued fees to affiliates | 747,090 | |||
Accrued other operating expenses | 79,879 | |||
Trustee deferred compensation and retirement plans | 463,758 | |||
Total liabilities | 2,438,309 | |||
Net assets applicable to shares outstanding | $ | 1,134,520,515 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,115,980,150 | ||
Undistributed net investment income | 18,723,279 | |||
Undistributed net realized gain (loss) | (140,450,477 | ) | ||
Unrealized appreciation | 140,267,563 | |||
$ | 1,134,520,515 | |||
Net Assets: | ||||
Series I | $ | 1,052,907,153 | ||
Series II | $ | 81,613,362 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 37,334,226 | |||
Series II | 2,920,338 | |||
Series I: | ||||
Net asset value per share | $ | 28.20 | ||
Series II: | ||||
Net asset value per share | $ | 27.95 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $549,416) | $ | 13,336,536 | ||
Dividends from affiliated money market funds | 88,781 | |||
Total investment income | 13,425,317 | |||
Expenses: | ||||
Advisory fees | 3,599,229 | |||
Administrative services fees | 1,544,868 | |||
Custodian fees | 59,213 | |||
Distribution fees — Series II | 86,635 | |||
Transfer agent fees | 48,795 | |||
Trustees’ and officers’ fees and benefits | 34,050 | |||
Other | 69,975 | |||
Total expenses | 5,442,765 | |||
Less: Fees waived | (97,656 | ) | ||
Net expenses | 5,345,109 | |||
Net investment income | 8,080,208 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $277,326) | 5,760,336 | |||
Foreign currencies | 5,633 | |||
5,765,969 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 50,094,180 | |||
Foreign currencies | 24,224 | |||
50,118,404 | ||||
Net realized and unrealized gain | 55,884,373 | |||
Net increase in net assets resulting from operations | $ | 63,964,581 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 8,080,208 | $ | 10,888,692 | ||||
Net realized gain | 5,765,969 | 71,682,330 | ||||||
Change in net unrealized appreciation (depreciation) | 50,118,404 | (73,048,607 | ) | |||||
Net increase in net assets resulting from operations | 63,964,581 | 9,522,415 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (11,312,225 | ) | |||||
Series II | — | (326,851 | ) | |||||
Total distributions from net investment income | — | (11,639,076 | ) | |||||
Share transactions–net: | ||||||||
Series I | (99,932,509 | ) | (252,642,206 | ) | ||||
Series II | 28,185,125 | 16,379,401 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (71,747,384 | ) | (236,262,805 | ) | ||||
Net increase (decrease) in net assets | (7,782,803 | ) | (238,379,466 | ) | ||||
Net assets: | ||||||||
Beginning of period | 1,142,303,318 | 1,380,682,784 | ||||||
End of period (includes undistributed net investment income of $18,723,279 and $10,643,071, respectively) | $ | 1,134,520,515 | $ | 1,142,303,318 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Core Equity Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. 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 $250 million | 0 | .65% | ||
Over $250 million | 0 | .60% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $97,656.
Invesco V.I. Core Equity Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2012, Invesco was paid $140,561 for accounting and fund administrative services and reimbursed $1,404,307 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,039,726,777 | $ | 93,263,808 | $ | — | $ | 1,132,990,585 | ||||||||
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, 2012, the Fund engaged in securities sales of $1,347,012, which resulted in net realized gains of $277,326.
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. Core Equity 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 139,791,694 | $ | — | $ | 139,791,694 | ||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 1, 2006, the date of the reorganization of AIM V.I. Core Stock Fund and AIM V.I. Premier Equity Fund, into the Fund, are realized on securities held in each Fund at such date, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 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, 2012 was $165,233,690 and $206,717,375, 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 | $ | 173,699,493 | ||
Aggregate unrealized (depreciation) of investment securities | (39,838,455 | ) | ||
Net unrealized appreciation of investment securities | $ | 133,861,038 | ||
Cost of investments for tax purposes is $999,129,547. |
Invesco V.I. Core Equity Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 390,546 | $ | 11,121,664 | 1,178,162 | $ | 31,786,139 | ||||||||||
Series II | 1,207,304 | 34,269,010 | 1,071,003 | 28,747,134 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 459,287 | 11,312,225 | ||||||||||||
Series II | — | — | 13,368 | 326,851 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,888,939 | ) | (111,054,173 | ) | (10,589,116 | ) | (295,740,570 | ) | ||||||||
Series II | (215,485 | ) | (6,083,885 | ) | (461,543 | ) | (12,694,584 | ) | ||||||||
Net increase (decrease) in share activity | (2,506,574 | ) | $ | (71,747,384 | ) | (8,328,839 | ) | $ | (236,262,805 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 52% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 26.72 | $ | 0.20 | $ | 1.28 | $ | 1.48 | $ | — | $ | 28.20 | 5.54 | % | $ | 1,052,907 | 0.89 | %(d) | 0.91 | %(d) | 1.39 | %(d) | 16 | % | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.22 | 0.42 | 1.80 | 2.22 | (0.33 | ) | 29.11 | 8.12 | 2,298,007 | 0.87 | 0.88 | 1.44 | 45 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 26.51 | 0.16 | 1.28 | 1.44 | — | 27.95 | 5.43 | 81,613 | 1.14 | (d) | 1.16 | (d) | 1.14 | (d) | 16 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.02 | 0.34 | 1.80 | 2.14 | (0.28 | ) | 28.88 | 7.88 | 34,772 | 1.12 | 1.13 | 1.19 | 45 | |||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s) of $1,115,813 and $69,689 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,055.40 | $ | 4.55 | $ | 1,020.44 | $ | 4.47 | 0.89 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,054.30 | 5.82 | 1,019.19 | 5.72 | 1.14 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Core Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 second quintile of the performance universe for the one year period, the fourth quintile for the three year period and the
Invesco V.I. Core Equity Fund
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 above the performance of the Index for the one and five year periods and below the performance of the Index for the three year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was the same the as the effective fee rate of the other mutual fund managed by Invesco Advisers with comparable investment strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Core Equity Fund
Invesco V.I. Diversified Dividend Fund
Effective April 30, 2012, Invesco V.I. Dividend Growth Fund was renamed
Invesco V.I. Diversified Dividend Fund.
Semiannual Report to Shareholders § June 30, 2012
Invesco V.I. Diversified Dividend Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIDDI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.19 | % | ||
Series II Shares | 9.00 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 1000 Value Index▼ (Style-Specific Index)* | 8.68 | |||
Russell 1000 Index▼ (Former Style-Specific Index)* | 9.38 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index)* | 7.53 | |||
Lipper VUF Large-Cap Core Funds Index▼ (Former Peer Group Index)* | 8.31 | |||
Source(s): ▼Lipper Inc. | ||
* | During the reporting period, the Fund has elected to use the Russell 1000 Value Index and the Lipper VUF Large-Cap Value Funds Index as its style-specific and peer group indexes, respectively, rather than the Russell 1000 Index and the Lipper VUF Large-Cap Core Funds Index because the new indexes more closely reflect the performance of the types of securities in which the Fund invests. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment Dividend Growth Portfolio, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Dividend Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Dividend Growth Fund (renamed Invesco V.I. Diversified Dividend Fund on April 30, 2012). Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future
results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.67% and 0.92%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (3/1/90) | 6.89 | % | ||||||
10 | Years | 3.23 | ||||||
5 | Years | -1.33 | ||||||
1 | Year | 2.68 | ||||||
Series II Shares | ||||||||
Inception (6/5/00) | 2.31 | % | ||||||
10 | Years | 2.96 | ||||||
5 | Years | -1.58 | ||||||
1 | Year | 2.35 |
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Dividend Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Diversified Dividend Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.75% | ||||||||
Aerospace & Defense–4.62% | ||||||||
General Dynamics Corp. | 107,843 | $ | 7,113,324 | |||||
Raytheon Co. | 141,043 | 7,981,624 | ||||||
15,094,948 | ||||||||
Apparel Retail–0.63% | ||||||||
TJX Cos., Inc. (The) | 48,027 | 2,061,799 | ||||||
Apparel, Accessories & Luxury Goods–0.25% | ||||||||
Columbia Sportswear Co. | 15,438 | 827,786 | ||||||
Asset Management & Custody Banks–1.71% | ||||||||
Federated Investors, Inc.–Class B | 256,252 | 5,599,106 | ||||||
Auto Parts & Equipment–1.36% | ||||||||
Johnson Controls, Inc. | 160,285 | 4,441,497 | ||||||
Brewers–2.64% | ||||||||
Heineken N.V. (Netherlands) | 165,634 | 8,645,703 | ||||||
Building Products–2.61% | ||||||||
Masco Corp. | 615,988 | 8,543,754 | ||||||
Casinos & Gaming–0.84% | ||||||||
International Game Technology | 173,564 | 2,733,633 | ||||||
Consumer Finance–1.29% | ||||||||
Capital One Financial Corp. | 77,127 | 4,215,762 | ||||||
Data Processing & Outsourced Services–1.96% | ||||||||
Automatic Data Processing, Inc. | 114,870 | 6,393,664 | ||||||
Distillers & Vintners–0.31% | ||||||||
Treasury Wine Estates (Australia) | 227,094 | 1,016,556 | ||||||
Drug Retail–1.45% | ||||||||
Walgreen Co. | 159,746 | 4,725,287 | ||||||
Electric Utilities–6.51% | ||||||||
American Electric Power Co., Inc. | 160,642 | 6,409,616 | ||||||
Entergy Corp. | 60,532 | 4,109,517 | ||||||
Exelon Corp. | 176,995 | 6,658,552 | ||||||
Pepco Holdings, Inc. | 126,014 | 2,466,094 | ||||||
PPL Corp. | 59,504 | 1,654,806 | ||||||
21,298,585 | ||||||||
Food Distributors–2.02% | ||||||||
Sysco Corp. | 221,242 | 6,595,224 | ||||||
Gas Utilities–1.30% | ||||||||
AGL Resources Inc. | 110,059 | 4,264,786 | ||||||
General Merchandise Stores–2.14% | ||||||||
Target Corp. | 120,412 | 7,006,774 | ||||||
Health Care Equipment–3.02% | ||||||||
Medtronic, Inc. | 97,359 | 3,770,714 | ||||||
Stryker Corp. | 110,677 | 6,098,303 | ||||||
9,869,017 | ||||||||
Hotels, Resorts & Cruise Lines–2.12% | ||||||||
Accor S.A. (France) | 64,045 | 2,015,004 | ||||||
Marriott International Inc.–Class A | 125,754 | 4,929,557 | ||||||
6,944,561 | ||||||||
Household Products–5.03% | ||||||||
Kimberly-Clark Corp. | 114,309 | 9,575,665 | ||||||
Procter & Gamble Co. (The) | 111,962 | 6,857,673 | ||||||
16,433,338 | ||||||||
Housewares & Specialties–0.99% | ||||||||
Newell Rubbermaid Inc. | 179,181 | 3,250,343 | ||||||
Industrial Machinery–2.83% | ||||||||
Illinois Tool Works Inc. | 29,378 | 1,553,802 | ||||||
Pentair, Inc. | 176,338 | 6,750,219 | ||||||
Snap-on Inc. | 15,368 | 956,658 | ||||||
9,260,679 | ||||||||
Integrated Oil & Gas–1.50% | ||||||||
Exxon Mobil Corp. | 22,841 | 1,954,504 | ||||||
Total S.A. (France) | 65,308 | 2,945,200 | ||||||
4,899,704 | ||||||||
Integrated Telecommunication Services–1.10% | ||||||||
AT&T Inc. | 100,510 | 3,584,187 | ||||||
Investment Banking & Brokerage–1.63% | ||||||||
Charles Schwab Corp. (The) | 413,183 | 5,342,456 | ||||||
Life & Health Insurance–2.89% | ||||||||
Lincoln National Corp. | 113,259 | 2,476,975 | ||||||
Prudential Financial, Inc. | 48,856 | 2,366,096 | ||||||
StanCorp Financial Group, Inc. | 123,532 | 4,590,449 | ||||||
9,433,520 | ||||||||
Motorcycle Manufacturers–0.73% | ||||||||
Harley-Davidson, Inc. | 52,170 | 2,385,734 | ||||||
Movies & Entertainment–1.47% | ||||||||
Time Warner Inc. | 124,989 | 4,812,077 | ||||||
Multi-Utilities–3.67% | ||||||||
Dominion Resources, Inc. | 68,440 | 3,695,760 | ||||||
PG&E Corp. | 54,832 | 2,482,245 | ||||||
Sempra Energy | 84,645 | 5,830,347 | ||||||
12,008,352 | ||||||||
Office Services & Supplies–0.72% | ||||||||
Avery Dennison Corp. | 86,062 | 2,352,935 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Shares | Value | |||||||
Packaged Foods & Meats–7.71% | ||||||||
Campbell Soup Co. | 195,291 | $ | 6,518,814 | |||||
General Mills, Inc. | 257,100 | 9,908,634 | ||||||
Kraft Foods Inc.–Class A | 172,723 | 6,670,562 | ||||||
Mead Johnson Nutrition Co. | 26,282 | 2,115,964 | ||||||
25,213,974 | ||||||||
Paper Products–1.41% | ||||||||
International Paper Co. | 159,069 | 4,598,685 | ||||||
Personal Products–0.80% | ||||||||
L’Oreal S.A. (France) | 22,338 | 2,614,883 | ||||||
Pharmaceuticals–4.82% | ||||||||
Bristol-Myers Squibb Co. | 59,618 | 2,143,267 | ||||||
Eli Lilly & Co. | 139,074 | 5,967,665 | ||||||
Johnson & Johnson | 98,623 | 6,662,970 | ||||||
Novartis AG (Switzerland) | 17,761 | 990,134 | ||||||
15,764,036 | ||||||||
Property & Casualty Insurance–1.48% | ||||||||
Travelers Cos., Inc. (The) | 75,684 | 4,831,667 | ||||||
Regional Banks–8.50% | ||||||||
Cullen/Frost Bankers, Inc. | 19,995 | 1,149,512 | ||||||
Fifth Third Bancorp | 432,494 | 5,795,420 | ||||||
M&T Bank Corp. | 49,836 | 4,114,958 | ||||||
SunTrust Banks, Inc. | 413,481 | 10,018,645 | ||||||
Zions Bancorp. | 345,750 | 6,714,465 | ||||||
27,793,000 | ||||||||
Restaurants–0.86% | ||||||||
Brinker International, Inc. | 87,778 | 2,797,485 | ||||||
Semiconductors–1.30% | ||||||||
Linear Technology Corp. | 10,056 | 315,054 | ||||||
Texas Instruments Inc. | 137,495 | 3,944,732 | ||||||
4,259,786 | ||||||||
Soft Drinks–1.18% | ||||||||
Coca-Cola Co. (The) | 49,454 | 3,866,808 | ||||||
Specialized REIT’s–1.96% | ||||||||
Weyerhaeuser Co. | 286,800 | 6,412,848 | ||||||
Systems Software–1.50% | ||||||||
Microsoft Corp. | 160,732 | 4,916,792 | ||||||
Thrifts & Mortgage Finance–1.62% | ||||||||
Capitol Federal Financial Inc. | 2,685 | 31,898 | ||||||
Hudson City Bancorp, Inc. | 824,296 | 5,250,765 | ||||||
5,282,663 | ||||||||
Tobacco–2.27% | ||||||||
Altria Group, Inc. | 156,566 | 5,409,355 | ||||||
Philip Morris International Inc. | 22,992 | 2,006,282 | ||||||
7,415,637 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $289,518,697) | 309,810,031 | |||||||
Money Market Funds–5.23% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 8,551,489 | 8,551,489 | ||||||
Premier Portfolio–Institutional Class(b) | 8,551,489 | 8,551,489 | ||||||
Total Money Market Funds (Cost $17,102,978) | 17,102,978 | |||||||
TOTAL INVESTMENTS–99.98% (Cost $306,621,675) | 326,913,009 | |||||||
OTHER ASSETS LESS LIABILITIES–0.02% | 80,612 | |||||||
NET ASSETS–100.00% | $ | 326,993,621 | ||||||
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, 2012
Consumer Staples | 23.4 | % | ||
Financials | 19.1 | |||
Utilities | 11.5 | |||
Consumer Discretionary | 11.4 | |||
Industrials | 10.8 | |||
Health Care | 7.8 | |||
Information Technology | 4.8 | |||
Materials | 3.4 | |||
Energy | 1.5 | |||
Telecommunication Services | 1.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.2 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $289,518,697) | $ | 309,810,031 | ||
Investments in affiliated money market funds, at value and cost | 17,102,978 | |||
Total investments, at value (Cost $306,621,675) | 326,913,009 | |||
Receivable for: | ||||
Investments sold | 65,334 | |||
Fund shares sold | 85,146 | |||
Dividends | 541,591 | |||
Investment for trustee deferred compensation and retirement plans | 26,230 | |||
Total assets | 327,631,310 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 129,916 | |||
Fund shares reacquired | 172,802 | |||
Foreign currency contracts outstanding | 29,113 | |||
Accrued fees to affiliates | 202,176 | |||
Accrued other operating expenses | 37,957 | |||
Trustee deferred compensation and retirement plans | 65,725 | |||
Total liabilities | 637,689 | |||
Net assets applicable to shares outstanding | $ | 326,993,621 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 392,519,465 | ||
Undistributed net investment income | 10,012,419 | |||
Undistributed net realized gain (loss) | (95,799,759 | ) | ||
Unrealized appreciation | 20,261,496 | |||
$ | 326,993,621 | |||
Net Assets: | ||||
Series I | $ | 258,547,783 | ||
Series II | $ | 68,445,838 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 16,866,648 | |||
Series II | 4,483,497 | |||
Series I: | ||||
Net asset value per share | $ | 15.33 | ||
Series II: | ||||
Net asset value per share | $ | 15.27 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $58,362) | $ | 4,507,703 | ||
Dividends from affiliated money market funds | 12,067 | |||
Total investment income | 4,519,770 | |||
Expenses: | ||||
Advisory fees | 845,295 | |||
Administrative services fees | 288,160 | |||
Distribution fees — Series II | 85,673 | |||
Transfer agent fees | 5,235 | |||
Trustees’ and officers’ fees and benefits | 17,747 | |||
Other | (118,154 | ) | ||
Total expenses | 1,123,956 | |||
Less: Fees waived | (12,480 | ) | ||
Net expenses | 1,111,476 | |||
Net investment income | 3,408,294 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $5,372) | 7,210,881 | |||
Foreign currencies | 133,820 | |||
Foreign currency contracts | 342,161 | |||
7,686,862 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 17,827,884 | |||
Foreign currencies | (73,181 | ) | ||
Foreign currency contracts | (29,113 | ) | ||
17,725,590 | ||||
Net realized and unrealized gain | 25,412,452 | |||
Net increase in net assets resulting from operations | $ | 28,820,746 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,408,294 | $ | 6,566,239 | ||||
Net realized gain | 7,686,862 | 23,687,705 | ||||||
Change in net unrealized appreciation (depreciation) | 17,725,590 | (41,148,119 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 28,820,746 | (10,894,175 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,886,405 | ) | |||||
Series II | — | (680,347 | ) | |||||
Total distributions from net investment income | — | (3,566,752 | ) | |||||
Share transactions–net: | ||||||||
Series I | (18,119,589 | ) | 85,833,062 | |||||
Series II | (5,982,262 | ) | 19,990,978 | |||||
Net increase (decrease) in net assets resulting from share transactions | (24,101,851 | ) | 105,824,040 | |||||
Net increase in net assets | 4,718,895 | 91,363,113 | ||||||
Net assets: | ||||||||
Beginning of period | 322,274,726 | 230,911,613 | ||||||
End of period (includes undistributed net investment income of $10,012,419 and $6,604,125, respectively) | $ | 326,993,621 | $ | 322,274,726 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Dividend Fund, formerly Invesco V.I. Dividend Growth Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Diversified Dividend Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Diversified Dividend 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 $250 million | 0 | .545% | ||
Next $750 million | 0 | .42% | ||
Next $1 billion | 0 | .395% | ||
Over $2 billion | 0 | .37% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.77% and Series II shares to 1.02% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.67% and Series II shares to 0.92% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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 April 30, 2013. The Adviser did not waive and/or reimburse expenses during the period under this expense limitation.
Invesco V.I. Diversified Dividend Fund
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $12,480.
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, 2012, Invesco was paid $42,753 for accounting and fund administrative services and reimbursed $245,407 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 308,685,529 | $ | 18,227,480 | $ | — | $ | 326,913,009 | ||||||||
Foreign Currency Contracts* | — | (29,113 | ) | — | (29,113 | ) | ||||||||||
Total Investments | $ | 308,685,529 | $ | 18,198,367 | $ | — | $ | 326,883,896 | ||||||||
* | Unrealized appreciation (depreciation). |
Invesco V.I. Diversified Dividend Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | — | $ | (29,113 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 342,161 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (29,113 | ) | |
Total | $ | 313,048 | ||
* | The average notional value of foreign currency contracts outstanding during the period was $5,059,614. |
Open Foreign Currency Contracts | ||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||
Settlement | Contract to | Notional | Appreciation | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||
07/16/12 | State Street Bank | EUR | 2,943,000 | USD | 3,707,768 | $ | 3,722,323 | $ | (14,555 | ) | ||||||||||||
07/16/12 | Bank of New York | EUR | 2,943,452 | USD | 3,708,337 | 3,722,895 | (14,558 | ) | ||||||||||||||
Total open foreign currency contracts | $ | (29,113 | ) | |||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
USD | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2012, the Fund engaged in securities sales of $19,770, which resulted in net realized gains of $5,372.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Diversified Dividend 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 7,857,133 | $ | — | $ | 7,857,133 | ||||||
December 31, 2016 | 42,750,790 | — | 42,750,790 | |||||||||
December 31, 2017 | 51,860,588 | — | 51,860,588 | |||||||||
$ | 102,468,511 | $ | — | $ | 102,468,511 | |||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 2, 2011, the date of reorganization of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund into the Fund are realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $11,805,356 and $31,908,666, 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 | $ | 33,750,958 | ||
Aggregate unrealized (depreciation) of investment securities | (14,477,732 | ) | ||
Net unrealized appreciation of investment securities | $ | 19,273,226 | ||
Cost of investments for tax purposes is $307,639,783. |
Invesco V.I. Diversified Dividend Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 670,773 | $ | 10,025,649 | 600,069 | $ | 8,253,518 | ||||||||||
Series II | 236,854 | 3,536,490 | 243,810 | 3,335,950 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 195,688 | 2,886,405 | ||||||||||||
Series II | — | — | 46,157 | 680,347 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 8,156,451 | 124,094,426 | ||||||||||||
Series II | — | — | 2,222,881 | 33,755,005 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,879,943 | ) | (28,145,238 | ) | (3,485,401 | ) | (49,401,287 | ) | ||||||||
Series II | (639,591 | ) | (9,518,752 | ) | (1,246,445 | ) | (17,780,324 | ) | ||||||||
Net increase (decrease) in share activity | (1,611,907 | ) | $ | (24,101,851 | ) | 6,733,210 | $ | 105,824,040 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 76% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all of the net assets of Invesco V.I. Financial Services Fund and Invesco V.I. Select Dimensions Dividend Growth Fund (the “Target Funds”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Funds on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 10,379,332 shares of the Fund for 11,415,021 shares outstanding of Invesco V.I. Financial Services Fund and 5,444,017 shares outstanding of Invesco V.I. Select Dimensions Dividend Growth Fund as of the close of business on April 29, 2011. Series I and Series II shares of the Target Funds were exchanged for Series I and Series II shares of the Fund based on the relative net asset value of each Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Financial Services Fund’s net assets at that date of $67,820,291, including $7,630,530 of unrealized appreciation and Invesco V.I. Select Dimensions Dividend Growth Fund’s net assets at that date of $90,029,140, including $12,545,232 of unrealized appreciation were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $235,469,889 and $393,319,320 immediately after the acquisition. |
The pro forma results of operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 6,976,767 | ||
Net realized/unrealized gains (losses) | (6,722,411 | ) | ||
Change in net assets resulting from operations | $ | 254,356 | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of each Target Fund that has been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. Diversified Dividend Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 14.04 | $ | 0.16 | $ | 1.13 | $ | 1.29 | $ | — | $ | 15.33 | 9.19 | % | $ | 258,548 | 0.62 | %(d) | 0.63 | %(d) | 2.13 | %(d) | 4 | % | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.53 | 0.22 | 0.48 | 0.70 | (0.22 | ) | 17.01 | 4.22 | 368,737 | 0.58 | 0.58 | 1.27 | 48 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 14.00 | 0.14 | 1.13 | 1.27 | — | 15.27 | 9.07 | 68,446 | 0.87 | (d) | 0.88 | (d) | 1.88 | (d) | 4 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.51 | 0.17 | 0.48 | 0.65 | (0.18 | ) | 16.98 | 3.90 | 116,271 | 0.83 | 0.83 | 1.02 | 48 | |||||||||||||||||||||||||||||||||||
(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 $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) of $261,413 and $68,915 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,091.90 | $ | 3.22 | $ | 1,021.78 | $ | 3.12 | 0.62 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,090.00 | 4.52 | 1,020.54 | 4.37 | 0.87 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 0.77% and 1.02% of average daily net assets, respectively. The annualized expense ratios have been restated to reflect the new expense limitation agreement and to eliminate a current period adjustment of a prior period expense. If the agreement had been in effect and the expenses had not occurred the annualized expense ratios for the most recent fiscal half year would have been 0.69% and 0.94% 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 $3.59 and $4.88 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 $3.47 and $4.72 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Dividend Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
(Formerly Known as Invesco V.I. Dividend Growth Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Diversified Dividend Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco V.I. Diversified Dividend Fund
to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one year period, the fourth quintile for the three year period, and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one and five year periods and below the performance of the Index for the three year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund with comparable with investment strategies.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Diversified Dividend Fund
Invesco V.I. Diversified Income Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIDIN-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.49 | % | ||
Series II Shares | 5.36 | |||
Barclays U.S. Aggregate Index▼ (Broad Market Index) | 2.37 | |||
Barclays U.S. Credit Index▼ (Style-Specific Index) | 4.55 | |||
Lipper VUF Corporate Debt BBB-Rated Funds Index▼ (Peer Group Index) | 3.55 | |||
Source(s): ▼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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||
Inception (5/5/93) | 4.41 | % | ||
10 Years | 4.25 | |||
5 Years | 3.15 | |||
1 Year | 9.14 | |||
Series II Shares | ||||
Inception (3/14/02) | 3.89 | % | ||
10 Years | 3.99 | |||
5 Years | 2.89 | |||
1 Year | 8.85 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.75% and 1.00%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.46% and 1.71%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2013. See current prospectus for more information. |
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–79.29% | ||||||||
Advertising–0.11% | ||||||||
National CineMedia LLC, Sr. Sec. Gtd. Notes, 6.00%, 04/15/22(b) | $ | 1,000 | $ | 1,021 | ||||
Omnicom Group Inc., Sr. Unsec. Global Notes, 3.63%, 05/01/22 | 25,000 | 25,646 | ||||||
26,667 | ||||||||
Aerospace & Defense–0.19% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | 15,000 | 16,837 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 03/15/18 | 5,000 | 5,250 | ||||||
7.13%, 03/15/21 | 10,000 | 10,425 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 10,000 | 10,900 | ||||||
43,412 | ||||||||
Agricultural Products–0.16% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 30,000 | 36,675 | ||||||
Airlines–2.39% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16 (Acquired 03/15/11-10/14/11; Cost $9,181)(b)(c) | 10,000 | 9,500 | ||||||
American Airlines Pass Through Trust, Series 2009-1A, Sec. Pass Through Ctfs., 10.38%, 07/02/19 | 40,417 | 43,777 | ||||||
Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 79,078 | 77,892 | ||||||
Continental Airlines Pass Through Trust, Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | 3,926 | 3,995 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 106,170 | 122,361 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 11,730 | 12,870 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.00%, 01/12/19 | 14,393 | 14,474 | ||||||
Delta Air Lines Pass Through Trust, Series 2009-1, Class A, Sr. Sec. Pass Through Ctfs., 7.75%, 12/17/19 | 36,958 | 42,109 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 5,000 | 5,037 | ||||||
Series 2010-2, Class A, Sec. Pass Through Ctfs., 4.95%, 05/23/19 | 54,973 | 58,375 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | 5,000 | 5,075 | ||||||
Series 2011-1, Class A, Sec. Pass Through Ctfs., 5.30%, 04/15/19 | 13,964 | 14,915 | ||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Trust, 4.75%, 05/07/20 | 60,000 | 60,975 | ||||||
Delta Air Lines, Inc., Sec. Notes, 12.25%, 03/15/15(b) | 5,000 | 5,462 | ||||||
Sr. Sec. Notes, 9.50%, 09/15/14(b) | 8,000 | 8,500 | ||||||
UAL Pass Through Trust, Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 36,402 | 41,862 | ||||||
Series 2009-2A, Sec. Gtd. Global Pass Through Ctfs., 9.75%, 01/15/17 | 25,047 | 28,553 | ||||||
US Airways Pass Through Trust, Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | 1,000 | 1,037 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 1,000 | 1,027 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 1,000 | 1,013 | ||||||
558,809 | ||||||||
Alternative Carriers–0.15% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 10,000 | 10,750 | ||||||
Level 3 Communications Inc., Sr. Unsec. Global Notes, 11.88%, 02/01/19 | 10,000 | 11,150 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 07/15/20 | 2,000 | 2,110 | ||||||
9.38%, 04/01/19 | 10,000 | 10,850 | ||||||
34,860 | ||||||||
Aluminum–0.04% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | 10,000 | 9,906 | ||||||
Apparel Retail–0.16% | ||||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 7,000 | 7,595 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 7,000 | 7,302 | ||||||
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | 10,000 | 10,375 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 06/15/19 | 10,000 | 11,750 | ||||||
37,022 | ||||||||
Apparel, Accessories & Luxury Goods–0.19% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | 14,000 | 14,840 | ||||||
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | 13,000 | 12,545 | ||||||
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, Accessories & Luxury Goods–(continued) | ||||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 7.63%, 05/15/20 | $ | 15,000 | $ | 16,050 | ||||
Sr. Unsec. Notes, 6.88%, 05/01/22(b) | 2,000 | 2,060 | ||||||
45,495 | ||||||||
Asset Management & Custody Banks–0.13% | ||||||||
DJO Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/18 | 2,000 | 1,680 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | 10,000 | 7,300 | ||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 9,000 | 9,225 | ||||||
Samson Investment Co., Sr. Unsec. Notes, 9.75%, 02/15/20(b) | 13,000 | 12,967 | ||||||
31,172 | ||||||||
Auto Parts & Equipment–0.21% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 12,000 | 12,600 | ||||||
American Axle & Manufacturing, Inc., Sr. Unsec. Gtd. Notes, 7.75%, 11/15/19 | 10,000 | 10,650 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 6.75%, 02/15/21 | 9,000 | 9,765 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 12/15/20 | 15,000 | 16,275 | ||||||
49,290 | ||||||||
Automobile Manufacturers–0.03% | ||||||||
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | 5,000 | 6,281 | ||||||
Automotive Retail–0.48% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 100,000 | 113,270 | ||||||
Biotechnology–0.02% | ||||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 5,000 | 5,288 | ||||||
Brewers–0.98% | ||||||||
Anheuser-Busch InBev Worldwide Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 2.88%, 02/15/16 | 125,000 | 132,463 | ||||||
4.13%, 01/15/15 | 90,000 | 97,099 | ||||||
229,562 | ||||||||
Broadcasting–1.83% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 20,000 | 21,000 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 7.63%, 03/15/20(b) | 7,000 | 6,869 | ||||||
COX Communications Inc., Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 95,000 | 104,753 | ||||||
Sr. Unsec. Notes, 8.38%, 03/01/39(b) | 75,000 | 106,590 | ||||||
9.38%, 01/15/19(b) | 140,000 | 187,849 | ||||||
427,061 | ||||||||
Building Products–0.48% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 15,000 | 13,162 | ||||||
Associated Materials LLC/AMH New Finance Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 11/01/17 | 8,000 | 7,180 | ||||||
Building Materials Corp. of America, Sr. Unsec. Gtd. Notes, 7.50%, 03/15/20(b) | 23,000 | 24,610 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 15,000 | 15,347 | ||||||
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | 3,000 | 3,116 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 21,000 | 20,685 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Unsec. Gtd. Notes, 10.00%, 06/01/20(b) | 7,000 | 7,333 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, 7.88%, 03/30/20(b) | 10,000 | 10,425 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 10,000 | 10,575 | ||||||
112,433 | ||||||||
Cable & Satellite–1.90% | ||||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 2.40%, 03/15/17 | 25,000 | 25,210 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Notes, 4.63%, 07/15/17(b) | 10,000 | 10,125 | ||||||
5.88%, 07/15/22(b) | 3,000 | 3,052 | ||||||
NBC Universal Media LLC, Sr. Unsec. Global Notes, 2.10%, 04/01/14 | 35,000 | 35,662 | ||||||
5.95%, 04/01/41 | 35,000 | 41,485 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18 | 55,000 | 67,252 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 38,000 | 42,828 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | 200,000 | 219,745 | ||||||
445,359 | ||||||||
Casinos & Gaming–0.56% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | 10,000 | 10,750 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Gtd. Global Notes, 12.75%, 04/15/18 | 10,000 | 7,850 | ||||||
Chester Downs & Marina LLC, Sr. Sec. Gtd. Sub. Notes, 9.25%, 02/01/20(b) | 2,000 | 2,080 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sec. Gtd. PIK Global Notes, 10.75%, 01/15/17 | $ | 7,695 | $ | 8,484 | ||||
Sr. Sec. Gtd. Global Notes, 7.63%, 01/15/16 | 7,000 | 7,368 | ||||||
Sr. Sec. Gtd. Notes, 7.63%, 01/15/16(b) | 2,000 | 2,100 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 25,000 | 25,750 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 13,000 | 13,292 | ||||||
8.63%, 02/01/19(b) | 2,000 | 2,150 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 10,000 | 10,300 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.53%, 02/01/14(b)(d) | 7,000 | 6,703 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 13,000 | 13,227 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Sec. Gtd. First Mortgage Notes, 5.38%, 03/15/22(b) | 20,000 | 19,950 | ||||||
130,004 | ||||||||
Catalog Retail–0.24% | ||||||||
QVC Inc., Sr. Sec. Gtd. Notes, 5.13%, 07/02/22(b) | 55,000 | 56,581 | ||||||
Coal & Consumable Fuels–0.11% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | 15,000 | 15,900 | ||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 7,000 | 7,009 | ||||||
Westmoreland Coal Co./Westmoreland Partners, Sr. Sec. Gtd. Notes, 10.75%, 02/01/18(b) | 2,000 | 1,785 | ||||||
24,694 | ||||||||
Communications Equipment–0.10% | ||||||||
Avaya Inc., Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 10,000 | 9,275 | ||||||
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | 4,000 | 3,320 | ||||||
Hughes Satellite Systems Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 5,000 | 5,450 | ||||||
ViaSat Inc., Sr. Unsec. Gtd. Notes, 6.88%, 06/15/20(b) | 6,000 | 6,090 | ||||||
24,135 | ||||||||
Computer & Electronics Retail–0.05% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 10,000 | 10,675 | ||||||
Computer Storage & Peripherals–0.05% | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Notes, 7.75%, 12/15/18 | 10,000 | 11,125 | ||||||
Construction & Engineering–0.36% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 12,000 | 12,360 | ||||||
MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17 | 3,000 | 3,116 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 25,000 | 25,156 | ||||||
URS Corp., Sr. Unsec. Notes, 5.00%, 04/01/22(b) | 45,000 | 44,623 | ||||||
85,255 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.92% | ||||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 8,000 | 8,200 | ||||||
Deere & Co., Sr. Unsec. Notes, 3.90%, 06/09/42 | 125,000 | 125,349 | ||||||
John Deere Capital Corp., Sr. Unsec. Global Notes, 0.88%, 04/17/15 | 30,000 | 30,027 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 5,000 | 5,425 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 20,000 | 19,300 | ||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | 25,000 | 25,875 | ||||||
214,176 | ||||||||
Construction Materials–0.44% | ||||||||
CRH America Inc. (Ireland), Sr. Unsec. Gtd. Notes, 4.13%, 01/15/16 | 80,000 | 81,175 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | 8,000 | 7,880 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 13,000 | 13,130 | ||||||
102,185 | ||||||||
Consumer Finance–0.83% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 4.63%, 06/26/15 | 2,000 | 2,005 | ||||||
8.00%, 03/15/20 | 2,000 | 2,325 | ||||||
8.00%, 11/01/31 | 40,000 | 46,800 | ||||||
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 25,000 | 27,687 | ||||||
SLM Corp., Sr. Unsec. Medium-Term Global Notes, 6.25%, 01/25/16 | 75,000 | 78,570 | ||||||
Series A, Sr. Unsec. Medium-Term Notes, 5.00%, 10/01/13 | 35,000 | 35,712 | ||||||
193,099 | ||||||||
Data Processing & Outsourced Services–0.10% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Notes, 7.25%, 06/01/21(b) | 17,000 | 17,510 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/18 | 5,000 | 5,375 | ||||||
22,885 | ||||||||
Department Stores–0.06% | ||||||||
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | 15,000 | 13,538 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Distillers & Vintners–0.06% | ||||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | $ | 10,000 | $ | 11,350 | ||||
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | 2,000 | 2,150 | ||||||
13,500 | ||||||||
Diversified Banks–5.97% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.88%, 04/25/14 | 25,000 | 24,476 | ||||||
ABN Amro Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.00%, 01/31/14(b) | 200,000 | 199,146 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 70,000 | 71,665 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Unsec. Notes, 4.13%, 08/12/20(b) | 235,000 | 248,241 | ||||||
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/22 | 45,000 | 46,902 | ||||||
ING Bank N.V. (Netherlands), Unsec. Sub. Notes, 5.13%, 05/01/15(b) | 100,000 | 101,395 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/21/16 | 55,000 | 57,821 | ||||||
Sr. Unsec. Gtd. Medium-Term Notes, 4.38%, 01/12/15(b) | 145,000 | 148,586 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 130,000 | 134,019 | ||||||
Series 2, Sr. Unsec. Gtd. Global Notes, 3.40%, 08/23/13 | 75,000 | 75,623 | ||||||
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(b) | 130,000 | 128,800 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 5.50%, 11/18/14(b) | 55,000 | 58,820 | ||||||
VTB Bank OJSC Via VTB Capital S.A. (Russia), Sr. Unsec. Loan Participation Notes, 6.55%, 10/13/20(b) | 100,000 | 101,075 | ||||||
1,396,569 | ||||||||
Diversified Capital Markets–0.47% | ||||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Global Notes, 5.75%, 04/25/18 | 100,000 | 111,121 | ||||||
Diversified Metals & Mining–1.06% | ||||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Global Notes, 3.55%, 03/01/22 | 25,000 | 24,594 | ||||||
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | 8,000 | 5,124 | ||||||
Rio Tinto Finance USA PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 3.50%, 03/22/22 | 80,000 | 84,276 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | 55,000 | 57,909 | ||||||
6.88%, 11/10/39 | 65,000 | 77,207 | ||||||
249,110 | ||||||||
Diversified REIT’s–0.80% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(b) | 180,000 | 186,185 | ||||||
Drug Retail–0.80% | ||||||||
CVS Pass-Through Trust, Sr. Sec. Mortgage Pass Through Ctfs., 5.77%, 01/10/33(b) | 169,167 | 187,645 | ||||||
Electric Utilities–2.44% | ||||||||
DCP Midstream LLC, Sr. Unsec. Notes, 9.70%, 12/01/13(b) | 100,000 | 109,743 | ||||||
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, 3.88%, 10/07/14(b) | 100,000 | 98,628 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(c) | 25,000 | 20,875 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 180,000 | 213,209 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 45,000 | 62,747 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 55,000 | 65,535 | ||||||
570,737 | ||||||||
Electrical Components & Equipment–0.14% | ||||||||
Belden Inc., Sr. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 25,000 | 27,500 | ||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 5,000 | 5,350 | ||||||
32,850 | ||||||||
Electronic Components–0.25% | ||||||||
Corning Inc., Sr. Unsec. Notes, 4.75%, 03/15/42 | 55,000 | 57,899 | ||||||
Electronic Manufacturing Services–0.04% | ||||||||
Sanmina-SCI Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 10,000 | 9,750 | ||||||
Environmental & Facilities Services–0.30% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 65,000 | 69,153 | ||||||
Forest Products–0.03% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | 10,000 | 8,150 | ||||||
Gas Utilities–0.13% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | 10,000 | 9,175 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 20,000 | 20,800 | ||||||
29,975 | ||||||||
General Merchandise Stores–0.11% | ||||||||
Dollar General Corp., Sr. Unsec. Gtd. Global Notes, 4.13%, 07/15/17 | 25,000 | 25,500 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Gold–2.56% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, 2.90%, 05/30/16 | $ | 65,000 | $ | 68,301 | ||||
3.85%, 04/01/22 | 35,000 | 36,401 | ||||||
5.25%, 04/01/42 | 35,000 | 37,548 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(b) | 200,000 | 192,845 | ||||||
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 5.13%, 09/01/21 | 75,000 | 75,988 | ||||||
6.88%, 09/01/41 | 75,000 | 78,438 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 110,000 | 108,906 | ||||||
598,427 | ||||||||
Health Care Distributors–0.54% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Gtd. Notes, 3.50%, 11/15/21 | 120,000 | 125,525 | ||||||
Health Care Facilities–0.37% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 5,000 | 5,238 | ||||||
7.88%, 02/15/20 | 13,000 | 14,495 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Notes, 7.25%, 10/01/18 | 15,000 | 15,975 | ||||||
7.75%, 09/15/22 | 15,000 | 16,087 | ||||||
Radiation Therapy Services Inc., Sr. Sec. Gtd. Notes, 8.88%, 01/15/17(b) | 7,000 | 6,755 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, 9.25%, 02/01/15 | 25,000 | 27,937 | ||||||
86,487 | ||||||||
Health Care Services–1.96% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | 125,000 | 136,905 | ||||||
Sr. Unsec. Gtd. Notes, 2.65%, 02/15/17(b) | 100,000 | 101,787 | ||||||
Highmark, Inc., Sr. Unsec. Notes, 4.75%, 05/15/21(b) | 40,000 | 41,651 | ||||||
6.13%, 05/15/41(b) | 35,000 | 38,008 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | 35,000 | 36,017 | ||||||
Orlando Lutheran Towers Inc., Bonds, 8.00%, 07/01/12(d)(e) | 100,000 | 100,204 | ||||||
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | 5,000 | 4,913 | ||||||
459,485 | ||||||||
Health Care Technology–0.07% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | 15,000 | 15,938 | ||||||
Homebuilding–0.23% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/15 | 7,000 | 6,720 | ||||||
8.13%, 06/15/16 | 15,000 | 14,400 | ||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Global Notes, 10.63%, 10/15/16 | 14,000 | 13,405 | ||||||
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 10,000 | 10,725 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 2,000 | 2,030 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Notes, 7.00%, 04/01/22(b) | 3,000 | 3,105 | ||||||
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | 3,000 | 3,187 | ||||||
53,572 | ||||||||
Hotels, Resorts & Cruise Lines–0.80% | ||||||||
Choice Hotels International Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | 2,000 | 2,102 | ||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 7.50%, 10/15/27 | 10,000 | 10,125 | ||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 5.63%, 03/01/21 | 100,000 | 109,960 | ||||||
7.38%, 03/01/20 | 55,000 | 65,637 | ||||||
187,824 | ||||||||
Household Products–0.11% | ||||||||
Central Garden & Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 25,000 | 25,250 | ||||||
Housewares & Specialties–0.02% | ||||||||
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | 5,000 | 5,338 | ||||||
Independent Power Producers & Energy Traders–0.22% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 8.00%, 10/15/17 | 25,000 | 28,562 | ||||||
Calpine Corp., Sr. Sec. Gtd. Notes, 7.25%, 10/15/17(b) | 8,000 | 8,640 | ||||||
7.50%, 02/15/21(b) | 9,000 | 9,810 | ||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | 5,000 | 5,188 | ||||||
52,200 | ||||||||
Industrial Conglomerates–1.17% | ||||||||
Hutchison Whampoa International Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, 7.63%, 04/09/19(b) | 130,000 | 161,185 | ||||||
Unsec. Gtd. Notes, 5.75%, 09/11/19(b) | 100,000 | 113,420 | ||||||
274,605 | ||||||||
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–0.37% | ||||||||
Actuant Corp., Sr. Unsec. Gtd. Notes, 5.63%, 06/15/22(b) | $ | 3,000 | $ | 3,090 | ||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 3,000 | 3,244 | ||||||
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | 2,000 | 2,010 | ||||||
Pentair, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 05/15/21 | 70,000 | 77,267 | ||||||
85,611 | ||||||||
Insurance Brokers–0.57% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 9.25%, 04/15/19 | 100,000 | 132,797 | ||||||
Integrated Telecommunication Services–2.31% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, 1.70%, 06/01/17 | 60,000 | 60,388 | ||||||
2.50%, 08/15/15 | 60,000 | 62,657 | ||||||
2.95%, 05/15/16 | 35,000 | 37,176 | ||||||
4.45%, 05/15/21 | 15,000 | 17,092 | ||||||
CenturyLink Inc., Series T, Sr. Unsec. Global Notes, 5.80%, 03/15/22 | 30,000 | 30,201 | ||||||
Series U, Sr. Unsec. Global Notes, 7.65%, 03/15/42 | 40,000 | 38,998 | ||||||
France Telecom S.A. (France), Sr. Unsec. Global Notes, 5.38%, 01/13/42 | 10,000 | 10,693 | ||||||
Integra Telecom Holdings Inc., Sr. Sec. Gtd. Notes, 10.75%, 04/15/16(b) | 5,000 | 4,887 | ||||||
Telefonica Emisiones S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Global Notes, 5.46%, 02/16/21 | 90,000 | 81,432 | ||||||
Telemar Norte Leste S.A. (Brazil), Sr. Unsec. Notes, 5.50%, 10/23/20(b) | 161,000 | 164,670 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, 4.75%, 11/01/41 | 30,000 | 33,010 | ||||||
541,204 | ||||||||
Internet Software & Services–0.07% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 8.13%, 03/01/18 | 15,000 | 16,688 | ||||||
Investment Banking & Brokerage–5.33% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 160,000 | 159,641 | ||||||
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(f) | 115,000 | 124,200 | ||||||
Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 3.63%, 02/07/16 | 30,000 | 30,053 | ||||||
3.70%, 08/01/15 | 45,000 | 45,448 | ||||||
5.13%, 01/15/15 | 50,000 | 52,274 | ||||||
5.25%, 07/27/21 | 55,000 | 55,882 | ||||||
5.75%, 01/24/22 | 100,000 | 105,327 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(b) | 105,000 | 104,580 | ||||||
7.30%, 08/01/14(b) | 110,000 | 116,573 | ||||||
Morgan Stanley, Sr. Unsec. Medium-Term Global Notes, 6.00%, 05/13/14 | 230,000 | 237,921 | ||||||
Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | 130,000 | 128,321 | ||||||
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | 35,000 | 36,511 | ||||||
Schwab Capital Trust I, Jr. Unsec. Gtd. Sub. Notes, 7.50%, 11/15/37 | 50,000 | 51,188 | ||||||
1,247,919 | ||||||||
Leisure Facilities–0.02% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 5,000 | 5,238 | ||||||
Leisure Products–0.05% | ||||||||
Toys R US-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | 12,000 | 11,850 | ||||||
Life & Health Insurance–2.15% | ||||||||
MetLife Inc., Sr. Unsec. Notes, 6.75%, 06/01/16 | 55,000 | 64,460 | ||||||
Nationwide Financial Services, Inc., Sr. Unsec. Notes, 5.38%, 03/25/21(b) | 165,000 | 174,501 | ||||||
Prudential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38 | 130,000 | 154,700 | ||||||
Series D, Sr. Unsec. Medium-Term Notes, 7.38%, 06/15/19 | 90,000 | 109,741 | ||||||
503,402 | ||||||||
Life Sciences Tools & Services–0.71% | ||||||||
Life Technologies Corp., Sr. Notes, 6.00%, 03/01/20 | 120,000 | 141,535 | ||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 25,000 | 24,500 | ||||||
166,035 | ||||||||
Managed Health Care–1.17% | ||||||||
Cigna Corp., Sr. Unsec. Global Notes, 5.38%, 02/15/42 | 40,000 | 42,579 | ||||||
Sr. Unsec. Notes, 4.50%, 03/15/21 | 45,000 | 48,878 | ||||||
5.88%, 03/15/41 | 35,000 | 39,765 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Notes, 3.88%, 10/15/20 | 60,000 | 65,112 | ||||||
5.95%, 02/15/41 | 60,000 | 76,592 | ||||||
272,926 | ||||||||
Movies & Entertainment–0.15% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 15,000 | 16,125 | ||||||
Carmike Cinemas Inc., Sec. Gtd. Global Notes, 7.38%, 05/15/19 | 3,000 | 3,124 | ||||||
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) | ||||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | $ | 15,000 | $ | 16,650 | ||||
35,899 | ||||||||
Multi-Line Insurance–1.32% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 227,010 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 10,000 | 10,600 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 15,000 | 15,300 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 06/01/21(b) | 50,000 | 50,480 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | 5,000 | 6,489 | ||||||
309,879 | ||||||||
Office REIT’s–0.07% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 15,000 | 16,538 | ||||||
Office Services & Supplies–0.10% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 25,000 | 24,281 | ||||||
Oil & Gas Drilling–0.68% | ||||||||
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | 2,000 | 2,100 | ||||||
Transocean Inc., Sr. Unsec. Gtd. Global Notes, 4.95%, 11/15/15 | 40,000 | 43,083 | ||||||
6.38%, 12/15/21 | 100,000 | 114,515 | ||||||
159,698 | ||||||||
Oil & Gas Equipment & Services–0.12% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 14,000 | 14,455 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 15,000 | 14,700 | ||||||
29,155 | ||||||||
Oil & Gas Exploration & Production–3.36% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Global Notes, 5.75%, 06/15/14 | 95,000 | 102,300 | ||||||
5.95%, 09/15/16 | 50,000 | 56,873 | ||||||
Sr. Unsec. Notes, 7.63%, 03/15/14 | 15,000 | 16,496 | ||||||
Apache Corp., Sr. Unsec. Global Notes, 4.75%, 04/15/43 | 60,000 | 66,877 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 09/01/21 | 13,000 | 13,812 | ||||||
Sr. Unsec. Gtd. Notes, 7.63%, 11/15/22(b) | 2,000 | 2,035 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 5,000 | 4,963 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 02/15/21 | 5,000 | 4,863 | ||||||
6.63%, 08/15/20 | 15,000 | 14,869 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | 5,000 | 5,212 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/19 | 15,000 | 16,744 | ||||||
EOG Resources, Inc., Sr. Unsec. Notes, 4.10%, 02/01/21 | 45,000 | 50,192 | ||||||
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 7,000 | 6,107 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 2,000 | 1,840 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Notes, 7.38%, 05/01/22(b) | 2,000 | 2,080 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 14,000 | 14,411 | ||||||
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/24 | 2,000 | 2,049 | ||||||
Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 13,000 | 13,829 | ||||||
Oasis Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 01/15/23 | 5,000 | 5,025 | ||||||
Pemex Project Funding Master Trust (Mexico), Sr. Unsec. Gtd. Global Bonds, 6.63%, 06/15/35 | 65,000 | 77,402 | ||||||
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, 3.50%, 02/06/17 | 70,000 | 71,933 | ||||||
5.75%, 01/20/20 | 40,000 | 43,932 | ||||||
6.88%, 01/20/40 | 45,000 | 53,407 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | 65,000 | 73,604 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 8.63%, 10/15/19 | 15,000 | 16,631 | ||||||
QEP Resources Inc., Sr. Unsec. Notes, 5.38%, 10/01/22 | 7,000 | 7,044 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 2,000 | 1,978 | ||||||
5.75%, 06/01/21 | 10,000 | 10,475 | ||||||
SM Energy Co., Sr. Unsec. Global Notes, 6.50%, 11/15/21 | 2,000 | 2,045 | ||||||
6.63%, 02/15/19 | 12,000 | 12,360 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | 10,000 | 10,637 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | 5,000 | 5,000 | ||||||
787,025 | ||||||||
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–0.73% | ||||||||
Crosstex Energy, L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 06/01/22(b) | $ | 6,000 | $ | 5,940 | ||||
Petronas Capital Ltd. (Malaysia), Unsec. Gtd. Unsub. Notes, 5.25%, 08/12/19(b) | 100,000 | 115,448 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 15,000 | 15,300 | ||||||
Valero Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 06/15/37 | 30,000 | 33,484 | ||||||
170,172 | ||||||||
Oil & Gas Storage & Transportation–1.47% | ||||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/15/18 | 6,000 | 6,450 | ||||||
Chesapeake Midstream Partners L.P./CHKM Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 04/15/21 | 9,000 | 8,775 | ||||||
6.13%, 07/15/22 | 2,000 | 1,970 | ||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 18,000 | 18,630 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 10,000 | 11,037 | ||||||
Energy Transfer Partners L.P., Sr. Unsec. Global Notes, 6.05%, 06/01/41 | 60,000 | 60,393 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 70,000 | 83,111 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 08/01/21 | 7,000 | 6,965 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.25%, 06/15/22 | 5,000 | 5,181 | ||||||
6.50%, 08/15/21 | 15,000 | 15,637 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 5,000 | 3,500 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 15,000 | 15,484 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | 5,000 | 5,294 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | 15,000 | 15,637 | ||||||
Sr. Unsec. Gtd. Notes, 6.38%, 08/01/22(b) | 2,000 | 2,003 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 5,000 | 5,088 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, 3.80%, 02/15/15 | 75,000 | 79,243 | ||||||
344,398 | ||||||||
Other Diversified Financial Services–9.28% | ||||||||
Bank of America Corp., Sr. Unsec. Global Notes, 3.70%, 09/01/15 | 25,000 | 25,401 | ||||||
4.50%, 04/01/15 | 240,000 | 248,110 | ||||||
6.50%, 08/01/16 | 130,000 | 143,401 | ||||||
Sr. Unsec. Notes, 5.88%, 01/05/21 | 35,000 | 38,366 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 150,000 | 160,999 | ||||||
6.13%, 05/15/18 | 65,000 | 72,679 | ||||||
Sr. Unsec. Notes, 6.38%, 08/12/14 | 255,000 | 272,422 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 5.80%, 10/15/12(b) | 105,000 | 106,459 | ||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 108,960 | ||||||
General Electric Capital Corp., Series A, Sr. Unsec. Medium-Term Global Notes, 6.88%, 01/10/39 | 60,000 | 77,165 | ||||||
Series A, Jr. Unsec. Sub. Global Notes, 7.13%(f) | 100,000 | 105,500 | ||||||
Sr. Unsec. Global Notes, 2.15%, 01/09/15 | 70,000 | 71,716 | ||||||
International Lease Finance Corp., Sr. Sec. Notes, 6.50%, 09/01/14(b) | 115,000 | 121,181 | ||||||
Sr. Unsec. Global Notes, 4.88%, 04/01/15 | 45,000 | 45,056 | ||||||
5.88%, 04/01/19 | 10,000 | 10,047 | ||||||
8.63%, 09/15/15 | 5,000 | 5,545 | ||||||
8.75%, 03/15/17 | 27,000 | 30,426 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 10,000 | 11,481 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, 3.45%, 03/01/16 | 25,000 | 25,927 | ||||||
4.75%, 05/01/13 | 15,000 | 15,458 | ||||||
5.60%, 07/15/41 | 95,000 | 106,061 | ||||||
JPMorgan Chase Capital XXVII, Series AA, Jr. Unsec. Gtd. Sub. Notes, 7.00%, 11/01/39 | 160,000 | 160,020 | ||||||
Merrill Lynch & Co., Inc., Series C, Sr. Unsec. Medium-Term Global Notes, 5.45%, 02/05/13 | 200,000 | 203,779 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 7.75%, 04/15/20(b) | 6,000 | 6,315 | ||||||
Twin Reefs Pass-Through Trust, Sec. Pass Through Ctfs., 1.39% (Acquired 12/07/04-04/03/06; Cost $130,332)(b)(c)(d)(f) | 130,000 | — | ||||||
2,172,474 | ||||||||
Packaged Foods & Meats–1.83% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | 5,000 | 5,212 | ||||||
JM Smucker Co. (The), Sr. Unsec. Gtd. Global Notes., 3.50%, 10/15/21 | 265,000 | 278,649 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, 2.63%, 05/08/13 | $ | 70,000 | $ | 71,175 | ||||
6.50%, 02/09/40 | 50,000 | 64,522 | ||||||
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | 9,000 | 9,517 | ||||||
429,075 | ||||||||
Paper Packaging–0.04% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 10,000 | 10,025 | ||||||
Paper Products–0.48% | ||||||||
Boise Cascade LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/15/14 | 17,000 | 17,138 | ||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | 5,000 | 5,288 | ||||||
International Paper Co., Sr. Unsec. Global Notes, 4.75%, 02/15/22 | 35,000 | 38,350 | ||||||
6.00%, 11/15/41 | 20,000 | 22,500 | ||||||
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 10,000 | 10,350 | ||||||
NewPage Corp., Sr. Sec. Gtd. Global Notes, 11.38%, 12/31/14 | 7,000 | 4,498 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 7.13%, 05/01/16 | 15,000 | 15,337 | ||||||
113,461 | ||||||||
Personal Products–0.05% | ||||||||
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | 10,000 | 11,100 | ||||||
Pharmaceuticals–0.02% | ||||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 5,000 | 5,325 | ||||||
Property & Casualty Insurance–1.39% | ||||||||
Berkshire Hathaway Finance Corp., Sr. Unsec. Gtd. Global Notes, 4.40%, 05/15/42 | 85,000 | 87,740 | ||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 160,000 | 189,147 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | 40,000 | 47,615 | ||||||
324,502 | ||||||||
Railroads–1.00% | ||||||||
Canadian Pacific Railway Co. (Canada), Sr. Unsec. Notes, 4.45%, 03/15/23 | 20,000 | 21,192 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | 55,000 | 62,569 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 4.00%, 02/01/21 | 135,000 | 149,438 | ||||||
233,199 | ||||||||
Real Estate Services–0.02% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 5,000 | 5,300 | ||||||
Regional Banks–1.95% | ||||||||
BB&T Capital Trust II, Jr. Unsec. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 5,000 | 5,010 | ||||||
CIT Group Inc., Sr. Unsec. Global Notes, 5.25%, 03/15/18 | 13,000 | 13,455 | ||||||
Sr. Sec. Gtd. Notes, 7.00%, 05/02/17(b) | 2,687 | 2,681 | ||||||
Sr. Unsec. Notes, 5.00%, 05/15/17 | 2,000 | 2,060 | ||||||
5.50%, 02/15/19(b) | 8,000 | 8,280 | ||||||
Fifth Third Bancorp, Sr. Unsec. Notes, 3.50%, 03/15/22 | 70,000 | 70,899 | ||||||
Unsec. Sub Notes, 4.50%, 06/01/18 | 55,000 | 58,264 | ||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/21 | 35,000 | 39,325 | ||||||
PNC Preferred Funding Trust III, Jr. Sub. Notes, 8.70%(b)(f) | 200,000 | 203,000 | ||||||
Regions Financial Corp., Unsec. Sub. Notes, 7.38%, 12/10/37 | 30,000 | 29,700 | ||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 5,000 | 5,287 | ||||||
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 20,000 | 18,400 | ||||||
456,361 | ||||||||
Research & Consulting Services–0.05% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 10,000 | 10,625 | ||||||
Semiconductor Equipment–0.16% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 6.63%, 06/01/21 | 2,000 | 2,012 | ||||||
7.38%, 05/01/18 | 15,000 | 15,675 | ||||||
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 20,000 | 20,550 | ||||||
38,237 | ||||||||
Semiconductors–0.12% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | 25,000 | 27,000 | ||||||
Sovereign Debt–1.45% | ||||||||
Mexico Government International Bond (Mexico), Sr. Unsec. Global Notes, 3.63%, 03/15/22 | 150,000 | 158,966 | ||||||
Series A, Sr. Unsec. Medium-Term Global Notes, 6.05%, 01/11/40 | 60,000 | 77,250 | ||||||
Russian Foreign Bond (Russia), Sr. Unsec. Euro Bonds, 3.63%, 04/29/15(b) | 100,000 | 103,697 | ||||||
339,913 | ||||||||
Specialized Finance–0.77% | ||||||||
Moody’s Corp., Sr. Unsec. Notes, 5.50%, 09/01/20 | 110,000 | 119,662 | ||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 2.63%, 09/16/12 | 60,000 | 60,250 | ||||||
179,912 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Specialized REIT’s–2.49% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | $ | 90,000 | $ | 95,567 | ||||
Entertainment Properties Trust, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | 245,000 | 269,838 | ||||||
HCP, Inc., Sr. Unsec. Notes, 3.75%, 02/01/16 | 25,000 | 26,079 | ||||||
Host Hotels & Resorts L.P., Sr. Gtd. Global Notes, 6.00%, 11/01/20 | 10,000 | 10,950 | ||||||
Sr. Unsec. Notes, 5.25%, 03/15/22(b) | 5,000 | 5,137 | ||||||
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | 5,000 | 5,319 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 75,000 | 75,675 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 4.75%, 06/01/21 | 90,000 | 94,206 | ||||||
582,771 | ||||||||
Specialty Chemicals–0.07% | ||||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 15,000 | 15,900 | ||||||
Specialty Stores–0.17% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | 10,000 | 10,550 | ||||||
Staples Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 01/15/14 | 25,000 | 28,016 | ||||||
38,566 | ||||||||
Steel–0.68% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 5.50%, 03/01/21 | 10,000 | 9,497 | ||||||
6.13%, 06/01/18 | 55,000 | 56,839 | ||||||
6.25%, 02/25/22 | 3,000 | 2,925 | ||||||
6.75%, 03/01/41 | 60,000 | 55,294 | ||||||
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.38%, 02/01/16(b) | 7,000 | 7,061 | ||||||
7.00%, 11/01/15(b) | 7,000 | 7,140 | ||||||
Sr. Unsec. Notes, 6.88%, 04/01/22(b) | 12,000 | 12,073 | ||||||
United States Steel Corp., Sr. Unsec. Global Notes, 7.50%, 03/15/22 | 2,000 | 1,920 | ||||||
Sr. Unsec. Notes, 7.00%, 02/01/18 | 6,000 | 5,955 | ||||||
158,704 | ||||||||
Systems Software–0.22% | ||||||||
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16 (Acquired 11/12/10-12/16/10; Cost $20,163)(b) | 20,000 | 16,500 | ||||||
Symantec Corp., Sr. Unsec. Global Notes, 3.95%, 06/15/22 | 35,000 | 34,992 | ||||||
51,492 | ||||||||
Technology Distributors–0.01% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 2,000 | 2,070 | ||||||
Tires & Rubber–0.04% | ||||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Notes, 7.00%, 05/15/22 | 10,000 | 10,100 | ||||||
Tobacco–0.46% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/05/21 | 95,000 | 107,649 | ||||||
Trading Companies & Distributors–0.19% | ||||||||
Air Lease Corp., Sr. Unsec. Notes, 5.63%, 04/01/17(b) | 3,000 | 2,963 | ||||||
Aircastle Ltd., Sr. Unsec. Global Notes, | ||||||||
6.75%, 04/15/17 | 17,000 | 17,340 | ||||||
7.63%, 04/15/20 | 2,000 | 2,040 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 10,000 | 10,312 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 5,000 | 5,225 | ||||||
UR Merger Sub Corp., Sec. Gtd. Notes, 5.75%, 07/15/18(b) | 2,000 | 2,090 | ||||||
UR Merger Sub Corp., Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 5,000 | 5,325 | ||||||
45,295 | ||||||||
Trucking–0.21% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | 15,000 | 16,125 | ||||||
9.75%, 03/15/20 | 2,000 | 2,235 | ||||||
Sr. Unsec. Gtd. Notes, 8.25%, 01/15/19(b) | 2,000 | 2,130 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 6.75%, 04/15/19 | 12,000 | 12,450 | ||||||
7.38%, 01/15/21 | 10,000 | 10,675 | ||||||
7.50%, 10/15/18 | 2,000 | 2,140 | ||||||
Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | 3,000 | 3,112 | ||||||
48,867 | ||||||||
Wireless Telecommunication Services–1.47% | ||||||||
Alltel Corp., Sr. Unsec. Global Notes, 7.00%, 07/01/12 | 50,000 | 50,009 | ||||||
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 15,000 | 13,575 | ||||||
14.75%, 12/01/16(b) | 2,000 | 1,965 | ||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 25,000 | 24,062 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | 120,000 | 131,100 | ||||||
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) | ||||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Notes, 7.25%, 10/15/20 | $ | 8,000 | $ | 8,460 | ||||
7.50%, 04/01/21 | 15,000 | 15,937 | ||||||
Sr. Unsec. Gtd. Notes, 7.25%, 10/15/20(b) | 10,000 | 10,600 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, 6.63%, 11/15/20 | 13,000 | 12,903 | ||||||
7.88%, 09/01/18 | 5,000 | 5,209 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 7,000 | 6,615 | ||||||
Sprint Nextel Corp., Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | 8,000 | 8,380 | ||||||
9.00%, 11/15/18(b) | 7,000 | 7,893 | ||||||
Sr. Unsec. Notes, 8.38%, 08/15/17 | 5,000 | 5,163 | ||||||
11.50%, 11/15/21(b) | 2,000 | 2,250 | ||||||
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 50,000 | 40,750 | ||||||
344,871 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes (Cost $17,514,989) | 18,557,218 | |||||||
U.S. Treasury Securities–12.12% | ||||||||
U.S. Treasury Bills–0.21% | ||||||||
0.10%, 11/15/12(g)(h) | 50,000 | 49,979 | ||||||
U.S. Treasury Notes–7.45% | ||||||||
2.00%, 04/30/16 | 160,000 | 168,750 | ||||||
1.00%, 08/31/16 | 250,000 | 253,984 | ||||||
0.88%, 04/30/17 | 140,000 | 141,072 | ||||||
3.63%, 02/15/21 | 600,000 | 708,375 | ||||||
2.00%, 02/15/22 | 55,000 | 56,848 | ||||||
1.75%, 05/15/22 | 410,000 | 413,459 | ||||||
1,742,488 | ||||||||
U.S. Treasury Bonds–4.46% | ||||||||
4.25%, 05/15/39 | 100,000 | 130,594 | ||||||
4.50%, 08/15/39 | 100,000 | 135,656 | ||||||
4.75%, 02/15/41 | 375,000 | 529,746 | ||||||
3.13%, 02/15/42 | 230,000 | 247,035 | ||||||
1,043,031 | ||||||||
Total U.S. Treasury Securities (Cost $2,564,718) | 2,835,498 | |||||||
Asset-Backed Securities–1.92% | ||||||||
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 | 20,537 | 20,486 | ||||||
Credit Suisse Mortgage Capital Ctfs., Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.70%, 09/26/34(b)(d) | 77,411 | 73,615 | ||||||
Santander Drive Auto Receivables Trust, Series 2011-1, Class D, Pass Through Ctfs., 4.01%, 02/15/17 | 80,000 | 81,575 | ||||||
TIAA Seasoned Commercial Mortgage Trust, Series 2007-C4, Class A2, Variable Rate Pass Through Ctfs., 5.34%, 08/15/39(d) | 4,804 | 4,809 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class AJ, Variable Rate Pass Through Ctfs., 5.38%, 10/15/44(d) | 110,000 | 114,758 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.62%, 12/25/34(b)(d) | 154,571 | 153,681 | ||||||
Total Asset-Backed Securities (Cost $413,466) | 448,924 | |||||||
Municipal Obligations–1.01% | ||||||||
Alameda (County of), California Joint Powers Authority (Multiple Capital); Series 2010 A, Lease RB, 7.05%, 12/01/44 | 55,000 | 70,721 | ||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 | 65,000 | 60,246 | ||||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4- Project J); Series 2010 A, Taxable RB, 6.64%, 04/01/57 | 90,000 | 105,451 | ||||||
Total Municipal Obligations (Cost $209,523) | 236,418 | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–1.01% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.31% | ||||||||
Pass Through Ctfs., 6.50%, 05/01/16 to 08/01/32 | 7,556 | 8,531 | ||||||
6.00%, 05/01/17 to 12/01/31 | 39,188 | 43,625 | ||||||
5.50%, 09/01/17 | 19,179 | 20,805 | ||||||
72,961 | ||||||||
Federal National Mortgage Association (FNMA)–0.59% | ||||||||
Pass Through Ctfs., 7.00%, 02/01/16 to 09/01/32 | 20,672 | 23,818 | ||||||
6.50%, 05/01/16 to 09/01/31 | 5,865 | 6,511 | ||||||
5.00%, 11/01/18 | 19,921 | 21,573 | ||||||
7.50%, 04/01/29 to 10/01/29 | 70,601 | 78,785 | ||||||
8.00%, 04/01/32 | 5,813 | 6,510 | ||||||
137,197 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal | ||||||||
Amount | Value | |||||||
Government National Mortgage Association (GNMA)–0.11% | ||||||||
Pass Through Ctfs., 7.50%, 06/15/23 | $ | 7,963 | $ | 9,332 | ||||
8.50%, 11/15/24 | 5,683 | 6,667 | ||||||
7.00%, 07/15/31 to 08/15/31 | 2,000 | 2,417 | ||||||
6.50%, 11/15/31 to 03/15/32 | 4,857 | 5,643 | ||||||
6.00%, 11/15/32 | 2,531 | 2,877 | ||||||
26,936 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $215,413) | 237,094 | |||||||
Shares | ||||||||
Preferred Stocks–0.25% | ||||||||
Consumer Finance–0.05% | ||||||||
Ally Financial, Inc., Series A, 8.50% Pfd. | 250 | 5,738 | ||||||
GMAC Capital Trust I, Series 2, 8.13% Jr. Gtd. Sub. Pfd. | 270 | 6,493 | ||||||
12,231 | ||||||||
Diversified Banks–0.01% | ||||||||
Royal Bank of Scotland PLC (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | 135 | 2,653 | ||||||
Multi-Line Insurance–0.05% | ||||||||
Hartford Financial Services Group Inc., 7.88% Jr. Sub. Pfd. | 440 | 11,894 | ||||||
Office REIT’s–0.01% | ||||||||
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | 95 | 2,468 | ||||||
Regional Banks–0.11% | ||||||||
Zions Bancorp., Series C, 9.50% Pfd. | 1,000 | 26,220 | ||||||
Tires & Rubber–0.02% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 75 | 3,240 | ||||||
Total Preferred Stocks (Cost $60,278) | 58,706 | |||||||
Principal | ||||||||
Amount | ||||||||
Non-U.S. Dollar Denominated Bonds & Notes–0.21%(i) | ||||||||
Canada–0.04% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17(b) | CAD | 8,000 | 8,467 | |||||
Poland–0.17% | ||||||||
CEDC Finance Corp. International Inc., Sr. Sec. Gtd. Notes, 8.88%, 12/01/16(b) | EUR | 50,000 | 41,099 | |||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $58,757) | 49,566 | |||||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.00% | ||||||||
Broadcasting–0.00% | ||||||||
Adelphia Recovery Trust Series ACC-1(j) | 87,412 | 131 | ||||||
Cable & Satellite–0.00% | ||||||||
Adelphia Communications Corp.(j) | 900 | 702 | ||||||
Total Common Stocks & Other Equity Interests (Cost $22,181) | 833 | |||||||
Money Market Funds–3.50% | ||||||||
Liquid Assets Portfolio–Institutional Class(k) | 409,372 | 409,372 | ||||||
Premier Portfolio–Institutional Class(k) | 409,372 | 409,372 | ||||||
Total Money Market Funds (Cost $818,744) | 818,744 | |||||||
TOTAL INVESTMENTS–99.31% (Cost $21,878,069) | 23,243,001 | |||||||
OTHER ASSETS LESS LIABILITIES–0.69% | 160,571 | |||||||
NET ASSETS–100.00% | $ | 23,403,572 | ||||||
Investment Abbreviations:
CAD | – Canadian Dollar | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
EUR | – Euro | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $5,277,386, which represented 22.55% of the Fund’s Net Assets. | |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2012 was $30,375, which represented 0.13% of the Fund’s Net Assets | |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(e) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1M and Note 4. | |
(i) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(j) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(k) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By industry, based on Net Assets
as of June 30, 2012
Other Diversified Financial Services | 9.3 | % | ||
U.S. Treasury Notes | 7.4 | |||
Diversified Banks | 6.0 | |||
Investment Banking & Brokerage | 5.3 | |||
U.S. Treasury Bonds | 4.5 | |||
Oil & Gas Exploration & Production | 3.4 | |||
Other Industries, Each with Less Than 3.0% of Total Net Assets | 59.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.2 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $21,059,325) | $ | 22,424,257 | ||
Investments in affiliated money market funds, at value and cost | 818,744 | |||
Total investments, at value (Cost $21,878,069) | 23,243,001 | |||
Foreign currencies, at value (Cost $1,356) | 1,339 | |||
Receivable for: | ||||
Investments sold | 282,612 | |||
Dividends and interest | 291,653 | |||
Foreign currency contracts | 1,725 | |||
Premiums paid on swap agreements | 33,236 | |||
Investment for trustee deferred compensation and retirement plans | 47,017 | |||
Other assets | 888 | |||
Total assets | 23,901,471 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 351,771 | |||
Fund shares reacquired | 33,508 | |||
Variation margin | 11,141 | |||
Accrued fees to affiliates | 9,764 | |||
Accrued other operating expenses | 28,757 | |||
Trustee deferred compensation and retirement plans | 55,338 | |||
Unrealized depreciation on swap agreements | 7,620 | |||
Total liabilities | 497,899 | |||
Net assets applicable to shares outstanding | $ | 23,403,572 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 29,726,721 | ||
Undistributed net investment income | 1,545,761 | |||
Undistributed net realized gain (loss) | (9,237,331 | ) | ||
Unrealized appreciation | 1,368,421 | |||
$ | 23,403,572 | |||
Net Assets: | ||||
Series I | $ | 23,147,682 | ||
Series II | $ | 255,890 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,541,989 | |||
Series II | 39,404 | |||
Series I: | ||||
Net asset value per share | $ | 6.54 | ||
Series II: | ||||
Net asset value per share | $ | 6.49 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Interest | $ | 594,542 | ||
Dividends | 2,378 | |||
Dividends from affiliated money market funds | 204 | |||
Total investment income | 597,124 | |||
Expenses: | ||||
Advisory fees | 68,694 | |||
Administrative services fees | 44,374 | |||
Custodian fees | 6,176 | |||
Distribution fees — Series II | 299 | |||
Transfer agent fees | 4,255 | |||
Trustees’ and officers’ fees and benefits | 11,095 | |||
Professional services fees | 21,477 | |||
Other | 13,381 | |||
Total expenses | 169,751 | |||
Less: Fees waived and expenses reimbursed | (83,741 | ) | ||
Net expenses | 86,010 | |||
Net investment income | 511,114 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 353,177 | |||
Foreign currencies | (134 | ) | ||
Foreign currency contracts | 2,688 | |||
Futures contracts | (39,944 | ) | ||
Swap agreements | (479 | ) | ||
315,308 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 376,943 | |||
Foreign currencies | 206 | |||
Foreign currency contracts | (1,247 | ) | ||
Futures contracts | 35,441 | |||
Swap agreements | (7,620 | ) | ||
403,723 | ||||
Net realized and unrealized gain | 719,031 | |||
Net increase in net assets resulting from operations | $ | 1,230,145 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 511,114 | $ | 1,098,197 | ||||
Net realized gain | 315,308 | 567,811 | ||||||
Change in net unrealized appreciation (depreciation) | 403,723 | (87,842 | ) | |||||
Net increase in net assets resulting from operations | 1,230,145 | 1,578,166 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,215,874 | ) | |||||
Series II | — | (10,587 | ) | |||||
Total distributions from net investment income | — | (1,226,461 | ) | |||||
Share transactions–net: | ||||||||
Series I | (402,338 | ) | (1,245,046 | ) | ||||
Series II | 16,632 | (8,207 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | (385,706 | ) | (1,253,253 | ) | ||||
Net increase (decrease) in net assets | 844,439 | (901,548 | ) | |||||
Net assets: | ||||||||
Beginning of period | 22,559,133 | 23,460,681 | ||||||
End of period (includes undistributed net investment income of $1,545,761 and $1,034,647, respectively) | $ | 23,403,572 | $ | 22,559,133 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco V.I. Diversified Income Fund
independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. |
Invesco V.I. Diversified Income 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 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. | |
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 two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
N. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .60% | ||
Over $250 million | 0 | .55% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (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, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.75% 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
Invesco V.I. Diversified Income Fund
For the six months ended June 30, 2012, the Adviser waived advisory fees of $68,694 and reimbursed Fund expenses of $15,047.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $19,511 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Diversified Income Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 865,687 | $ | 12,596 | $ | — | $ | 878,283 | ||||||||
U.S. Treasury Securities | — | 2,835,498 | — | 2,835,498 | ||||||||||||
U.S. Government Sponsored Securities | — | 237,094 | — | 237,094 | ||||||||||||
Domestic Corporate Debt Securities | — | 18,217,305 | 0 | 18,217,305 | ||||||||||||
Foreign Corporate Debt Securities | — | 49,566 | — | 49,566 | ||||||||||||
Foreign Sovereign Debt Securities | — | 339,913 | — | 339,913 | ||||||||||||
Asset Backed Securities | — | 448,924 | — | 448,924 | ||||||||||||
Municipal Obligations | — | 236,418 | — | 236,418 | ||||||||||||
$ | 865,687 | $ | 22,377,314 | $ | 0 | $ | 23,243,001 | |||||||||
Foreign Currency Contracts* | — | 1,157 | — | 1,157 | ||||||||||||
Futures* | 9,964 | — | — | 9,964 | ||||||||||||
Swap Agreements* | — | (7,620 | ) | — | (7,620 | ) | ||||||||||
Total Investments | $ | 875,651 | $ | 22,370,851 | $ | 0 | $ | 23,246,502 | ||||||||
* | Unrealized appreciation (depreciation) |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Swap Agreements(a) | $ | 1,304 | $ | (8,924 | ) | |||
Currency risk | ||||||||
Foreign Currency Contracts(b) | 1,157 | — | ||||||
Interest rate risk | ||||||||
Futures Contracts(c) | 13,683 | (3,719 | ) | |||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Unrealized depreciation on swap agreements. | |
(b) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. | |
(c) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||||||
Statement of Operations | ||||||||||||
Foreign Currency | Swap | |||||||||||
Futures* | Contracts* | Agreements* | ||||||||||
Realized Gain (Loss) | ||||||||||||
Credit risk | $ | — | $ | — | $ | (479 | ) | |||||
Currency risk | — | 2,688 | — | |||||||||
Interest rate risk | (39,944 | ) | — | — | ||||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||||||
Credit risk | — | — | (7,620 | ) | ||||||||
Currency risk | — | (1,247 | ) | — | ||||||||
Interest rate risk | 35,441 | — | — | |||||||||
Total | $ | (4,503 | ) | $ | 1,441 | $ | (8,099 | ) | ||||
* | The average notional value of futures, foreign currency contracts and swap agreements outstanding during the period was $6,816,753, $46,861 and $500,000, respectively. |
Invesco V.I. Diversified Income Fund
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Expiration | Notional | Appreciation | |||||||||||||
Long Contracts | Contracts | Month | Value | (Depreciation) | ||||||||||||
U.S. Treasury Ultra Bonds | 4 | September-2012 | $ | 667,375 | $ | 10,242 | ||||||||||
U.S. Treasury 5 Year Notes | 28 | September-2012 | 3,471,125 | 3,441 | ||||||||||||
Subtotal | 32 | $ | 4,138,500 | $ | 13,683 | |||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 10 Year Notes | 11 | September-2012 | (1,467,125 | ) | (3,719 | ) | ||||||||||
Total | $ | 2,671,375 | $ | 9,964 | ||||||||||||
Open Foreign Currency Contracts | ||||||||||||||||||||||
Settlement | Contract to | Notional | Unrealized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||
08/09/12 | RBC Capital Markets Corp. | EUR | 30,000 | USD | 39,111 | $ | 37,954 | $ | 1,157 | |||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||||
Closed | Contract to | Notional | Realized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Gain | |||||||||||||||||
05/16/12 | RBC Capital Markets Corp. | EUR | 1,000 | USD | 1,306 | $ | 1,274 | $ | 32 | |||||||||||||
05/24/12 | RBC Capital Markets Corp. | EUR | 3,000 | USD | 3,917 | 3,780 | 137 | |||||||||||||||
06/08/12 | RBC Capital Markets Corp. | EUR | 6,000 | USD | 7,834 | 7,475 | 359 | |||||||||||||||
06/19/12 | RBC Capital Markets Corp. | EUR | 1,000 | USD | 1,305 | 1,265 | 40 | |||||||||||||||
Subtotal | 568 | |||||||||||||||||||||
Total foreign currency contracts | $ | 1,725 | ||||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
USD | – U.S. Dollar |
Open Credit Default Swap Agreements | ||||||||||||||||||||||||||||||
Implied | Notional | Unrealized | ||||||||||||||||||||||||||||
Buy/Sell | (Pay)/Receive | Expiration | Credit | Value | Upfront | Appreciation | ||||||||||||||||||||||||
Counterparty | Reference Entity | Protection | Fixed Rate | Date | Spread(a) | (000) | Payments | (Depreciation) | ||||||||||||||||||||||
Bank of America | Royal Caribbean Cruises Ltd. | Sell | 5.00 | % | 03/20/17 | 4.68 | % | $ | 100 | $ | — | $ | 1,304 | |||||||||||||||||
Morgan Stanley | Carnival Corp. | Buy | (1.00 | ) | 03/20/17 | 1.10 | 100 | 2,555 | (2,112 | ) | ||||||||||||||||||||
Deutsche Bank | JP Morgan Chase & Co. | Buy | (1.00 | ) | 06/20/17 | 1.35 | 250 | 6,921 | (2,756 | ) | ||||||||||||||||||||
Bank of America | Citigroup Inc. | Buy | (1.00 | ) | 06/20/17 | 2.47 | 250 | 19,244 | (2,542 | ) | ||||||||||||||||||||
Morgan Stanley | Markit North America, Investment Grade, Index | Buy | (1.00 | ) | 06/20/17 | 1.13 | 500 | 4,516 | (1,514 | ) | ||||||||||||||||||||
Total Credit Default Swap Agreements | $ | 33,236 | $ | (7,620 | ) | |||||||||||||||||||||||||
(a) | Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets generally. |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Diversified Income 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 2,178,603 | $ | — | $ | 2,178,603 | ||||||
December 31, 2017 | 7,359,091 | — | 7,359,091 | |||||||||
$ | 9,537,694 | $ | — | $ | 9,537,694 | |||||||
* | 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, 2012 was $7,358,868 and $8,299,034, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,572,288 | ||
Aggregate unrealized (depreciation) of investment securities | (245,374 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,326,914 | ||
Cost of investments for tax purposes is $21,916,087. |
Invesco V.I. Diversified Income Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 252,873 | $ | 1,613,950 | 348,442 | $ | 2,182,267 | ||||||||||
Series II | 6,265 | 39,915 | 5,383 | 33,498 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 198,025 | 1,215,874 | ||||||||||||
Series II | — | — | 1,730 | 10,587 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (316,275 | ) | �� | (2,016,288 | ) | (746,622 | ) | (4,643,187 | ) | |||||||
Series II | (3,630 | ) | (23,283 | ) | (8,507 | ) | (52,292 | ) | ||||||||
Net increase (decrease) in share activity | (60,767 | ) | $ | (385,706 | ) | (201,549 | ) | $ | (1,253,253 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 84% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 6.19 | $ | 0.14 | $ | 0.21 | $ | 0.35 | $ | — | $ | 6.54 | 5.65 | % | $ | 23,148 | 0.75 | %(d) | 1.48 | %(d) | 4.47 | %(d) | 37 | % | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.28 | 0.51 | (0.37 | ) | 0.14 | (0.62 | ) | 7.80 | 1.72 | 38,336 | 0.75 | 1.17 | 6.04 | 67 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 6.16 | 0.13 | 0.20 | 0.33 | — | 6.49 | 5.36 | 256 | 1.00 | (d) | 1.73 | (d) | 4.22 | (d) | 37 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 8.21 | 0.48 | (0.36 | ) | 0.12 | (0.59 | ) | 7.74 | 1.51 | 606 | 1.00 | 1.42 | 5.79 | 67 | ||||||||||||||||||||||||||||||||||
(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 $22,783 and $241 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,054.90 | $ | 3.83 | $ | 1,021.13 | $ | 3.77 | 0.75 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,053.60 | 5.11 | 1,019.89 | 5.02 | 1.00 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Diversified Income Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco V.I. Diversified Income Fund
the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Corporate Debt Funds BBB-Rated Index. The Board noted that performance of Series I shares of the Fund was in the third 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 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was the same as the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rates of two mutual funds with comparable investment strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. 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
Invesco V.I. Equally-Weighted S&P 500 Fund
Effective April 30, 2012, Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund was renamed Invesco V.I. Equally-Weighted S&P 500 Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIEWSP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.91 | % | ||
Series II Shares | 7.79 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
S&P 500 Equal Weight Index■ (Style-Specific Index) | 8.08 | |||
Lipper VUF Multi-Cap Core Funds Index▼ (Peer Group Index) | 7.38 | |||
Source(s): ▼Lipper Inc.; ■Invesco, Bloomberg L.P. |
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.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (11/9/94) | 9.57 | % | ||||||
10 | Years | 7.28 | ||||||
5 | Years | 1.20 | ||||||
1 | Year | -0.33 | ||||||
Series II Shares | ||||||||
Inception (7/24/00) | 6.15 | % | ||||||
10 | Years | 7.01 | ||||||
5 | Years | 0.95 | ||||||
1 | Year | -0.64 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley V.I. Select Dimensions Equally-Weighted S&P 500 Fund, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund (renamed Invesco V.I. Equally-Weighted S&P 500 Fund on April 30, 2012). Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II
shares was 0.51% and 0.76%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Equally-Weighted S&P 500 Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Equally-Weighted S&P 500 Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.29% | ||||||||
Advertising–0.39% | ||||||||
Interpublic Group of Cos., Inc. (The) | 13,209 | $ | 143,318 | |||||
Omnicom Group Inc. | 2,980 | 144,828 | ||||||
288,146 | ||||||||
Aerospace & Defense–2.39% | ||||||||
Boeing Co. (The) | 2,047 | 152,092 | ||||||
General Dynamics Corp. | 2,235 | 147,421 | ||||||
Goodrich Corp. | 1,133 | 143,778 | ||||||
Honeywell International Inc. | 2,558 | 142,839 | ||||||
L-3 Communications Holdings, Inc. | 2,056 | 152,165 | ||||||
Lockheed Martin Corp. | 1,719 | 149,690 | ||||||
Northrop Grumman Corp. | 2,396 | 152,841 | ||||||
Precision Castparts Corp. | 873 | 143,600 | ||||||
Raytheon Co. | 2,777 | 157,150 | ||||||
Rockwell Collins, Inc. | 2,847 | 140,499 | ||||||
Textron Inc. | 5,892 | 146,534 | ||||||
United Technologies Corp. | 1,896 | 143,205 | ||||||
1,771,814 | ||||||||
Agricultural Products–0.18% | ||||||||
Archer-Daniels-Midland Co.(b) | 4,497 | 132,751 | ||||||
Air Freight & Logistics–0.79% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,473 | 144,745 | ||||||
Expeditors International of Washington, Inc. | 3,639 | 141,011 | ||||||
FedEx Corp. | 1,635 | 149,782 | ||||||
United Parcel Service, Inc.–Class B | 1,875 | 147,675 | ||||||
583,213 | ||||||||
Airlines–0.20% | ||||||||
Southwest Airlines Co. | 15,811 | 145,777 | ||||||
Aluminum–0.20% | ||||||||
Alcoa Inc. | 16,814 | 147,123 | ||||||
Apparel Retail–1.18% | ||||||||
Abercrombie & Fitch Co.–Class A | 4,453 | 152,026 | ||||||
Gap, Inc. (The) | 5,459 | 149,358 | ||||||
Limited Brands, Inc. | 3,346 | 142,305 | ||||||
Ross Stores, Inc. | 2,220 | 138,684 | ||||||
TJX Cos., Inc. (The) | 3,454 | 148,280 | ||||||
Urban Outfitters, Inc.(c) | 5,182 | 142,971 | ||||||
873,624 | ||||||||
Apparel, Accessories & Luxury Goods–0.74% | ||||||||
Coach, Inc. | 2,237 | 130,820 | ||||||
Fossil, Inc.(c) | 1,880 | 143,895 | ||||||
Ralph Lauren Corp. | 987 | 138,239 | ||||||
VF Corp. | 1,025 | 136,786 | ||||||
549,740 | ||||||||
Application Software–1.01% | ||||||||
Adobe Systems Inc.(c) | 4,525 | 146,474 | ||||||
Autodesk, Inc.(c) | 4,369 | 152,871 | ||||||
Citrix Systems, Inc.(c) | 1,856 | 155,793 | ||||||
Intuit Inc. | 2,520 | 149,562 | ||||||
Salesforce.com, Inc.(c) | 1,049 | 145,035 | ||||||
749,735 | ||||||||
Asset Management & Custody Banks–2.02% | ||||||||
Ameriprise Financial, Inc. | 2,951 | 154,219 | ||||||
Bank of New York Mellon Corp. (The) | 6,988 | 153,387 | ||||||
BlackRock, Inc. | 823 | 139,762 | ||||||
Federated Investors, Inc.–Class B | 7,127 | 155,725 | ||||||
Franklin Resources, Inc. | 1,324 | 146,951 | ||||||
Invesco Ltd.(d) | 6,277 | 141,860 | ||||||
Legg Mason, Inc. | 5,595 | 147,540 | ||||||
Northern Trust Corp. | 3,310 | 152,326 | ||||||
State Street Corp. | 3,397 | 151,642 | ||||||
T. Rowe Price Group Inc. | 2,436 | 153,371 | ||||||
1,496,783 | ||||||||
Auto Parts & Equipment–0.37% | ||||||||
BorgWarner, Inc.(c) | 2,101 | 137,805 | ||||||
Johnson Controls, Inc. | 4,862 | 134,726 | ||||||
272,531 | ||||||||
Automobile Manufacturers–0.17% | ||||||||
Ford Motor Co. | 13,433 | 128,822 | ||||||
Automotive Retail–0.71% | ||||||||
AutoNation, Inc.(c) | 3,848 | 135,758 | ||||||
AutoZone, Inc.(c) | 373 | 136,954 | ||||||
CarMax, Inc.(c) | 5,089 | 132,009 | ||||||
O’Reilly Automotive, Inc.(c) | 1,459 | 122,220 | ||||||
526,941 | ||||||||
Biotechnology–1.01% | ||||||||
Alexion Pharmaceuticals, Inc.(c) | 1,549 | 153,816 | ||||||
Amgen Inc. | 2,079 | 151,850 | ||||||
Biogen Idec Inc.(c) | 1,072 | 154,775 | ||||||
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 | |||||||
Biotechnology–(continued) | ||||||||
Celgene Corp.(c) | 2,201 | $ | 141,216 | |||||
Gilead Sciences, Inc.(c) | 2,885 | 147,943 | ||||||
749,600 | ||||||||
Brewers–0.21% | ||||||||
Molson Coors Brewing Co.–Class B | 3,674 | 152,875 | ||||||
Broadcasting–0.60% | ||||||||
CBS Corp.–Class B | 4,442 | 145,609 | ||||||
Discovery Communications, Inc.–Class A(c) | 2,807 | 151,578 | ||||||
Scripps Networks Interactive–Class A | 2,539 | 144,367 | ||||||
441,554 | ||||||||
Building Products–0.20% | ||||||||
Masco Corp. | 10,586 | 146,828 | ||||||
Cable & Satellite–0.85% | ||||||||
Cablevision Systems Corp.–Class A | 12,391 | 164,677 | ||||||
Comcast Corp.–Class A | 4,732 | 151,282 | ||||||
DIRECTV–Class A(c) | 3,248 | 158,567 | ||||||
Time Warner Cable Inc. | 1,882 | 154,512 | ||||||
629,038 | ||||||||
Casinos & Gaming–0.41% | ||||||||
International Game Technology | 10,324 | 162,603 | ||||||
Wynn Resorts Ltd. | 1,374 | 142,511 | ||||||
305,114 | ||||||||
Coal & Consumable Fuels–0.58% | ||||||||
Alpha Natural Resources, Inc.(c) | 15,371 | 133,881 | ||||||
CONSOL Energy Inc. | 5,071 | 153,347 | ||||||
Peabody Energy Corp. | 5,902 | 144,717 | ||||||
431,945 | ||||||||
Commercial Printing–0.21% | ||||||||
R. R. Donnelley & Sons Co. | 13,283 | 156,341 | ||||||
Communications Equipment–1.35% | ||||||||
Cisco Systems, Inc. | 8,523 | 146,340 | ||||||
F5 Networks, Inc.(c) | 1,398 | 139,185 | ||||||
Harris Corp. | 3,505 | 146,684 | ||||||
JDS Uniphase Corp.(c) | 13,613 | 149,743 | ||||||
Juniper Networks, Inc.(c) | 8,441 | 137,673 | ||||||
Motorola Solutions, Inc. | 2,947 | 141,780 | ||||||
QUALCOMM, Inc. | 2,438 | 135,748 | ||||||
997,153 | ||||||||
Computer & Electronics Retail–0.39% | ||||||||
Best Buy Co., Inc. | 7,170 | 150,283 | ||||||
GameStop Corp.–Class A | 7,528 | 138,214 | ||||||
288,497 | ||||||||
Computer Hardware–0.57% | ||||||||
Apple Inc. | 248 | 144,832 | ||||||
Dell Inc.(c) | 11,803 | 147,774 | ||||||
Hewlett-Packard Co. | 6,420 | 129,106 | ||||||
421,712 | ||||||||
Computer Storage & Peripherals–1.20% | ||||||||
EMC Corp.(c) | 5,813 | 148,987 | ||||||
Lexmark International, Inc.–Class A | 5,546 | 147,413 | ||||||
NetApp, Inc.(c) | 4,723 | 150,286 | ||||||
SanDisk Corp.(c) | 4,042 | 147,452 | ||||||
Seagate Technology PLC | 6,229 | 154,043 | ||||||
Western Digital Corp.(c) | 4,587 | 139,812 | ||||||
887,993 | ||||||||
Construction & Engineering–0.60% | ||||||||
Fluor Corp. | 2,951 | 145,602 | ||||||
Jacobs Engineering Group, Inc.(c) | 3,930 | 148,790 | ||||||
Quanta Services, Inc.(c) | 6,355 | 152,965 | ||||||
447,357 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.98% | ||||||||
Caterpillar Inc. | 1,634 | 138,743 | ||||||
Cummins Inc. | 1,479 | 143,330 | ||||||
Deere & Co. | 1,927 | 155,836 | ||||||
Joy Global Inc. | 2,464 | 139,783 | ||||||
PACCAR Inc. | 3,708 | 145,317 | ||||||
723,009 | ||||||||
Construction Materials–0.22% | ||||||||
Vulcan Materials Co. | 4,184 | 166,147 | ||||||
Consumer Electronics–0.19% | ||||||||
Harman International Industries, Inc. | 3,573 | 141,491 | ||||||
Consumer Finance–0.81% | ||||||||
American Express Co. | 2,564 | 149,250 | ||||||
Capital One Financial Corp. | 2,723 | 148,839 | ||||||
Discover Financial Services | 4,364 | 150,907 | ||||||
SLM Corp. | 9,829 | 154,414 | ||||||
603,410 | ||||||||
Data Processing & Outsourced Services–1.79% | ||||||||
Automatic Data Processing, Inc. | 2,674 | 148,835 | ||||||
Computer Sciences Corp. | 5,478 | 135,964 | ||||||
Fidelity National Information Services, Inc. | 4,422 | 150,702 | ||||||
Fiserv, Inc.(c) | 2,072 | 149,640 | ||||||
MasterCard, Inc.–Class A | 343 | 147,528 | ||||||
Paychex, Inc. | 4,619 | 145,083 | ||||||
Total System Services, Inc. | 6,108 | 146,164 | ||||||
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 | |||||||
Data Processing & Outsourced Services–(continued) | ||||||||
Visa Inc.–Class A | 1,228 | $ | 151,817 | |||||
Western Union Co. (The) | 8,805 | 148,276 | ||||||
1,324,009 | ||||||||
Department Stores–0.97% | ||||||||
JC Penney Co., Inc. | 5,689 | 132,611 | ||||||
Kohl’s Corp. | 3,177 | 144,522 | ||||||
Macy’s, Inc. | 3,849 | 132,213 | ||||||
Nordstrom, Inc. | 2,937 | 145,939 | ||||||
Sears Holdings Corp.(c) | 2,740 | 163,578 | ||||||
718,863 | ||||||||
Distillers & Vintners–0.68% | ||||||||
Beam Inc. | 2,338 | 146,102 | ||||||
Brown-Forman Corp.–Class B | 1,605 | 155,444 | ||||||
Constellation Brands, Inc.–Class A(c) | 7,480 | 202,409 | ||||||
503,955 | ||||||||
Distributors–0.19% | ||||||||
Genuine Parts Co. | 2,325 | 140,081 | ||||||
Diversified Banks–0.61% | ||||||||
Comerica Inc. | 4,857 | 149,159 | ||||||
U.S. Bancorp | 4,759 | 153,049 | ||||||
Wells Fargo & Co. | 4,557 | 152,386 | ||||||
454,594 | ||||||||
Diversified Chemicals–0.99% | ||||||||
Dow Chemical Co. (The) | 4,476 | 140,994 | ||||||
E. I. du Pont de Nemours and Co. | 2,893 | 146,299 | ||||||
Eastman Chemical Co. | 3,001 | 151,160 | ||||||
FMC Corp. | 2,758 | 147,498 | ||||||
PPG Industries, Inc. | 1,381 | 146,552 | ||||||
732,503 | ||||||||
Diversified Metals & Mining–0.39% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 4,233 | 144,218 | ||||||
Titanium Metals Corp. | 12,566 | 142,122 | ||||||
286,340 | ||||||||
Diversified REIT’s–0.20% | ||||||||
Vornado Realty Trust | 1,732 | 145,453 | ||||||
Diversified Support Services–0.40% | ||||||||
Cintas Corp. | 3,937 | 152,007 | ||||||
Iron Mountain Inc. | 4,377 | 144,266 | ||||||
296,273 | ||||||||
Drug Retail–0.38% | ||||||||
CVS Caremark Corp. | 3,191 | 149,116 | ||||||
Walgreen Co. | 4,597 | 135,979 | ||||||
285,095 | ||||||||
Education Services–0.41% | ||||||||
Apollo Group, Inc.–Class A(c) | 4,094 | 148,162 | ||||||
DeVry, Inc. | 4,929 | 152,651 | ||||||
300,813 | ||||||||
Electric Utilities–2.54% | ||||||||
American Electric Power Co., Inc. | 3,606 | 143,879 | ||||||
Duke Energy Corp.(c) | 6,187 | 142,672 | ||||||
Edison International | 3,111 | 143,728 | ||||||
Entergy Corp. | 2,160 | 146,642 | ||||||
Exelon Corp. | 3,828 | 144,009 | ||||||
FirstEnergy Corp. | 2,993 | 147,226 | ||||||
NextEra Energy, Inc. | 2,139 | 147,185 | ||||||
Northeast Utilities | 3,830 | 148,642 | ||||||
Pepco Holdings, Inc. | 7,411 | 145,033 | ||||||
Pinnacle West Capital Corp. | 2,805 | 145,131 | ||||||
PPL Corp. | 5,138 | 142,888 | ||||||
Southern Co. (The) | 3,023 | 139,965 | ||||||
Xcel Energy, Inc. | 5,038 | 143,130 | ||||||
1,880,130 | ||||||||
Electrical Components & Equipment–0.76% | ||||||||
Cooper Industries PLC | 2,065 | 140,792 | ||||||
Emerson Electric Co. | 3,068 | 142,907 | ||||||
Rockwell Automation, Inc. | 2,049 | 135,357 | ||||||
Roper Industries, Inc. | 1,429 | 140,871 | ||||||
559,927 | ||||||||
Electronic Components–0.38% | ||||||||
Amphenol Corp.–Class A | 2,611 | 143,396 | ||||||
Corning Inc. | 10,887 | 140,769 | ||||||
284,165 | ||||||||
Electronic Equipment & Instruments–0.18% | ||||||||
FLIR Systems, Inc. | 6,772 | 132,054 | ||||||
Electronic Manufacturing Services–0.59% | ||||||||
Jabil Circuit, Inc. | 7,500 | 152,475 | ||||||
Molex Inc. | 5,899 | 141,222 | ||||||
TE Connectivity Ltd. | 4,409 | 140,691 | ||||||
434,388 | ||||||||
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 | |||||||
Environmental & Facilities Services–0.60% | ||||||||
Republic Services, Inc. | 5,449 | $ | 144,181 | |||||
Stericycle, Inc.(c) | 1,635 | 149,880 | ||||||
Waste Management, Inc. | 4,409 | 147,261 | ||||||
441,322 | ||||||||
Fertilizers & Agricultural Chemicals–0.64% | ||||||||
CF Industries Holdings, Inc. | 839 | 162,548 | ||||||
Monsanto Co. | 1,803 | 149,252 | ||||||
Mosaic Co. (The) | 2,954 | 161,761 | ||||||
473,561 | ||||||||
Food Distributors–0.20% | ||||||||
Sysco Corp. | 4,993 | 148,841 | ||||||
Food Retail–0.60% | ||||||||
Kroger Co. (The) | 6,640 | 153,981 | ||||||
Safeway, Inc. | 7,818 | 141,897 | ||||||
Whole Foods Market, Inc. | 1,574 | 150,034 | ||||||
445,912 | ||||||||
Footwear–0.16% | ||||||||
NIKE, Inc.–Class B | 1,318 | 115,694 | ||||||
Gas Utilities–0.40% | ||||||||
AGL Resources Inc. | 3,771 | 146,126 | ||||||
ONEOK, Inc. | 3,470 | 146,816 | ||||||
292,942 | ||||||||
General Merchandise Stores–0.77% | ||||||||
Big Lots, Inc.(c) | 3,713 | 151,453 | ||||||
Dollar Tree, Inc.(c) | 2,682 | 144,291 | ||||||
Family Dollar Stores, Inc. | 2,058 | 136,816 | ||||||
Target Corp. | 2,419 | 140,762 | ||||||
573,322 | ||||||||
Gold–0.19% | ||||||||
Newmont Mining Corp. | 2,849 | 138,205 | ||||||
Health Care Distributors–0.80% | ||||||||
AmerisourceBergen Corp. | 3,865 | 152,088 | ||||||
Cardinal Health, Inc. | 3,418 | 143,556 | ||||||
McKesson Corp. | 1,619 | 151,781 | ||||||
Patterson Cos. Inc. | 4,315 | 148,738 | ||||||
596,163 | ||||||||
Health Care Equipment–2.64% | ||||||||
Baxter International Inc. | 2,829 | 150,361 | ||||||
Becton, Dickinson and Co. | 1,954 | 146,062 | ||||||
Boston Scientific Corp.(c) | 25,089 | 142,255 | ||||||
C.R. Bard, Inc. | 1,437 | 154,391 | ||||||
CareFusion Corp.(c) | 5,830 | 149,714 | ||||||
Covidien PLC | 2,740 | 146,590 | ||||||
Edwards Lifesciences Corp.(c) | 1,623 | 167,656 | ||||||
Intuitive Surgical, Inc.(c) | 268 | 148,416 | ||||||
Medtronic, Inc. | 3,837 | 148,607 | ||||||
St. Jude Medical, Inc. | 3,675 | 146,669 | ||||||
Stryker Corp. | 2,791 | 153,784 | ||||||
Varian Medical Systems, Inc.(c) | 2,408 | 146,334 | ||||||
Zimmer Holdings, Inc. | 2,350 | 151,246 | ||||||
1,952,085 | ||||||||
Health Care Facilities–0.22% | ||||||||
Tenet Healthcare Corp.(c) | 30,611 | 160,402 | ||||||
Health Care Services–0.84% | ||||||||
DaVita, Inc.(c) | 1,672 | 164,207 | ||||||
Express Scripts Holding Co.(c) | 2,693 | 150,350 | ||||||
Laboratory Corp. of America Holdings(c) | 1,671 | 154,752 | ||||||
Quest Diagnostics Inc. | 2,589 | 155,081 | ||||||
624,390 | ||||||||
Health Care Supplies–0.20% | ||||||||
DENTSPLY International Inc. | 3,849 | 145,531 | ||||||
Health Care Technology–0.20% | ||||||||
Cerner Corp.(c) | 1,813 | 149,863 | ||||||
Home Entertainment Software–0.18% | ||||||||
Electronic Arts Inc.(c) | 10,610 | 131,034 | ||||||
Home Furnishings–0.20% | ||||||||
Leggett & Platt, Inc. | 6,874 | 145,248 | ||||||
Home Improvement Retail–0.39% | ||||||||
Home Depot, Inc. (The) | 2,736 | 144,981 | ||||||
Lowe’s Cos., Inc. | 5,131 | 145,925 | ||||||
290,906 | ||||||||
Homebuilding–0.68% | ||||||||
D.R. Horton, Inc. | 8,933 | 164,189 | ||||||
Lennar Corp.–Class A | 5,395 | 166,759 | ||||||
PulteGroup Inc.(c) | 15,952 | 170,686 | ||||||
501,634 | ||||||||
Homefurnishing Retail–0.17% | ||||||||
Bed Bath & Beyond Inc.(c) | 2,022 | 124,960 | ||||||
Hotels, Resorts & Cruise Lines–0.80% | ||||||||
Carnival Corp. | 4,336 | 148,595 | ||||||
Marriott International Inc.–Class A | 3,789 | 148,529 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 2,750 | 145,860 | ||||||
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 | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Wyndham Worldwide Corp. | 2,823 | $ | 148,885 | |||||
591,869 | ||||||||
Household Appliances–0.19% | ||||||||
Whirlpool Corp. | 2,355 | 144,032 | ||||||
Household Products–0.78% | ||||||||
Clorox Co. (The) | 1,993 | 144,413 | ||||||
Colgate-Palmolive Co. | 1,429 | 148,759 | ||||||
Kimberly-Clark Corp. | 1,763 | 147,687 | ||||||
Procter & Gamble Co. (The) | 2,282 | 139,772 | ||||||
580,631 | ||||||||
Housewares & Specialties–0.19% | ||||||||
Newell Rubbermaid, Inc. | 7,963 | 144,449 | ||||||
Human Resource & Employment Services–0.20% | ||||||||
Robert Half International, Inc. | 5,088 | 145,364 | ||||||
Hypermarkets & Super Centers–0.40% | ||||||||
Costco Wholesale Corp. | 1,613 | 153,235 | ||||||
Wal-Mart Stores, Inc. | 2,099 | 146,342 | ||||||
299,577 | ||||||||
Independent Power Producers & Energy Traders–0.41% | ||||||||
AES Corp. (The)(c) | 11,459 | 147,019 | ||||||
NRG Energy, Inc.(c) | 8,992 | 156,101 | ||||||
303,120 | ||||||||
Industrial Conglomerates–0.80% | ||||||||
3M Co. | 1,665 | 149,184 | ||||||
Danaher Corp. | 2,781 | 144,835 | ||||||
General Electric Co. | 7,461 | 155,487 | ||||||
Tyco International Ltd. | 2,678 | 141,532 | ||||||
591,038 | ||||||||
Industrial Gases–0.58% | ||||||||
Air Products & Chemicals, Inc. | 1,798 | 145,152 | ||||||
Airgas, Inc. | 1,662 | 139,625 | ||||||
Praxair, Inc. | 1,352 | 147,003 | ||||||
431,780 | ||||||||
Industrial Machinery–1.92% | ||||||||
Dover Corp. | 2,527 | 135,472 | ||||||
Eaton Corp. | 3,473 | 137,635 | ||||||
Flowserve Corp. | 1,362 | 156,290 | ||||||
Illinois Tool Works Inc. | 2,557 | 135,240 | ||||||
Ingersoll-Rand PLC | 3,511 | 148,094 | ||||||
Pall Corp. | 2,703 | 148,151 | ||||||
Parker Hannifin Corp. | 1,762 | 135,463 | ||||||
Snap-on Inc. | 2,286 | 142,304 | ||||||
Stanley Black & Decker Inc. | 2,214 | 142,493 | ||||||
Xylem, Inc. | 5,526 | 139,089 | ||||||
1,420,231 | ||||||||
Industrial REIT’s–0.20% | ||||||||
Prologis, Inc. | 4,494 | 149,336 | ||||||
Insurance Brokers–0.39% | ||||||||
Aon PLC | 3,071 | 143,661 | ||||||
Marsh & McLennan Cos., Inc. | 4,478 | 144,326 | ||||||
287,987 | ||||||||
Integrated Oil & Gas–1.00% | ||||||||
Chevron Corp. | 1,420 | 149,810 | ||||||
Exxon Mobil Corp. | 1,771 | 151,545 | ||||||
Hess Corp. | 3,203 | 139,170 | ||||||
Murphy Oil Corp. | 3,127 | 157,257 | ||||||
Occidental Petroleum Corp. | 1,683 | 144,351 | ||||||
742,133 | ||||||||
Integrated Telecommunication Services–1.02% | ||||||||
AT&T Inc. | 4,145 | 147,810 | ||||||
CenturyLink Inc. | 3,826 | 151,089 | ||||||
Frontier Communications Corp. | 41,525 | 159,041 | ||||||
Verizon Communications Inc. | 3,375 | 149,985 | ||||||
Windstream Corp. | 15,305 | 147,846 | ||||||
755,771 | ||||||||
Internet Retail–1.00% | ||||||||
Amazon.com, Inc.(c) | 655 | 149,569 | ||||||
Expedia, Inc. | 2,993 | 143,874 | ||||||
Netflix Inc.(c) | 2,181 | 149,333 | ||||||
Priceline.com Inc.(c) | 223 | 148,188 | ||||||
TripAdvisor Inc.(c) | 3,329 | 148,773 | ||||||
739,737 | ||||||||
Internet Software & Services–1.00% | ||||||||
Akamai Technologies, Inc.(c) | 4,756 | 151,003 | ||||||
eBay Inc.(c) | 3,489 | 146,573 | ||||||
Google Inc.–Class A(c) | 246 | 142,697 | ||||||
VeriSign, Inc.(c) | 3,598 | 156,765 | ||||||
Yahoo! Inc.(c) | 9,118 | 144,338 | ||||||
741,376 | ||||||||
Investment Banking & Brokerage–0.79% | ||||||||
Charles Schwab Corp. (The) | 11,629 | 150,363 | ||||||
E*TRADE Financial Corp.(c) | 17,491 | 140,628 | ||||||
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 | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Goldman Sachs Group, Inc. (The) | 1,514 | $ | 145,132 | |||||
Morgan Stanley | 10,423 | 152,071 | ||||||
588,194 | ||||||||
IT Consulting & Other Services–0.99% | ||||||||
Accenture PLC–Class A | 2,447 | 147,040 | ||||||
Cognizant Technology Solutions Corp.–Class A(c) | 2,434 | 146,040 | ||||||
International Business Machines Corp. | 733 | 143,360 | ||||||
SAIC, Inc. | 12,423 | 150,567 | ||||||
Teradata Corp.(c) | 2,085 | 150,141 | ||||||
737,148 | ||||||||
Leisure Products–0.39% | ||||||||
Hasbro, Inc. | 4,151 | 140,595 | ||||||
Mattel, Inc. | 4,519 | 146,596 | ||||||
287,191 | ||||||||
Life & Health Insurance–1.40% | ||||||||
Aflac, Inc. | 3,524 | 150,087 | ||||||
Lincoln National Corp. | 6,827 | 149,306 | ||||||
MetLife, Inc. | 4,815 | 148,543 | ||||||
Principal Financial Group, Inc. | 5,773 | 151,426 | ||||||
Prudential Financial, Inc. | 2,986 | 144,612 | ||||||
Torchmark Corp. | 3,025 | 152,914 | ||||||
Unum Group | 7,239 | 138,482 | ||||||
1,035,370 | ||||||||
Life Sciences Tools & Services–0.98% | ||||||||
Agilent Technologies, Inc. | 3,617 | 141,931 | ||||||
Life Technologies Corp.(c) | 3,423 | 154,001 | ||||||
PerkinElmer, Inc. | 5,505 | 142,029 | ||||||
Thermo Fisher Scientific, Inc. | 2,816 | 146,178 | ||||||
Waters Corp.(c) | 1,817 | 144,397 | ||||||
728,536 | ||||||||
Managed Health Care–1.11% | ||||||||
Aetna Inc. | 3,312 | 128,406 | ||||||
Cigna Corp. | 3,192 | 140,448 | ||||||
Coventry Health Care, Inc. | 4,413 | 140,289 | ||||||
Humana Inc. | 1,803 | 139,624 | ||||||
UnitedHealth Group Inc. | 2,469 | 144,437 | ||||||
WellPoint, Inc. | 2,073 | 132,237 | ||||||
825,441 | ||||||||
Metal & Glass Containers–0.38% | ||||||||
Ball Corp. | 3,480 | 142,854 | ||||||
Owens-Illinois, Inc.(c) | 7,392 | 141,705 | ||||||
284,559 | ||||||||
Motorcycle Manufacturers–0.18% | ||||||||
Harley-Davidson, Inc. | 2,943 | 134,583 | ||||||
Movies & Entertainment–0.83% | ||||||||
News Corp.–Class A | 7,369 | 164,255 | ||||||
Time Warner Inc. | 4,065 | 156,502 | ||||||
Viacom Inc.–Class B | 3,006 | 141,342 | ||||||
Walt Disney Co. (The) | 3,097 | 150,205 | ||||||
612,304 | ||||||||
Multi-Line Insurance–1.00% | ||||||||
American International Group, Inc.(c) | 4,700 | 150,823 | ||||||
Assurant, Inc. | 4,216 | 146,885 | ||||||
Genworth Financial Inc.–Class A(c) | 26,628 | 150,715 | ||||||
Hartford Financial Services Group, Inc. | 8,302 | 146,364 | ||||||
Loews Corp. | 3,592 | 146,949 | ||||||
741,736 | ||||||||
Multi-Sector Holdings–0.20% | ||||||||
Leucadia National Corp. | 6,900 | 146,763 | ||||||
Multi-Utilities–2.74% | ||||||||
Ameren Corp. | 4,307 | 144,457 | ||||||
CenterPoint Energy, Inc. | 7,022 | 145,145 | ||||||
CMS Energy Corp. | 6,080 | 142,880 | ||||||
Consolidated Edison, Inc. | 2,301 | 143,099 | ||||||
Dominion Resources, Inc. | 2,691 | 145,314 | ||||||
DTE Energy Co. | 2,470 | 146,545 | ||||||
Integrys Energy Group, Inc. | 2,582 | 146,838 | ||||||
NiSource Inc. | 5,673 | 140,407 | ||||||
PG&E Corp. | 3,176 | 143,778 | ||||||
Public Service Enterprise Group Inc. | 4,485 | 145,762 | ||||||
SCANA Corp. | 3,048 | 145,816 | ||||||
Sempra Energy | 2,145 | 147,748 | ||||||
TECO Energy, Inc. | 8,075 | 145,834 | ||||||
Wisconsin Energy Corp. | 3,710 | 146,805 | ||||||
2,030,428 | ||||||||
Office Electronics–0.20% | ||||||||
Xerox Corp. | 18,581 | 146,232 | ||||||
Office REIT’s–0.20% | ||||||||
Boston Properties, Inc. | 1,361 | 147,492 | ||||||
Office Services & Supplies–0.39% | ||||||||
Avery Dennison Corp. | 5,058 | 138,286 | ||||||
Pitney Bowes Inc. | 10,003 | 149,745 | ||||||
288,031 | ||||||||
Oil & Gas Drilling–0.98% | ||||||||
Diamond Offshore Drilling, Inc. | 2,383 | 140,907 | ||||||
Helmerich & Payne, Inc. | 3,108 | 135,136 | ||||||
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 | |||||||
Oil & Gas Drilling–(continued) | ||||||||
Nabors Industries Ltd.(c) | 10,690 | $ | 153,936 | |||||
Noble Corp.(c) | 4,492 | 146,125 | ||||||
Rowan Cos. PLC–Class A(c) | 4,572 | 147,812 | ||||||
723,916 | ||||||||
Oil & Gas Equipment & Services–1.15% | ||||||||
Baker Hughes Inc. | 3,649 | 149,974 | ||||||
Cameron International Corp.(c) | 3,116 | 133,084 | ||||||
FMC Technologies, Inc.(c) | 3,522 | 138,168 | ||||||
Halliburton Co. | 5,123 | 145,442 | ||||||
National Oilwell Varco Inc. | 2,150 | 138,546 | ||||||
Schlumberger Ltd. | 2,218 | 143,971 | ||||||
849,185 | ||||||||
Oil & Gas Exploration & Production–3.47% | ||||||||
Anadarko Petroleum Corp. | 2,243 | 148,487 | ||||||
Apache Corp. | 1,725 | 151,610 | ||||||
Cabot Oil & Gas Corp. | 4,341 | 171,035 | ||||||
Chesapeake Energy Corp. | 7,758 | 144,299 | ||||||
ConocoPhillips | 2,654 | 148,305 | ||||||
Denbury Resources Inc.(c) | 9,517 | 143,802 | ||||||
Devon Energy Corp. | 2,440 | 141,496 | ||||||
EOG Resources, Inc. | 1,525 | 137,418 | ||||||
EQT Corp. | 3,103 | 166,414 | ||||||
Marathon Oil Corp. | 5,723 | 146,337 | ||||||
Newfield Exploration Co.(c) | 4,906 | 143,795 | ||||||
Noble Energy, Inc. | 1,687 | 143,091 | ||||||
Pioneer Natural Resources Co. | 1,518 | 133,903 | ||||||
QEP Resources Inc. | 5,449 | 163,306 | ||||||
Range Resources Corp. | 2,531 | 156,593 | ||||||
Southwestern Energy Co.(c) | 5,288 | 168,846 | ||||||
WPX Energy Inc.(c) | 10,190 | 164,874 | ||||||
2,573,611 | ||||||||
Oil & Gas Refining & Marketing–1.06% | ||||||||
Marathon Petroleum Corp. | 3,834 | 172,223 | ||||||
Phillips 66 | 4,459 | 148,217 | ||||||
Sunoco, Inc. | 3,064 | 145,540 | ||||||
Tesoro Corp.(c) | 6,389 | 159,470 | ||||||
Valero Energy Corp. | 6,734 | 162,626 | ||||||
788,076 | ||||||||
Oil & Gas Storage & Transportation–0.59% | ||||||||
Kinder Morgan Inc. | 4,541 | 146,311 | ||||||
Spectra Energy Corp. | 5,151 | 149,688 | ||||||
Williams Cos., Inc. (The) | 4,877 | 140,555 | ||||||
436,554 | ||||||||
Other Diversified Financial Services–0.60% | ||||||||
Bank of America Corp. | 18,950 | 155,011 | ||||||
Citigroup Inc. | 5,158 | 141,381 | ||||||
JPMorgan Chase & Co. | 4,252 | 151,924 | ||||||
448,316 | ||||||||
Packaged Foods & Meats–2.58% | ||||||||
Campbell Soup Co. | 4,515 | 150,711 | ||||||
ConAgra Foods, Inc. | 5,725 | 148,449 | ||||||
Dean Foods Co.(c) | 8,905 | 151,652 | ||||||
General Mills, Inc. | 3,749 | 144,486 | ||||||
H.J. Heinz Co. | 2,673 | 145,358 | ||||||
Hershey Co. (The) | 2,119 | 152,632 | ||||||
Hormel Foods Corp. | 4,813 | 146,411 | ||||||
JM Smucker Co. (The) | 1,890 | 142,733 | ||||||
Kellogg Co. | 2,945 | 145,277 | ||||||
Kraft Foods Inc.–Class A | 3,745 | 144,632 | ||||||
McCormick & Co., Inc. | 2,567 | 155,688 | ||||||
Mead Johnson Nutrition Co. | 1,758 | 141,537 | ||||||
Tyson Foods, Inc.–Class A | 7,546 | 142,091 | ||||||
1,911,657 | ||||||||
Paper Packaging–0.38% | ||||||||
Bemis Co., Inc. | 4,512 | 141,406 | ||||||
Sealed Air Corp. | 9,130 | 140,967 | ||||||
282,373 | ||||||||
Paper Products–0.39% | ||||||||
International Paper Co. | 4,894 | 141,486 | ||||||
MeadWestvaco Corp. | 5,118 | 147,142 | ||||||
288,628 | ||||||||
Personal Products–0.39% | ||||||||
Avon Products, Inc. | 8,979 | 145,550 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 2,604 | 140,928 | ||||||
286,478 | ||||||||
Pharmaceuticals–2.42% | ||||||||
Abbott Laboratories | 2,315 | 149,248 | ||||||
Allergan, Inc. | 1,565 | 144,872 | ||||||
Bristol-Myers Squibb Co. | 4,167 | 149,804 | ||||||
Eli Lilly & Co. | 3,449 | 147,996 | ||||||
Forest Laboratories, Inc.(c) | 4,013 | 140,415 | ||||||
Hospira, Inc.(c) | 4,368 | 152,793 | ||||||
Johnson & Johnson | 2,273 | 153,564 | ||||||
Merck & Co., Inc. | 3,724 | 155,477 | ||||||
Mylan Inc.(c) | 6,647 | 142,046 | ||||||
Perrigo Co. | 1,348 | 158,970 | ||||||
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–(continued) | ||||||||
Pfizer Inc. | 6,470 | $ | 148,810 | |||||
Watson Pharmaceuticals, Inc.(c) | 2,020 | 149,460 | ||||||
1,793,455 | ||||||||
Property & Casualty Insurance–1.57% | ||||||||
ACE Ltd. (Switzerland) | 1,965 | 145,665 | ||||||
Allstate Corp. (The) | 4,174 | 146,466 | ||||||
Berkshire Hathaway Inc.–Class B(c) | 1,760 | 146,661 | ||||||
Chubb Corp. (The) | 2,001 | 145,713 | ||||||
Cincinnati Financial Corp. | 3,901 | 148,511 | ||||||
Progressive Corp. (The) | 6,540 | 136,228 | ||||||
Travelers Cos., Inc. (The) | 2,305 | 147,151 | ||||||
XL Group PLC (Ireland) | 7,049 | 148,311 | ||||||
1,164,706 | ||||||||
Publishing–0.62% | ||||||||
Gannett Co., Inc. | 11,241 | 165,580 | ||||||
McGraw-Hill Cos., Inc. (The) | 3,291 | 148,095 | ||||||
Washington Post Co. (The)–Class B | 393 | 146,911 | ||||||
460,586 | ||||||||
Railroads–0.62% | ||||||||
CSX Corp. | 6,795 | 151,936 | ||||||
Norfolk Southern Corp. | 2,155 | 154,665 | ||||||
Union Pacific Corp. | 1,294 | 154,387 | ||||||
460,988 | ||||||||
Real Estate Services–0.19% | ||||||||
CBRE Group, Inc.–Class A(c) | 8,783 | 143,690 | ||||||
Regional Banks–2.05% | ||||||||
BB&T Corp. | 4,938 | 152,337 | ||||||
Fifth Third Bancorp | 11,079 | 148,459 | ||||||
First Horizon National Corp. | 17,997 | 155,674 | ||||||
Huntington Bancshares Inc. | 22,995 | 147,168 | ||||||
KeyCorp | 19,678 | 152,308 | ||||||
M&T Bank Corp. | 1,791 | 147,883 | ||||||
PNC Financial Services Group, Inc. | 2,413 | 147,458 | ||||||
Regions Financial Corp. | 23,294 | 157,235 | ||||||
SunTrust Banks, Inc. | 6,458 | 156,477 | ||||||
Zions Bancorp. | 7,785 | 151,185 | ||||||
1,516,184 | ||||||||
Research & Consulting Services–0.40% | ||||||||
Dun & Bradstreet Corp. (The) | 2,137 | 152,090 | ||||||
Equifax Inc. | 3,057 | 142,456 | ||||||
294,546 | ||||||||
Residential REIT’s–0.58% | ||||||||
Apartment Investment & Management Co.–Class A | 5,272 | 142,502 | ||||||
AvalonBay Communities, Inc. | 1,010 | 142,895 | ||||||
Equity Residential | 2,314 | 144,301 | ||||||
429,698 | ||||||||
Restaurants–0.96% | ||||||||
Chipotle Mexican Grill, Inc.(c) | 351 | 133,363 | ||||||
Darden Restaurants, Inc. | 2,863 | 144,954 | ||||||
McDonald’s Corp. | 1,631 | 144,392 | ||||||
Starbucks Corp. | 2,673 | 142,524 | ||||||
Yum! Brands, Inc. | 2,217 | 142,819 | ||||||
708,052 | ||||||||
Retail REIT’s–0.40% | ||||||||
Kimco Realty Corp. | 7,764 | 147,749 | ||||||
Simon Property Group, Inc. | 950 | 147,877 | ||||||
295,626 | ||||||||
Semiconductor Equipment–0.79% | ||||||||
Applied Materials, Inc. | 13,308 | 152,510 | ||||||
KLA-Tencor Corp. | 3,026 | 149,030 | ||||||
Lam Research Corp.(c) | 3,807 | 143,676 | ||||||
Teradyne, Inc.(c) | 9,933 | 139,658 | ||||||
584,874 | ||||||||
Semiconductors–2.60% | ||||||||
Advanced Micro Devices, Inc.(c) | 24,240 | 138,895 | ||||||
Altera Corp. | 4,276 | 144,700 | ||||||
Analog Devices, Inc. | 3,860 | 145,406 | ||||||
Broadcom Corp.–Class A(c) | 4,205 | 142,129 | ||||||
First Solar, Inc.(c) | 11,171 | 168,235 | ||||||
Intel Corp. | 5,424 | 144,550 | ||||||
Linear Technology Corp. | 4,804 | 150,509 | ||||||
LSI Corp.(c) | 21,706 | 138,267 | ||||||
Microchip Technology Inc. | 4,474 | 148,000 | ||||||
Micron Technology, Inc.(c) | 24,364 | 153,737 | ||||||
NVIDIA Corp.(c) | 11,803 | 163,118 | ||||||
Texas Instruments Inc. | 5,023 | 144,110 | ||||||
Xilinx, Inc. | 4,361 | 146,399 | ||||||
1,928,055 | ||||||||
Soft Drinks–0.99% | ||||||||
Coca-Cola Co. (The) | 1,903 | 148,796 | ||||||
Coca-Cola Enterprises, Inc. | 5,317 | 149,089 | ||||||
Dr. Pepper Snapple Group, Inc. | 3,359 | 146,956 | ||||||
Monster Beverage Corp.(c) | 1,982 | 141,118 | ||||||
PepsiCo, Inc. | 2,096 | 148,103 | ||||||
734,062 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 9,237 | $ | 147,607 | |||||
Specialized Finance–0.99% | ||||||||
CME Group Inc. | 527 | 141,294 | ||||||
IntercontinentalExchange Inc.(c) | 1,119 | 152,162 | ||||||
Moody’s Corp. | 3,945 | 144,190 | ||||||
NASDAQ OMX Group, Inc. (The) | 6,475 | 146,788 | ||||||
NYSE Euronext | 5,823 | 148,952 | ||||||
733,386 | ||||||||
Specialized REIT’s–1.64% | ||||||||
American Tower Corp. | 2,159 | 150,936 | ||||||
HCP, Inc. | 3,434 | 151,611 | ||||||
Health Care REIT, Inc. | 2,560 | 149,248 | ||||||
Host Hotels & Resorts Inc. | 9,304 | 147,189 | ||||||
Plum Creek Timber Co., Inc. | 3,834 | 152,210 | ||||||
Public Storage | 1,032 | 149,031 | ||||||
Ventas, Inc. | 2,457 | 155,086 | ||||||
Weyerhaeuser Co. | 7,005 | 156,632 | ||||||
1,211,943 | ||||||||
Specialty Chemicals–0.78% | ||||||||
Ecolab Inc. | 2,152 | 147,477 | ||||||
International Flavors & Fragrances Inc. | 2,535 | 138,918 | ||||||
Sherwin-Williams Co. (The) | 1,089 | 144,129 | ||||||
Sigma-Aldrich Corp. | 2,025 | 149,708 | ||||||
580,232 | ||||||||
Specialty Stores–0.38% | ||||||||
Staples, Inc. | 11,118 | 145,090 | ||||||
Tiffany & Co. | 2,591 | 137,193 | ||||||
282,283 | ||||||||
Steel–0.80% | ||||||||
Allegheny Technologies, Inc. | 4,728 | 150,776 | ||||||
Cliffs Natural Resources Inc. | 2,937 | 144,765 | ||||||
Nucor Corp. | 3,848 | 145,839 | ||||||
United States Steel Corp. | 7,488 | 154,253 | ||||||
595,633 | ||||||||
Systems Software–1.20% | ||||||||
BMC Software, Inc.(c) | 3,277 | 139,863 | ||||||
CA, Inc. | 5,645 | 152,923 | ||||||
Microsoft Corp. | 4,831 | 147,780 | ||||||
Oracle Corp. | 5,274 | 156,638 | ||||||
Red Hat, Inc.(c) | 2,569 | 145,097 | ||||||
Symantec Corp.(c) | 9,802 | 143,207 | ||||||
885,508 | ||||||||
Thrifts & Mortgage Finance–0.40% | ||||||||
Hudson City Bancorp, Inc. | 23,718 | 151,084 | ||||||
People’s United Financial Inc. | 12,219 | 141,862 | ||||||
292,946 | ||||||||
Tires & Rubber–0.22% | ||||||||
Goodyear Tire & Rubber Co. (The)(c) | 13,653 | 161,242 | ||||||
Tobacco–0.82% | ||||||||
Altria Group, Inc. | 4,352 | 150,362 | ||||||
Lorillard, Inc. | 1,162 | 153,326 | ||||||
Philip Morris International Inc. | 1,705 | 148,778 | ||||||
Reynolds American Inc. | 3,482 | 156,237 | ||||||
608,703 | ||||||||
Trading Companies & Distributors–0.39% | ||||||||
Fastenal Co. | 3,557 | 143,382 | ||||||
W.W. Grainger, Inc. | 753 | 144,004 | ||||||
287,386 | ||||||||
Trucking–0.16% | ||||||||
Ryder System, Inc. | 3,339 | 120,237 | ||||||
Wireless Telecommunication Services–0.60% | ||||||||
Crown Castle International Corp.(c) | 2,563 | 150,346 | ||||||
MetroPCS Communications, Inc.(c) | 23,294 | 140,929 | ||||||
Sprint Nextel Corp.(c) | 48,075 | 156,724 | ||||||
447,999 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $38,063,123) | 73,548,582 | |||||||
Money Market Funds–0.74% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 272,242 | 272,242 | ||||||
Premier Portfolio–Institutional Class(e) | 272,242 | 272,242 | ||||||
Total Money Market Funds (Cost $544,484) | 544,484 | |||||||
TOTAL INVESTMENTS–100.03% (Cost $38,607,607) | 74,093,066 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.03)% | (21,811 | ) | ||||||
NET ASSETS–100.00% | $ | 74,071,255 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | 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. | |
(c) | Non-income producing security. | |
(d) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 5. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Consumer Discretionary | 16.1 | % | ||
Financials | 16.0 | |||
Information Technology | 13.8 | |||
Industrials | 12.0 | |||
Health Care | 10.4 | |||
Energy | 8.9 | |||
Consumer Staples | 8.2 | |||
Materials | 6.2 | |||
Utilities | 6.1 | |||
Telecommunication Services | 1.6 | |||
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. Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $37,947,213) | $ | 73,406,722 | ||
Investments in affiliates, at value (Cost $660,394) | 686,344 | |||
Total investments, at value (Cost $38,607,607) | 74,093,066 | |||
Receivable for: | ||||
Investments sold | 279,939 | |||
Variation margin | 15,300 | |||
Dividends | 95,582 | |||
Fund expenses absorbed | 13,584 | |||
Investment for trustee deferred compensation and retirement plans | 6,808 | |||
Other assets | 2,810 | |||
Total assets | 74,507,089 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 289,983 | |||
Fund shares reacquired | 31,862 | |||
Accrued fees to affiliates | 61,974 | |||
Accrued other operating expenses | 41,455 | |||
Trustee deferred compensation and retirement plans | 10,560 | |||
Total liabilities | 435,834 | |||
Net assets applicable to shares outstanding | $ | 74,071,255 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 23,368,162 | ||
Undistributed net investment income | 1,773,501 | |||
Undistributed net realized gain | 13,427,609 | |||
Unrealized appreciation | 35,501,983 | |||
$ | 74,071,255 | |||
Net Assets: | ||||
Series I | $ | 35,710,595 | ||
Series II | $ | 38,360,660 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 1,805,690 | |||
Series II | 1,966,903 | |||
Series I: | ||||
Net asset value per share | $ | 19.78 | ||
Series II: | ||||
Net asset value per share | $ | 19.50 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 747,298 | ||
Dividends from affiliates | 2,289 | |||
Total investment income | 749,587 | |||
Expenses: | ||||
Advisory fees | 46,958 | |||
Administrative services fees | 102,452 | |||
Custodian fees | 34,834 | |||
Distribution fees — Series II | 51,382 | |||
Transfer agent fees | 1,085 | |||
Trustees’ and officers’ fees and benefits | 12,116 | |||
Professional services fees | 18,034 | |||
Other | 24,459 | |||
Total expenses | 291,320 | |||
Less: Fees waived and expenses reimbursed | (95,207 | ) | ||
Net expenses | 196,113 | |||
Net investment income | 553,474 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 5,370,736 | |||
Futures contracts | 14,375 | |||
5,385,111 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 168,743 | |||
Futures contracts | 10,627 | |||
179,370 | ||||
Net realized and unrealized gain | 5,564,481 | |||
Net increase in net assets resulting from operations | $ | 6,117,955 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 553,474 | $ | 1,215,626 | ||||
Net realized gain | 5,385,111 | 10,927,207 | ||||||
Change in net unrealized appreciation (depreciation) | 179,370 | (12,112,953 | ) | |||||
Net increase in net assets resulting from operations | 6,117,955 | 29,880 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (694,111 | ) | |||||
Series II | — | (682,257 | ) | |||||
Total distributions from net investment income | — | (1,376,368 | ) | |||||
Share transactions–net: | ||||||||
Series I | (3,134,520 | ) | (6,950,303 | ) | ||||
Series II | (6,433,111 | ) | (13,497,863 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (9,567,631 | ) | (20,448,166 | ) | ||||
Net increase (decrease) in net assets | (3,449,676 | ) | (21,794,654 | ) | ||||
Net assets: | ||||||||
Beginning of period | 77,520,931 | 99,315,585 | ||||||
End of period (includes undistributed net investment income of $1,773,501 and $1,220,027, respectively) | $ | 74,071,255 | $ | 77,520,931 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Equally-Weighted S&P 500 Fund, formerly Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Equally-Weighted S&P 500 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. | 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 each Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is such Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to each Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.37% and Series II shares to 0.62% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $46,959 and reimbursed Fund expenses of $48,248.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing
Invesco V.I. Equally-Weighted S&P 500 Fund
participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $77,589 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 74,093,066 | $ | — | $ | — | $ | 74,093,066 | ||||||||
Futures* | 16,524 | — | — | 16,524 | ||||||||||||
Total Investments | $ | 74,109,590 | $ | — | $ | — | $ | 74,109,590 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | 16,524 | $ | — | ||||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Equity risk | $ | 14,375 | ||
Change in Unrealized Appreciation | ||||
Equity risk | 10,627 | |||
Total | $ | 25,002 | ||
* | The average notional value of futures outstanding during the period was $675,880. |
Open Futures Contracts | ||||||||||||||||
Number of | Expiration | Notional | Unrealized | |||||||||||||
Long Contracts | Contracts | Month | Value | Appreciation | ||||||||||||
E-Mini S&P 500 Index | 9 | September-2012 | $ | 610,380 | $ | 16,524 | ||||||||||
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, 2012.
Change in | ||||||||||||||||||||||||||||
Value | Purchases | Proceeds | Unrealized | Realized | Value | Dividend | ||||||||||||||||||||||
12/31/11 | at Cost | from Sales | Appreciation | Gain (Loss) | 06/30/12 | Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 156,802 | $ | 9,327 | $ | (48,072 | ) | $ | 25,169 | $ | (1,366 | ) | $ | 141,860 | $ | 1,992 | ||||||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2011.
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $9,587,851 and $19,055,741, 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 | $ | 34,883,182 | ||
Aggregate unrealized (depreciation) of investment securities | (1,223,933 | ) | ||
Net unrealized appreciation of investment securities | $ | 33,659,249 | ||
Cost of investments for tax purposes is $40,433,817. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 12,478 | $ | 244,615 | 15,291 | $ | 301,389 | ||||||||||
Series II | 38,097 | 733,358 | 70,617 | 1,284,479 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 42,093 | 694,111 | ||||||||||||
Series II | — | — | 41,882 | 682,257 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (171,151 | ) | (3,379,135 | ) | (418,313 | ) | (7,945,803 | ) | ||||||||
Series II | (365,973 | ) | (7,166,469 | ) | (820,784 | ) | (15,464,599 | ) | ||||||||
Net increase (decrease) in share activity | (486,549 | ) | $ | (9,567,631 | ) | (1,069,214 | ) | $ | (20,448,166 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 96% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income to | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 18.33 | $ | 0.15 | $ | 1.30 | $ | 1.45 | $ | — | $ | — | $ | — | $ | 19.78 | 7.91 | % | $ | 35,711 | 0.37 | %(d) | 0.61 | %(d) | 1.55 | %(d) | 12 | % | ||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.75 | 0.41 | 0.20 | 0.61 | (0.42 | ) | (2.57 | ) | (2.99 | ) | 25.37 | 1.47 | 77,688 | 0.28 | 0.28 | 1.48 | 17 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 18.09 | 0.13 | 1.28 | 1.41 | — | — | — | 19.50 | 7.79 | 38,361 | 0.62 | (d) | 0.86 | (d) | 1.30 | (d) | 12 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 27.47 | 0.34 | 0.19 | 0.53 | (0.35 | ) | (2.57 | ) | (2.92 | ) | 25.08 | 1.23 | 99,861 | 0.53 | 0.53 | 1.23 | 17 | |||||||||||||||||||||||||||||||||||||||
(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 $37,363 and $41,331 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,079.10 | $ | 1.91 | $ | 1,023.02 | $ | 1.86 | 0.37 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,077.90 | 3.20 | 1,021.78 | 3.12 | 0.62 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 2.00% and 2.25% 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 0.61% and 0.86% 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 $3.15 and $4.44 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 $3.07 and $4.32 for Series I and Series II shares, respectively. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Approval of Investment Advisory and Sub-Advisory Contracts
(Formerly Known as Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Equally-Weighted S&P 500 Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and
Invesco V.I. Equally-Weighted S&P 500 Fund
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 – Multi-Cap Core 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was the same as the rate of one mutual fund with comparable investment strategies
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Global Core Equity Fund
Effective April 30, 2012, Invesco Van Kampen V.I. Global Value Equity Fund was
renamed Invesco V.I. Global Core Equity Fund.
renamed Invesco V.I. Global Core Equity Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 1.18 | % | ||
Series II Shares | 1.03 | |||
MSCI World Index▼ (Broad Market/Style-Specific Index) | 5.91 | |||
Lipper VUF Global Core Funds Index▼ (Peer Group Index) | 6.33 | |||
Source(s): ▼Lipper Inc. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The Lipper VUF Global Core Funds Index is an unmanaged index considered representative of global core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (1/2/97) | 3.48 | % | ||||||
10 | Years | 1.41 | ||||||
5 | Years | -7.64 | ||||||
1 | Year | -13.35 | ||||||
Series II Shares | ||||||||
10 | Years | 1.16 | % | |||||
5 | Years | -7.87 | ||||||
1 | Year | -13.60 |
Effective June 1, 2010, Class I shares of the predecessor fund, Universal Funds Global Value Equity Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I shares of Invesco Van Kampen V.I. Global Value Equity Fund. Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Global Value Equity Fund (renamed Invesco V.I. Global Core Equity Fund on April 30, 2012). Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II share performance shown prior to that date is that of the predecessor fund's Class I shares restated to reflect the higher 12b-1 fees applicable to Series II shares. Class I share performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund's Class I shares is January 2, 1997.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.01% and 1.26%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Global Core Equity Fund
Schedule of Investments
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.98% | ||||||||
Australia–3.45% | ||||||||
Australia & New Zealand Banking Group Ltd. | 39,782 | $ | 903,360 | |||||
Macquarie Group Ltd. | 41,805 | 1,125,903 | ||||||
Telstra Corp. Ltd. | 302,487 | 1,146,570 | ||||||
3,175,833 | ||||||||
Brazil–0.78% | ||||||||
Banco do Brasil S.A. | 8,500 | 82,276 | ||||||
Banco Santander Brasil S.A.(a) | 12,000 | 91,848 | ||||||
Companhia Paranaense de Energia-Copel–(Preference) | 6,000 | 129,770 | ||||||
PDG Realty S.A. Empreendimentos e Participacoes | 37,200 | 65,351 | ||||||
Petroleo Brasileiro S.A.–ADR | 10,773 | 202,209 | ||||||
Vale S.A.–ADR | 7,613 | 151,118 | ||||||
722,572 | ||||||||
Canada–2.15% | ||||||||
Nexen Inc. | 53,189 | 900,676 | ||||||
Toronto-Dominion Bank (The) | 13,810 | 1,080,818 | ||||||
1,981,494 | ||||||||
China–0.93% | ||||||||
China Agri-Industries Holdings Ltd. | 104,000 | 57,236 | ||||||
China Communications Construction Co. Ltd.–Class H | 152,000 | 134,657 | ||||||
China Construction Bank Corp.–Class H | 253,000 | 174,436 | ||||||
China Minsheng Banking Corp., Ltd.–Class H | 227,500 | 203,430 | ||||||
CNOOC Ltd. | 102,000 | 205,762 | ||||||
KWG Property Holding Ltd. | 130,500 | 82,846 | ||||||
858,367 | ||||||||
France–4.65% | ||||||||
BNP Paribas S.A. | 27,289 | 1,052,710 | ||||||
Bouygues S.A. | 41,073 | 1,106,053 | ||||||
Sanofi | 15,459 | 1,171,439 | ||||||
Total S.A. | 21,092 | 951,188 | ||||||
4,281,390 | ||||||||
Germany–1.71% | ||||||||
Deutsche Lufthansa AG | 79,597 | 920,698 | ||||||
Salzgitter AG | 15,864 | 651,676 | ||||||
1,572,374 | ||||||||
Hong Kong–1.24% | ||||||||
Cheung Kong (Holdings) Ltd. | 67,000 | 827,059 | ||||||
China Mobile Ltd. | 28,500 | 313,228 | ||||||
1,140,287 | ||||||||
India–0.12% | ||||||||
Tata Motors Ltd.–ADR | 5,204 | 114,280 | ||||||
Indonesia–0.11% | ||||||||
PT Telekomunikasi Indonesia Persero Tbk | 119,000 | 103,145 | ||||||
Ireland–0.16% | ||||||||
Dragon Oil PLC | 17,122 | 145,202 | ||||||
Italy–1.09% | ||||||||
Eni S.p.A. | 47,177 | 1,006,106 | ||||||
Japan–13.92% | ||||||||
Asahi Group Holdings, Ltd. | 103,900 | 2,231,381 | ||||||
DeNA Co., Ltd. | 62,700 | 1,664,267 | ||||||
Mitsubishi Corp. | 52,200 | 1,054,040 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 259,300 | 1,240,878 | ||||||
Nippon Telegraph & Telephone Corp. | 31,000 | 1,440,237 | ||||||
Nippon Yusen Kabushiki Kaisha | 307,000 | 815,274 | ||||||
Nissan Motor Co., Ltd. | 181,200 | 1,715,983 | ||||||
Seven & I Holdings Co., Ltd. | 33,900 | 1,021,387 | ||||||
Sumitomo Chemical Co., Ltd. | 229,000 | 704,206 | ||||||
Yamada Denki Co., Ltd. | 18,480 | 943,166 | ||||||
12,830,819 | ||||||||
Mexico–0.22% | ||||||||
America Movil S.A.B. de C.V.–Series L | 155,400 | 202,985 | ||||||
Norway–2.52% | ||||||||
Statoil ASA | 38,627 | 922,216 | ||||||
Yara International ASA | 32,075 | 1,402,493 | ||||||
2,324,709 | ||||||||
Poland–0.17% | ||||||||
KGHM Polska Miedz S.A. | 3,578 | 156,197 | ||||||
Russia–0.50% | ||||||||
Gazprom OAO–ADR | 11,800 | 111,700 | ||||||
JSFC Sistema–REGS–GDR(b) | 6,960 | 130,256 | ||||||
Magnitogorsk Iron & Steel Works–REGS–GDR(b)(c) | 16,765 | 62,324 | ||||||
Rosneft Oil Co.–REGS–GDR(b) | 24,364 | 152,902 | ||||||
457,182 | ||||||||
South Africa–0.79% | ||||||||
Sasol Ltd. | 3,990 | 168,024 | ||||||
Standard Bank Group Ltd. | 14,235 | 193,312 | ||||||
Steinhoff International Holdings Ltd.(c) | 68,786 | 208,332 | ||||||
Tiger Brands Ltd. | 5,183 | 155,846 | ||||||
725,514 | ||||||||
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–1.57% | ||||||||
Dongbu Insurance Co., Ltd. | 3,696 | $ | 136,411 | |||||
Hyundai Mipo Dockyard Co., Ltd. | 1,184 | 123,812 | ||||||
Hyundai Mobis | 983 | 237,949 | ||||||
KT&G Corp. | 2,555 | 181,130 | ||||||
POSCO | 603 | 192,536 | ||||||
Samsung Electronics Co., Ltd. | 300 | 318,053 | ||||||
Shinhan Financial Group Co., Ltd. | 4,134 | 143,877 | ||||||
SK Telecom Co., Ltd.–ADR | 9,226 | 111,635 | ||||||
1,445,403 | ||||||||
Spain–2.49% | ||||||||
Banco Santander S.A. | 110,078 | 734,665 | ||||||
Iberdrola S.A. | 150,431 | 711,769 | ||||||
Telefonica S.A. | 64,007 | 843,846 | ||||||
2,290,280 | ||||||||
Switzerland–5.89% | ||||||||
ACE Ltd. | 33,731 | 2,500,479 | ||||||
Holcim Ltd.(c) | 15,838 | 876,947 | ||||||
Swisscom AG | 2,731 | 1,097,226 | ||||||
Zurich Insurance Group AG(c) | 4,232 | 954,269 | ||||||
5,428,921 | ||||||||
Taiwan–0.55% | ||||||||
AU Optronics Corp.–ADR | 16,744 | 67,311 | ||||||
HTC Corp. | 6,386 | 84,001 | ||||||
Powertech Technology Inc. | 76,300 | 149,211 | ||||||
Unimicron Technology Corp. | 97,000 | 111,023 | ||||||
Wistron Corp. | 75,000 | 92,364 | ||||||
503,910 | ||||||||
Thailand–0.39% | ||||||||
Bangkok Bank PCL–NVDR | 38,800 | 236,313 | ||||||
PTT PCL | 12,000 | 123,450 | ||||||
359,763 | ||||||||
Turkey–0.10% | ||||||||
Asya Katilim Bankasi AS(c) | 93,818 | 94,290 | ||||||
United Kingdom–11.81% | ||||||||
Barclays PLC | 300,143 | 768,279 | ||||||
BHP Billiton PLC | 49,397 | 1,410,557 | ||||||
Eurasian Natural Resources Corp. | 17,215 | 112,342 | ||||||
GlaxoSmithKline PLC | 43,172 | 978,930 | ||||||
Imperial Tobacco Group PLC | 66,055 | 2,541,520 | ||||||
National Grid PLC | 94,943 | 1,004,402 | ||||||
Rio Tinto PLC | 36,317 | 1,734,419 | ||||||
Royal Dutch Shell PLC–Class A | 69,303 | 2,334,483 | ||||||
10,884,932 | ||||||||
United States–39.67% | ||||||||
3M Co. | 13,153 | 1,178,509 | ||||||
Apache Corp. | 9,159 | 804,984 | ||||||
Archer-Daniels-Midland Co. | 60,196 | 1,776,986 | ||||||
Bank of America Corp. | 104,112 | 851,636 | ||||||
Bank of New York Mellon Corp. (The) | 37,531 | 823,805 | ||||||
Best Buy Co., Inc. | 39,389 | 825,593 | ||||||
Chevron Corp. | 22,678 | 2,392,529 | ||||||
Cisco Systems, Inc. | 101,295 | 1,739,235 | ||||||
Coach, Inc. | 25,172 | 1,472,059 | ||||||
ConocoPhillips | 25,023 | 1,398,285 | ||||||
Corning Inc. | 130,762 | 1,690,753 | ||||||
Energen Corp. | 21,829 | 985,143 | ||||||
Energizer Holdings, Inc. | 12,900 | 970,725 | ||||||
GameStop Corp.–Class A(d) | 46,485 | 853,465 | ||||||
General Dynamics Corp. | 26,717 | 1,762,253 | ||||||
Gilead Sciences, Inc.(c) | 25,279 | 1,296,307 | ||||||
Johnson & Johnson | 26,919 | 1,818,648 | ||||||
JPMorgan Chase & Co. | 32,392 | 1,157,366 | ||||||
Merck & Co., Inc. | 46,776 | 1,952,898 | ||||||
Microsoft Corp. | 37,175 | 1,137,183 | ||||||
Oracle Corp. | 57,419 | 1,705,344 | ||||||
Phillips 66 | 13,196 | 438,635 | ||||||
PNC Financial Services Group, Inc. | 16,843 | 1,029,276 | ||||||
Stryker Corp. | 17,727 | 976,758 | ||||||
Valero Energy Corp. | 48,265 | 1,165,600 | ||||||
WellPoint, Inc. | 28,987 | 1,849,081 | ||||||
Western Digital Corp.(c) | 69,933 | 2,131,558 | ||||||
WisdomTree India Earnings Fund–ETF(d) | 21,500 | 370,445 | ||||||
36,555,059 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $89,699,215) | 89,361,014 | |||||||
Preferred Stocks–1.32% | ||||||||
Germany–1.32% | ||||||||
Porsche Automobil Holding SE(d) (Cost $1,292,360) | 24,366 | 1,212,457 | ||||||
Money Market Funds–1.27% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 585,681 | 585,681 | ||||||
Premier Portfolio–Institutional Class(e) | 585,680 | 585,680 | ||||||
Total Money Market Funds (Cost $1,171,361) | 1,171,361 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.57% (Cost $92,162,936) | 91,744,832 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–1.96% | ||||||||
Liquid Asset Portfollio–Institutional Class (Cost $1,809,213)(e)(f) | 1,809,213 | $ | 1,809,213 | |||||
TOTAL INVESTMENTS–101.53% (Cost $93,972,149) | 93,554,045 | |||||||
OTHER ASSETS LESS LIABILITIES–(1.53%) | (1,410,905 | ) | ||||||
NET ASSETS–100.00% | $ | 92,143,140 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
ETF | – Exchange-Traded Fund | |
GDR | – Global Depositary Receipt | |
NVDR | – Non-Voting Depositary Receipt | |
Pfd. | – Preferred | |
REGS | – Regulation S |
Notes to Schedule of Investments:
(a) | Each unit represents 55 common shares and 50 preferred shares. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $345,482, which represented 0.37% of the Fund’s Net Assets. | |
(c) | Non-income producing security. | |
(d) | All or a portion of this security was out on loan at June 30, 2012. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(f) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
By country, based on Net Assets
as of June 30, 2012
United States | 39.7 | % | ||
Japan | 13.9 | |||
United Kingdom | 11.8 | |||
Switzerland | 5.9 | |||
France | 4.6 | |||
Australia | 3.5 | |||
Germany | 3.0 | |||
Norway | 2.5 | |||
Spain | 2.5 | |||
Canada | 2.2 | |||
Countries each less than 2.0% of portfolio | 8.7 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $90,991,575)* | $ | 90,573,471 | ||
Investments in affiliated money market funds, at value and cost | 2,980,574 | |||
Total investments, at value (Cost $93,972,149) | 93,554,045 | |||
Foreign currencies, at value (Cost $124,953) | 124,089 | |||
Receivable for: | ||||
Investments sold | 3,304 | |||
Fund shares sold | 31,536 | |||
Dividends | 345,248 | |||
Fund expenses absorbed | 13,519 | |||
Investment for trustee deferred compensation and retirement plans | 9,162 | |||
Total assets | 94,080,903 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 3,346 | |||
Collateral upon return of securities loaned | 1,809,213 | |||
Accrued fees to affiliates | 60,371 | |||
Accrued other operating expenses | 51,004 | |||
Trustee deferred compensation and retirement plans | 13,829 | |||
Total liabilities | 1,937,763 | |||
Net assets applicable to shares outstanding | $ | 92,143,140 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 118,806,834 | ||
Undistributed net investment income | 3,547,009 | |||
Undistributed net realized gain (loss) | (29,792,270 | ) | ||
Unrealized appreciation (depreciation) | (418,433 | ) | ||
$ | 92,143,140 | |||
Net Assets: | ||||
Series I | $ | 71,934,511 | ||
Series II | $ | 20,208,629 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 10,460,380 | |||
Series II | 2,946,156 | |||
Series I: | ||||
Net asset value per share | $ | 6.88 | ||
Series II: | ||||
Net asset value per share | $ | 6.86 | ||
* | At June 30, 2012, securities with an aggregate value of $1,820,268 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $121,534) | $ | 1,653,665 | ||
Dividends from affiliated money market funds (includes securities lending income of $45,851) | 47,107 | |||
Total investment income | 1,700,772 | |||
Expenses: | ||||
Advisory fees | 333,182 | |||
Administrative services fees | 122,490 | |||
Custodian fees | 26,685 | |||
Distribution fees — Series II | 27,108 | |||
Transfer agent fees | 5,121 | |||
Trustees’ and officers’ fees and benefits | 12,576 | |||
Other | 38,405 | |||
Total expenses | 565,567 | |||
Less: Fees waived | (72,174 | ) | ||
Net expenses | 493,393 | |||
Net investment income | 1,207,379 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (net of tax on sale of foreign investments of $2,985) | 1,757,357 | |||
Foreign currencies | 1,155 | |||
1,758,512 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of change in estimated tax on foreign investments held of $5,815) | (1,488,398 | ) | ||
Foreign currencies | (139 | ) | ||
(1,488,537 | ) | |||
Net realized and unrealized gain | 269,975 | |||
Net increase in net assets resulting from operations | $ | 1,477,354 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,207,379 | $ | 2,393,049 | ||||
Net realized gain (loss) | 1,758,512 | (355,461 | ) | |||||
Change in net unrealized appreciation (depreciation) | (1,488,537 | ) | (21,936,920 | ) | ||||
Net increase (decrease) in net assets resulting from operations | 1,477,354 | (19,899,332 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,439,970 | ) | |||||
Series II | — | (353 | ) | |||||
Total distributions from net investment income | — | (1,440,323 | ) | |||||
Share transactions–net: | ||||||||
Series I | (7,361,029 | ) | 49,857,625 | |||||
Series II | (1,840,453 | ) | 26,620,164 | |||||
Net increase (decrease) in net assets resulting from share transactions | (9,201,482 | ) | 76,477,789 | |||||
Net increase (decrease) in net assets | (7,724,128 | ) | 55,138,134 | |||||
Net assets: | ||||||||
Beginning of period | 99,867,268 | 44,729,134 | ||||||
End of period (includes undistributed net investment income of $3,547,009 and $2,339,630, respectively) | $ | 92,143,140 | $ | 99,867,268 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Core Equity Fund, formerly Invesco Van Kampen V.I. Global Value Equity Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco V.I. Global Core Equity Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Global 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. | 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% | ||
Invesco V.I. Global Core Equity Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.94% and Series II shares to 1.19% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $72,174.
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, 2012, Invesco was paid $24,864 for accounting and fund administrative services and reimbursed $97,626 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Global Core Equity Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2012, there were transfers from Level 1 to Level 2 of $24,837,626 and from Level 2 to Level 1 of $181,130, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 3,175,833 | $ | — | $ | 3,175,833 | ||||||||
Brazil | 722,572 | — | — | 722,572 | ||||||||||||
Canada | 1,981,494 | — | — | 1,981,494 | ||||||||||||
China | — | 858,367 | — | 858,367 | ||||||||||||
France | — | 4,281,390 | — | 4,281,390 | ||||||||||||
Germany | — | 2,784,831 | — | 2,784,831 | ||||||||||||
Hong Kong | — | 1,140,287 | — | 1,140,287 | ||||||||||||
India | 114,280 | — | — | 114,280 | ||||||||||||
Indonesia | — | 103,145 | — | 103,145 | ||||||||||||
Ireland | 145,202 | — | — | 145,202 | ||||||||||||
Italy | — | 1,006,106 | — | 1,006,106 | ||||||||||||
Japan | — | 12,830,819 | — | 12,830,819 | ||||||||||||
Mexico | 202,985 | — | — | 202,985 | ||||||||||||
Norway | — | 2,324,709 | — | 2,324,709 | ||||||||||||
Poland | — | 156,197 | — | 156,197 | ||||||||||||
Russia | — | 457,182 | — | 457,182 | ||||||||||||
South Africa | — | 725,514 | — | 725,514 | ||||||||||||
South Korea | 292,765 | 1,152,638 | — | 1,445,403 | ||||||||||||
Spain | — | 2,290,280 | — | 2,290,280 | ||||||||||||
Switzerland | 2,500,479 | 2,928,442 | — | 5,428,921 | ||||||||||||
Taiwan | 67,311 | 436,599 | — | 503,910 | ||||||||||||
Thailand | — | 359,763 | — | 359,763 | ||||||||||||
Turkey | — | 94,290 | — | 94,290 | ||||||||||||
United Kingdom | 1,004,402 | 9,880,530 | — | 10,884,932 | ||||||||||||
United States | 39,535,633 | — | — | 39,535,633 | ||||||||||||
$ | 46,567,123 | $ | 46,986,922 | $ | — | $ | 93,554,045 | |||||||||
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. Global 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 13,246,047 | $ | — | $ | 13,246,047 | ||||||
December 31, 2017 | 17,917,975 | — | 17,917,975 | |||||||||
Not subject to expiration | — | 307,274 | 307,274 | |||||||||
$ | 31,164,022 | $ | 307,274 | $ | 31,471,296 | |||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 2, 2011, the date of reorganization of Invesco V.I. Global Dividend Growth Fund into the Fund and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $9,727,708 and $17,437,250, 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 | $ | 9,528,772 | ||
Aggregate unrealized (depreciation) of investment securities | (10,026,363 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (497,591 | ) | |
Cost of investments for tax purposes is $94,051,636. |
Invesco V.I. Global Core Equity Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 187,181 | $ | 1,337,887 | 882,041 | $ | 6,843,913 | ||||||||||
Series II | 4,178 | 27,705 | 282,903 | 1,950,278 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 180,447 | 1,439,970 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 7,111,889 | 58,977,691 | ||||||||||||
Series II | — | — | 3,419,989 | 28,363,525 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,220,307 | ) | (8,698,916 | ) | (2,359,534 | ) | (17,403,949 | ) | ||||||||
Series II | (260,886 | ) | (1,868,158 | ) | (501,562 | ) | (3,693,639 | ) | ||||||||
Net increase (decrease) in share activity | (1,289,834 | ) | $ | (9,201,482 | ) | 9,016,173 | $ | 76,477,789 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 87% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011 the Fund acquired all the net assets of Invesco V.I. Global Dividend Growth Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 10,531,878 shares of the Fund for 8,939,065 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund at the close of business on April 29, 2011. The Target Fund’s net assets at that date of $87,341,216, including $17,111,954 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $48,932,340. The net assets immediately after the acquisition were $136,273,556. |
The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 2,803,054 | ||
Net realized/unrealized gains (losses) | (15,663,166 | ) | ||
Change in net assets resulting from operations | $ | (12,860,112 | ) | |
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. Global Core Equity Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | net assets | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | without fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 6.80 | $ | 0.09 | $ | (0.01 | ) | $ | 0.08 | $ | — | $ | — | $ | — | $ | 6.88 | 1.18 | % | $ | 71,935 | 0.94 | %(d) | 1.08 | %(d) | 2.48 | %(d) | 10 | % | |||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 16.99 | 0.25 | 0.94 | 1.19 | (0.33 | ) | (1.39 | ) | (1.72 | ) | 16.46 | 6.64 | 107,470 | 1.00 | (e) | 1.00 | (e) | 1.47 | (e) | 36 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 6.79 | 0.08 | (0.01 | ) | 0.07 | — | — | — | 6.86 | 1.03 | 20,209 | 1.19 | (d) | 1.33 | (d) | 2.23 | (d) | 10 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 7.86 | 0.18 | (1.02 | ) | (0.84 | ) | (0.23 | ) | — | (0.23 | ) | 6.79 | (11.12 | ) | 21,742 | 1.22 | 1.25 | 2.45 | 62 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(g) | 6.52 | 0.07 | 1.27 | 1.34 | — | — | — | 7.86 | 20.55 | 12 | 1.40 | (h) | 1.45 | (h) | 1.76 | (h) | 130 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2011, the portfolio turnover calculation excluded the value of securities purchased of $68,458,544 and sold of $8,561,566 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dividend Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s) of $78,198 and $21,806 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 that 0.005% for the years ended December 31, 2009, 2008 and 2007, respectively. | |
(f) | Ratio of net investment income to average net assets without fee waivers and/or 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,011.80 | $ | 4.69 | $ | 1,020.20 | $ | 4.71 | 0.94 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,010.30 | 5.94 | 1,018.96 | 5.96 | 1.19 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 2.25% and 2.50% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.08% and 1.33% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.40 and $6.65 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.42 and $6.67 for Series I and Series II shares, respectively. |
Invesco V.I. Global Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
(Formerly Known as Invesco Van Kampen V.I. Global Value Equity Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Global Core Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources
Invesco V.I. Global Core Equity Fund
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. 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 – 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 has been affected by the high-quality, large-cap bias of the Fund, as well as stock selection, and Invesco Advisers is monitoring the Fund. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Global Health Care Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIGHC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 12.78 | % | ||
Series II Shares | 12.60 | |||
MSCI World Index▼ (Broad Market Index) | 5.91 | |||
MSCI World Health Care Index▼ (Style-Specific Index) | 8.79 | |||
Lipper VUF Health/Biotechnology Funds Category Average▼ (Peer Group) | 16.82 | |||
Source(s): ▼Lipper Inc.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries.
The Lipper VUF Health/Biotechnology Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Health/ Biotechnology Funds category.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||
Inception (5/21/97) | 7.07 | % | ||
10 Years | 5.74 | |||
5 Years | 3.48 | |||
1 Year | 2.35 | |||
Series II Shares | ||||
10 Years | 5.47 | % | ||
5 Years | 3.21 | |||
1 Year | 2.08 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.12% and 1.37%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Health Care Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.23% | ||||||||
Biotechnology–18.46% | ||||||||
Actelion Ltd. (Switzerland)(b) | 60,554 | $ | 2,485,635 | |||||
Amarin Corp. PLC–ADR (Ireland)(b) | 196,735 | 2,844,788 | ||||||
Biogen Idec Inc.(b) | 23,529 | 3,397,117 | ||||||
BioMarin Pharmaceutical Inc.(b) | 103,468 | 4,095,264 | ||||||
Celgene Corp.(b) | 30,582 | 1,962,141 | ||||||
Dendreon Corp.(b) | 88,784 | 657,002 | ||||||
Gilead Sciences, Inc.(b) | 83,279 | 4,270,547 | ||||||
Incyte Corp.(b) | 79,899 | 1,813,707 | ||||||
InterMune, Inc.(b) | 44,642 | 533,472 | ||||||
Medivation Inc.(b) | 21,278 | 1,944,809 | ||||||
Onyx Pharmaceuticals, Inc.(b) | 36,039 | 2,394,792 | ||||||
United Therapeutics Corp.(b) | 32,888 | 1,624,009 | ||||||
28,023,283 | ||||||||
Drug Retail–3.57% | ||||||||
CVS Caremark Corp. | 84,304 | 3,939,526 | ||||||
Raia Drogasil S.A. (Brazil) | 148,860 | 1,489,044 | ||||||
5,428,570 | ||||||||
Health Care Distributors–2.80% | ||||||||
McKesson Corp. | 45,313 | 4,248,094 | ||||||
Health Care Equipment–11.42% | ||||||||
Baxter International Inc. | 39,552 | 2,102,189 | ||||||
CareFusion Corp.(b) | 56,767 | 1,457,777 | ||||||
Covidien PLC | 72,843 | 3,897,100 | ||||||
DexCom Inc.(b) | 70,253 | 910,479 | ||||||
Hologic, Inc.(b) | 110,054 | 1,985,374 | ||||||
MAKO Surgical Corp.(b) | 36,685 | 939,503 | ||||||
Olympus Corp. (Japan)(b) | 98,500 | 1,597,447 | ||||||
Stryker Corp. | 42,603 | 2,347,425 | ||||||
Wright Medical Group, Inc.(b) | 98,120 | 2,094,862 | ||||||
17,332,156 | ||||||||
Health Care Facilities–2.80% | ||||||||
Assisted Living Concepts Inc.–Class A | 62,920 | 894,722 | ||||||
Health Management Associates Inc.–Class A(b) | 210,513 | 1,652,527 | ||||||
Universal Health Services, Inc.–Class B | 39,598 | 1,709,050 | ||||||
4,256,299 | ||||||||
Health Care Services–5.86% | ||||||||
DaVita, Inc.(b) | 43,984 | 4,319,669 | ||||||
Express Scripts Holding Co.(b) | 40,201 | 2,244,422 | ||||||
Quest Diagnostics Inc. | 38,879 | 2,328,852 | ||||||
8,892,943 | ||||||||
Health Care Technology–2.45% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 110,436 | 1,207,066 | ||||||
Cerner Corp.(b) | 30,390 | 2,512,037 | ||||||
3,719,103 | ||||||||
Life Sciences Tools & Services–4.79% | ||||||||
Life Technologies Corp.(b) | 82,929 | 3,730,976 | ||||||
Thermo Fisher Scientific, Inc. | 68,119 | 3,536,057 | ||||||
7,267,033 | ||||||||
Managed Health Care–11.05% | ||||||||
Aetna Inc. | 49,605 | 1,923,186 | ||||||
AMERIGROUP Corp.(b) | 22,233 | 1,465,377 | ||||||
Amil Participacoes S.A. (Brazil)(c) | 133,900 | 1,312,745 | ||||||
Aveta, Inc. (Acquired 12/21/05; Cost $1,655,802)(b)(c) | 122,652 | 1,349,172 | ||||||
Health Net Inc.(b) | 86,435 | 2,097,777 | ||||||
Humana Inc. | 24,925 | 1,930,192 | ||||||
UnitedHealth Group Inc. | 69,333 | 4,055,981 | ||||||
WellPoint, Inc. | 41,341 | 2,637,142 | ||||||
16,771,572 | ||||||||
Pharmaceuticals–30.41% | ||||||||
Abbott Laboratories | 66,902 | 4,313,172 | ||||||
Bayer AG (Germany) | 54,593 | 3,933,829 | ||||||
EastPharma Ltd. REGS–GDR (Turkey)(b)(c) | 22,985 | 13,791 | ||||||
Elan Corp. PLC–ADR (Ireland)(b) | 132,537 | 1,933,715 | ||||||
Endo Health Solutions Inc.(b) | 54,305 | 1,682,369 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 119,052 | 1,216,569 | ||||||
Jazz Pharmaceuticals PLC (Ireland)(b) | 29,797 | 1,341,163 | ||||||
MAP Pharmaceuticals Inc.(b) | 54,176 | 811,556 | ||||||
Medicis Pharmaceutical Corp.–Class A | 103,970 | 3,550,575 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 116,000 | 1,456,212 | ||||||
Novartis AG–ADR (Switzerland) | 66,353 | 3,709,133 | ||||||
Pfizer Inc. | 293,603 | 6,752,869 | ||||||
Pharmstandard–GDR (Russia)(b)(c) | 23,450 | 334,163 | ||||||
Roche Holding AG (Switzerland) | 35,416 | 6,110,232 | ||||||
Sanofi–ADR (France) | 97,623 | 3,688,197 | ||||||
Shire PLC–ADR (Ireland) | 22,669 | 1,958,375 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 52,460 | $ | 2,069,022 | |||||
Warner Chilcott PLC–Class A(b) | 71,967 | 1,289,649 | ||||||
46,164,591 | ||||||||
Research & Consulting Services–0.62% | ||||||||
Qualicorp S.A. (Brazil)(b)(c) | 109,000 | 943,321 | ||||||
Total Common Stocks & Other Equity Interests (Cost $121,670,208) | 143,046,965 | |||||||
Money Market Funds–5.27% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 4,003,979 | 4,003,979 | ||||||
Premier Portfolio–Institutional Class(d) | 4,003,979 | 4,003,979 | ||||||
Total Money Market Funds (Cost $8,007,958) | 8,007,958 | |||||||
TOTAL INVESTMENTS–99.50% (Cost $129,678,166) | 151,054,923 | |||||||
OTHER ASSETS LESS LIABILITIES–0.50% | 758,800 | |||||||
NET ASSETS–100.00% | $ | 151,813,723 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
GDR | – Global Depositary Receipt | |
REGS | – Regulation S |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $3,953,192, which represented 2.60% of the Fund’s Net Assets. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By country, based on Net Assets
as of June 30, 2012
United States | 68.9 | % | ||
Switzerland | 8.1 | |||
Ireland | 5.3 | |||
Germany | 2.6 | |||
Brazil | 2.5 | |||
France | 2.4 | |||
Japan | 2.0 | |||
Countries Each Less Than 2.0% of Portfolio | 2.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 5.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $121,670,208) | $ | 143,046,965 | ||
Investments in affiliated money market funds, at value and cost | 8,007,958 | |||
Total investments, at value (Cost $129,678,166) | 151,054,923 | |||
Foreign currencies, at value (Cost $13,580) | 13,495 | |||
Receivable for: | ||||
Fund shares sold | 1,055,726 | |||
Dividends | 167,460 | |||
Investment for trustee deferred compensation and retirement plans | 21,360 | |||
Other assets | 152 | |||
Total assets | 152,313,116 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 117,610 | |||
Fund shares reacquired | 90,322 | |||
Foreign currency contracts outstanding | 92,945 | |||
Accrued fees to affiliates | 114,705 | |||
Accrued other operating expenses | 29,916 | |||
Trustee deferred compensation and retirement plans | 53,895 | |||
Total liabilities | 499,393 | |||
Net assets applicable to shares outstanding | $ | 151,813,723 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 138,116,362 | ||
Undistributed net investment income | 256,946 | |||
Undistributed net realized gain (loss) | (7,840,514 | ) | ||
Unrealized appreciation | 21,280,929 | |||
$ | 151,813,723 | |||
Net Assets: | ||||
Series I | $ | 120,806,194 | ||
Series II | $ | 31,007,529 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 6,166,800 | |||
Series II | 1,620,661 | |||
Series I: | ||||
Net asset value per share | $ | 19.59 | ||
Series II: | ||||
Net asset value per share | $ | 19.13 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $148,405) | $ | 1,188,799 | ||
Dividends from affiliated money market funds | 6,285 | |||
Total investment income | 1,195,084 | |||
Expenses: | ||||
Advisory fees | 565,199 | |||
Administrative services fees | 210,786 | |||
Custodian fees | 11,492 | |||
Distribution fees — Series II | 37,332 | |||
Transfer agent fees | 21,931 | |||
Trustees’ and officers’ fees and benefits | 13,621 | |||
Other | 34,112 | |||
Total expenses | 894,473 | |||
Less: Fees waived | (6,779 | ) | ||
Net expenses | 887,694 | |||
Net investment income | 307,390 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $39,314) | 6,965,060 | |||
Foreign currencies | 1,222 | |||
Foreign currency contracts | 503,736 | |||
7,470,018 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 10,363,254 | |||
Foreign currencies | (7,554 | ) | ||
Foreign currency contracts | (429,365 | ) | ||
9,926,335 | ||||
Net realized and unrealized gain | 17,396,353 | |||
Net increase in net assets resulting from operations | $ | 17,703,743 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | 307,390 | $ | (24,801 | ) | |||
Net realized gain | 7,470,018 | 6,460,361 | ||||||
Change in net unrealized appreciation (depreciation) | 9,926,335 | (1,376,719 | ) | |||||
Net increase in net assets resulting from operations | 17,703,743 | 5,058,841 | ||||||
Share transactions–net: | ||||||||
Series I | (7,893,282 | ) | (14,012,631 | ) | ||||
Series II | 79,421 | 373,177 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (7,813,861 | ) | (13,639,454 | ) | ||||
Net increase (decrease) in net assets | 9,889,882 | (8,580,613 | ) | |||||
Net assets: | ||||||||
Beginning of period | 141,923,841 | 150,504,454 | ||||||
End of period (includes undistributed net investment income of $256,946 and $(50,444), respectively) | $ | 151,813,723 | $ | 141,923,841 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco V.I. Global Health Care Fund
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
Invesco V.I. Global Health Care 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. | Other Risks — The Fund may invest a large percentage of assets in securities of a limited number of companies, such that each investment may have a greater effect on the Fund’s overall performance, and any change in the value of those securities could significantly affect the value of your investment in the Fund. | |
The Fund has invested in non-publicly traded companies, some of which are in the startup or development stages. These investments are inherently risky, as the market for the technologies or products these companies are developing are typically in the early stages and may never materialize. The Fund could lose its entire investment in these companies. These investments are valued at fair value as determined in good faith in accordance with procedures approved by the Board of Trustees. Investments in privately held venture capital securities are illiquid. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the
Invesco V.I. Global Health Care 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $6,779.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $185,923 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 133,788,233 | $ | 17,266,690 | $ | — | $ | 151,054,923 | ||||||||
Foreign Currency Contracts* | — | (92,945 | ) | — | (92,945 | ) | ||||||||||
Total Investments | $ | 133,788,233 | $ | 17,173,745 | $ | — | $ | 150,961,978 | ||||||||
* | Unrealized appreciation (depreciation) |
Invesco V.I. Global Health Care Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | — | $ | (92,945 | ) | |||
(a) | Values are disclosed on the Statement of Assets and Liabilities under the Foreign currency contracts outstanding. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 503,736 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (429,365 | ) | ||
Total | $ | 74,371 | ||
* | The average notional value of foreign currency contracts outstanding during the period was $5,427,978. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Contract to | Appreciation | |||||||||||||||||||||||
Settlement Date | Counterparty | Deliver | Receive | Notional Value | (Depreciation) | |||||||||||||||||||
07/05/2012 | Citibank Capital | CHF | 2,710,000 | USD | 2,795,896 | $ | 2,853,904 | $ | (58,008 | ) | ||||||||||||||
07/05/2012 | Citibank Capital | EUR | 1,327,000 | USD | 1,643,284 | 1,678,221 | (34,937 | ) | ||||||||||||||||
Total open foreign currency contracts | $ | (92,945 | ) | |||||||||||||||||||||
Currency Abbreviations: | ||
CHF | – Swiss Franc | |
EUR | – Euro | |
USD | – U.S. Dollar |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2012, the Fund engaged in securities sales of $138,646, which resulted in net realized gains of $39,314.
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
Invesco V.I. Global Health Care Fund
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 14,970,513 | $ | — | $ | 14,970,513 | ||||||
* | 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, 2012 was $19,051,595 and $29,054,731, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 26,702,071 | ||
Aggregate unrealized (depreciation) of investment securities | (5,328,913 | ) | ||
Net unrealized appreciation of investment securities | $ | 21,373,158 | ||
Cost of investments for tax purposes is $129,681,765. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | ||||||||||||||||
June 30, 2012(a) | Year ended December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 641,659 | $ | 12,193,185 | 1,299,440 | $ | 23,576,064 | ||||||||||
Series II | 111,043 | 2,047,415 | 275,720 | 4,760,125 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,064,899 | ) | (20,086,467 | ) | (2,157,315 | ) | (37,588,695 | ) | ||||||||
Series II | (106,268 | ) | (1,967,994 | ) | (251,096 | ) | (4,386,948 | ) | ||||||||
Net increase (decrease) in share activity | (418,465 | ) | $ | (7,813,861 | ) | (833,251 | ) | $ | (13,639,454 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Health Care Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | Distributions | of period | Return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 17.37 | $ | 0.04 | $ | 2.18 | $ | 2.22 | $ | — | $ | — | $ | — | $ | 19.59 | 12.78 | % | $ | 120,806 | 1.13 | %(d) | 1.14 | %(d) | 0.46 | %(d) | 13 | % | ||||||||||||||||||||||||||||
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 | (e) | (7.16 | ) | (7.09 | ) | — | (4.50 | ) | (4.50 | ) | 12.47 | (28.62 | ) | 128,563 | 1.12 | 1.13 | 0.34 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.51 | (0.01 | ) | 2.56 | 2.55 | — | — | — | 24.06 | 11.85 | 223,448 | 1.06 | 1.07 | (0.06 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 16.99 | 0.02 | 2.12 | 2.14 | — | — | — | 19.13 | 12.60 | 31,008 | 1.38 | (d) | 1.39 | (d) | 0.21 | (d) | 13 | |||||||||||||||||||||||||||||||||||||||
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 | (e) | (7.08 | ) | (7.06 | ) | — | (4.50 | ) | (4.50 | ) | 12.26 | (28.78 | ) | 19,886 | 1.37 | 1.38 | 0.09 | (e) | 67 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.36 | (0.07 | ) | 2.53 | 2.46 | — | — | — | 23.82 | 11.52 | 20,817 | 1.31 | 1.32 | (0.31 | ) | 66 | ||||||||||||||||||||||||||||||||||||||||
(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 $121,518 and $30,030 for Series I and Series II shares, respectively. | |
(e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $5.23 per share owned of All-scripts-Misys Healthcare Solutions, Inc. on October 13, 2008. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.02 and 0.08% and $(0.03) and (0.17)% for Series I and Series II shares, respectively. |
Invesco V.I. Global Health Care Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,127.80 | $ | 5.97 | $ | 1,019.32 | $ | 5.67 | 1.13 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,126.00 | 7.31 | 1,018.05 | 6.94 | 1.38 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Global Health Care Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 – Health/Biotechnology Funds Index. The Board noted that performance of Series I shares of
Invesco V.I. Global Health Care Fund
the Fund was in the fifth quintile of the performance universe for the one year period, the third quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which included using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers advises or sub-advises one mutual fund and one off-shore fund with comparable investment strategies. The Fund’s effective fee rate was above the effective fee rate of the mutual fund and below the effective fee rate of the off-shore fund.
Other than the funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, the expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Global Real Estate Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGRE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.74 | % | ||
Series II Shares | 14.57 | |||
MSCI World Index▼ (Broad Market Index) | 5.91 | |||
FTSE EPRA/NAREIT Developed Real Estate Index§ (Style-Specific Index) | 15.29 | |||
Lipper VUF Real Estate Funds Category Average▼ (Peer Group) | 14.28 | |||
Source(s): ▼Lipper Inc.; §Invesco, Bloomberg L.P.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries.
The FTSE EPRA/NAREIT Developed Real Estate Index is an unmanaged index considered representative of global real estate companies and REITs.
The Lipper VUF Real Estate Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds category.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
Inception (3/31/98) | 8.19 | % | ||||||
10 | Years | 9.61 | ||||||
5 | Years | -2.62 | ||||||
1 | Year | 1.52 | ||||||
Series II Shares | ||||||||
10 | Years | 9.36 | % | |||||
5 | Years | -2.85 | ||||||
1 | Year | 1.24 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.14% and 1.39%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Real Estate Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–97.62% | ||||||||
Australia–8.43% | ||||||||
CFS Retail Property Trust | 1,527,292 | $ | 3,038,370 | |||||
Dexus Property Group | 2,089,599 | 1,999,301 | ||||||
Goodman Group | 503,034 | 1,907,272 | ||||||
GPT Group | 649,074 | 2,196,251 | ||||||
Stockland | 786,711 | 2,491,662 | ||||||
Westfield Group | 586,814 | 5,718,821 | ||||||
Westfield Retail Trust | 1,094,566 | 3,209,640 | ||||||
20,561,317 | ||||||||
Austria–0.29% | ||||||||
Conwert Immobilien Invest S.E.(a) | 65,203 | 714,479 | ||||||
Canada–3.96% | ||||||||
Boardwalk REIT | 43,292 | 2,492,234 | ||||||
Canadian Apartment Properties REIT | 73,100 | 1,707,414 | ||||||
Chartwell Seniors Housing REIT | 234,100 | 2,230,400 | ||||||
Primaris Retail REIT | 81,000 | 1,874,433 | ||||||
RioCan REIT | 50,100 | 1,363,098 | ||||||
9,667,579 | ||||||||
China–1.52% | ||||||||
Agile Property Holdings Ltd. | 930,000 | 1,208,095 | ||||||
Country Garden Holdings Co.(a) | 2,050,288 | 810,916 | ||||||
Shimao Property Holdings Ltd. | 1,086,000 | 1,681,738 | ||||||
3,700,749 | ||||||||
Finland–0.33% | ||||||||
Sponda Oyj | 212,697 | 796,466 | ||||||
France–3.56% | ||||||||
Gecina S.A. | 12,106 | 1,082,436 | ||||||
Klepierre | 33,537 | 1,104,339 | ||||||
Mercialys | 32,845 | 611,296 | ||||||
Societe Immobiliere de Location pour I’Industrie et le Commerce | 6,414 | 610,270 | ||||||
Unibail-Rodamco S.E. | 28,693 | 5,289,981 | ||||||
8,698,322 | ||||||||
Germany–1.18% | ||||||||
Deutsche Wohnen AG | 75,225 | 1,266,791 | ||||||
GSW Immobilien AG | 46,992 | 1,603,316 | ||||||
2,870,107 | ||||||||
Hong Kong–9.69% | ||||||||
China Resources Land Ltd. | 438,000 | 904,508 | ||||||
Hang Lung Properties Ltd. | 1,131,000 | 3,849,936 | ||||||
Henderson Land Development Co. Ltd. | 307,000 | 1,705,616 | ||||||
Hongkong Land Holdings Ltd. | 555,000 | 3,195,898 | ||||||
Hysan Development Co. Ltd. | 221,000 | 840,590 | ||||||
Kerry Properties Ltd. | 424,400 | 1,818,519 | ||||||
Link REIT (The) | 284,000 | 1,161,108 | ||||||
Sino Land Co. Ltd. | 1,633,600 | 2,479,733 | ||||||
Sun Hung Kai Properties Ltd. | 386,000 | 4,580,365 | ||||||
Wharf Holdings Ltd. (The) | 560,000 | 3,113,338 | ||||||
23,649,611 | ||||||||
Italy–0.08% | ||||||||
Beni Stabili S.p.A. | 420,498 | 181,863 | ||||||
Japan–9.40% | ||||||||
Japan Real Estate Investment Corp. | 202 | 1,857,011 | ||||||
Kenedix Realty Investment Corp. | 329 | 1,064,627 | ||||||
Mitsubishi Estate Co. Ltd. | 214,000 | 3,838,732 | ||||||
Mitsui Fudosan Co., Ltd. | 335,000 | 6,498,184 | ||||||
Nippon Building Fund Inc. | 157 | 1,520,138 | ||||||
Nomura Real Estate Office Fund, Inc. | 23 | 129,855 | ||||||
Sumitomo Realty & Development Co., Ltd. | 220,000 | 5,412,721 | ||||||
Tokyu Land Corp. | 250,000 | 1,240,938 | ||||||
United Urban Investment Corp. | 1,277 | 1,377,560 | ||||||
22,939,766 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC (Acquired 08/06/09; Cost $0)(a)(b) | 3,053,090 | 0 | ||||||
Netherlands–0.61% | ||||||||
Corio N.V. | 33,756 | 1,485,769 | ||||||
Norway–0.18% | ||||||||
Norwegian Property ASA | 313,750 | 430,325 | ||||||
Singapore–4.52% | ||||||||
Ascendas REIT | 503,000 | 858,768 | ||||||
CapitaCommercial Trust | 1,746,000 | 1,755,464 | ||||||
Capitaland Ltd. | 1,041,000 | 2,247,138 | ||||||
CapitaMalls Asia Ltd. | 873,000 | 1,088,642 | ||||||
City Developments Ltd. | 88,000 | 786,416 | ||||||
Global Logistic Properties Ltd. | 1,242,000 | 2,068,995 | ||||||
Keppel Land Ltd. | 428,000 | 1,100,018 | ||||||
Suntec REIT | 1,061,000 | 1,134,606 | ||||||
11,040,047 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
Sweden–1.02% | ||||||||
Castellum AB | 115,564 | $ | 1,398,863 | |||||
Fabege AB | 53,118 | 416,646 | ||||||
Wihlborgs Fastigheter AB | 50,811 | 683,500 | ||||||
2,499,009 | ||||||||
United Kingdom–4.88% | ||||||||
Big Yellow Group PLC | 104,893 | 478,584 | ||||||
British Land Co. PLC | 296,877 | 2,378,119 | ||||||
Derwent London PLC | 35,691 | 1,036,962 | ||||||
Great Portland Estates PLC | 236,666 | 1,464,820 | ||||||
Hammerson PLC | 259,738 | 1,810,527 | ||||||
Land Securities Group PLC | 247,199 | 2,866,750 | ||||||
Shaftesbury PLC | 156,121 | 1,262,220 | ||||||
Unite Group PLC | 204,528 | 618,201 | ||||||
11,916,183 | ||||||||
United States–47.97% | ||||||||
Acadia Realty Trust | 64,256 | 1,489,454 | ||||||
Alexandria Real Estate Equities, Inc. | 43,378 | 3,154,448 | ||||||
AvalonBay Communities, Inc. | 60,021 | 8,491,771 | ||||||
Boston Properties, Inc. | 53,620 | 5,810,799 | ||||||
Brandywine Realty Trust | 139,900 | 1,726,366 | ||||||
Brookfield Office Properties, Inc. | 106,753 | 1,868,518 | ||||||
DCT Industrial Trust Inc. | 392,326 | 2,471,654 | ||||||
DDR Corp. | 207,099 | 3,031,929 | ||||||
DiamondRock Hospitality Co. | 130,446 | 1,330,549 | ||||||
Digital Realty Trust, Inc. | 45,119 | 3,387,083 | ||||||
Duke Realty Corp. | 243,635 | 3,566,816 | ||||||
Equity Residential | 84,635 | 5,277,839 | ||||||
Essex Property Trust, Inc. | 40,224 | 6,191,278 | ||||||
General Growth Properties, Inc. | 228,736 | 4,137,834 | ||||||
HCP, Inc. | 78,372 | 3,460,124 | ||||||
Health Care REIT, Inc. | 32,289 | 1,882,449 | ||||||
Healthcare Realty Trust, Inc. | 90,108 | 2,148,175 | ||||||
Host Hotels & Resorts Inc. | 365,818 | 5,787,241 | ||||||
Hudson Pacific Properties Inc. | 38,700 | 673,767 | ||||||
Kilroy Realty Corp. | 77,317 | 3,742,916 | ||||||
Kimco Realty Corp. | 147,800 | 2,812,634 | ||||||
Macerich Co. (The) | 62,818 | 3,709,403 | ||||||
Pebblebrook Hotel Trust | 65,083 | 1,517,085 | ||||||
Post Properties, Inc. | 26,400 | 1,292,280 | ||||||
Prologis, Inc. | 165,220 | 5,490,261 | ||||||
Regency Centers Corp. | 49,230 | 2,341,871 | ||||||
Retail Opportunity Investments Corp. | 96,727 | 1,166,528 | ||||||
Simon Property Group, Inc. | 77,106 | 12,002,320 | ||||||
SL Green Realty Corp. | 33,988 | 2,727,197 | ||||||
Sovran Self Storage, Inc. | 37,426 | 1,874,668 | ||||||
Sunstone Hotel Investors, Inc.(a) | 95,484 | 1,049,369 | ||||||
UDR, Inc. | 175,555 | 4,536,341 | ||||||
Ventas, Inc. | 109,148 | 6,889,422 | ||||||
117,040,389 | ||||||||
Total Real Estate Investment Trusts, Common Stocks & Other Equity Interests (Cost $202,755,312) | 238,191,981 | |||||||
Money Market Funds–2.07% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 2,527,132 | 2,527,132 | ||||||
Premier Portfolio–Institutional Class(c) | 2,527,132 | 2,527,132 | ||||||
Total Money Market Funds (Cost $5,054,264) | 5,054,264 | |||||||
TOTAL INVESTMENTS–99.69% (Cost $207,809,576) | 243,246,245 | |||||||
OTHER ASSETS LESS LIABILITIES–0.31% | 754,294 | |||||||
NET ASSETS–100.00% | $ | 244,000,539 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2012 represented 0.00% of the Fund’s Net Assets. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
By country, based on Net Assets
as of June 30, 2012
United States | 48.0 | % | ||
Hong Kong | 9.7 | |||
Japan | 9.4 | |||
Australia | 8.4 | |||
United Kingdom | 4.9 | |||
Singapore | 4.5 | |||
Canada | 3.9 | |||
France | 3.6 | |||
Countries each less than 2.0% of portfolio | 5.2 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $202,755,312) | $ | 238,191,981 | ||
Investments in affiliated money market funds, at value and cost | 5,054,264 | |||
Total investments, at value (Cost $207,809,576) | 243,246,245 | |||
Foreign currencies, at value (Cost $175,437) | 173,650 | |||
Receivable for: | ||||
Investments sold | 291,460 | |||
Fund shares sold | 350,583 | |||
Dividends | 883,175 | |||
Investment for trustee deferred compensation and retirement plans | 18,940 | |||
Total assets | 244,964,053 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 403,751 | |||
Fund shares reacquired | 290,042 | |||
Accrued fees to affiliates | 191,884 | |||
Accrued other operating expenses | 40,393 | |||
Trustee deferred compensation and retirement plans | 37,444 | |||
Total liabilities | 963,514 | |||
Net assets applicable to shares outstanding | $ | 244,000,539 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 246,500,094 | ||
Undistributed net investment income | 2,126,797 | |||
Undistributed net realized gain (loss) | (40,068,422 | ) | ||
Unrealized appreciation | 35,442,070 | |||
$ | 244,000,539 | |||
Net Assets: | ||||
Series I | $ | 155,485,761 | ||
Series II | $ | 88,514,778 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 11,165,208 | |||
Series II | 6,507,722 | |||
Series I: | ||||
Net asset value per share | $ | 13.93 | ||
Series II: | ||||
Net asset value per share | $ | 13.60 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $275,829) | $ | 4,735,694 | ||
Dividends from affiliated money market funds | 3,182 | |||
Total investment income | 4,738,876 | |||
Expenses: | ||||
Advisory fees | 835,028 | |||
Administrative services fees | 302,532 | |||
Custodian fees | 64,328 | |||
Distribution fees — Series II | 95,552 | |||
Transfer agent fees | 16,113 | |||
Trustees’ and officers’ fees and benefits | 14,756 | |||
Other | 34,658 | |||
Total expenses | 1,362,967 | |||
Less: Fees waived | (2,861 | ) | ||
Net expenses | 1,360,106 | |||
Net investment income | 3,378,770 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 5,070,329 | |||
Foreign currencies | (17,760 | ) | ||
5,052,569 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 21,099,038 | |||
Foreign currencies | 5,878 | |||
21,104,916 | ||||
Net realized and unrealized gain | 26,157,485 | |||
Net increase in net assets resulting from operations | $ | 29,536,255 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,378,770 | $ | 3,235,829 | ||||
Net realized gain | 5,052,569 | 969,937 | ||||||
Change in net unrealized appreciation (depreciation) | 21,104,916 | (19,892,528 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 29,536,255 | (15,686,762 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (5,627,461 | ) | |||||
Series II | — | (2,275,433 | ) | |||||
Total distributions from net investment income | — | (7,902,894 | ) | |||||
Share transactions–net: | ||||||||
Series I | 1,488,064 | 19,582,854 | ||||||
Series II | 16,373,596 | 35,133,330 | ||||||
Net increase in net assets resulting from share transactions | 17,861,660 | 54,716,184 | ||||||
Net increase in net assets | 47,397,915 | 31,126,528 | ||||||
Net assets: | ||||||||
Beginning of period | 196,602,624 | 165,476,096 | ||||||
End of period (includes undistributed net investment income of $2,126,797 and $(1,251,973), respectively) | $ | 244,000,539 | $ | 196,602,624 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return through growth of capital and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Global Real Estate Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available on a timely basis from the REIT, the recharacterization will be based on available information which may include the previous year’s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital as a reduction to the cost of investments in the Statement of Assets and Liabilities. These recharacterizations are reflected in the accompanying financial statements. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to |
Invesco V.I. Global Real Estate Fund
federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | ||
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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% | ||
Invesco V.I. Global Real Estate Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (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, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $2,861.
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, 2012, Invesco was paid $30,580 for accounting and fund administrative services and reimbursed $271,952 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1)��and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Invesco V.I. Global Real Estate Fund
During the six months ended June 30, 2012, there were transfers from Level 1 to Level 2 of $51,575,119, and from Level 2 to Level 1 of $1,785,178 due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 20,561,317 | $ | — | $ | 20,561,317 | ||||||||
Austria | 714,479 | — | — | 714,479 | ||||||||||||
Canada | 9,667,579 | — | — | 9,667,579 | ||||||||||||
China | — | 3,700,749 | — | 3,700,749 | ||||||||||||
Finland | — | 796,466 | — | 796,466 | ||||||||||||
France | — | 8,698,322 | — | 8,698,322 | ||||||||||||
Germany | 1,603,316 | 1,266,791 | — | 2,870,107 | ||||||||||||
Hong Kong | — | 23,649,611 | — | 23,649,611 | ||||||||||||
Italy | 181,863 | — | — | 181,863 | ||||||||||||
Japan | — | 22,939,766 | — | 22,939,766 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Netherlands | — | 1,485,769 | — | 1,485,769 | ||||||||||||
Norway | — | 430,325 | — | 430,325 | ||||||||||||
Singapore | — | 11,040,047 | — | 11,040,047 | ||||||||||||
Sweden | — | 2,499,009 | — | 2,499,009 | ||||||||||||
United Kingdom | 618,201 | 11,297,982 | — | 11,916,183 | ||||||||||||
United States | 122,094,653 | — | — | 122,094,653 | ||||||||||||
Total Investments | $ | 134,880,091 | $ | 108,366,154 | $ | 0 | $ | 243,246,245 | ||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. Global Real Estate Fund
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 14,993,927 | $ | — | $ | 14,993,927 | ||||||
December 31, 2017 | 22,621,345 | — | 22,621,345 | |||||||||
Not subject to expiration | 392,449 | — | 392,449 | |||||||||
$ | 38,007,721 | $ | — | $ | 38,007,721 | |||||||
* | 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, 2012 was $89,073,514 and $69,849,692, 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 | $ | 27,789,218 | ||
Aggregate unrealized (depreciation) of investment securities | (2,035,740 | ) | ||
Net unrealized appreciation of investment securities | $ | 25,753,478 | ||
Cost of investments for tax purposes is $217,492,767. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,442,857 | $ | 19,227,030 | 4,052,616 | $ | 55,794,931 | ||||||||||
Series II | 1,515,080 | 19,738,493 | 3,043,981 | 39,999,065 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 496,249 | 5,627,461 | ||||||||||||
Series II | — | — | 204,994 | 2,275,433 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,337,291 | ) | (17,738,966 | ) | (3,169,118 | ) | (41,839,538 | ) | ||||||||
Series II | (259,541 | ) | (3,364,897 | ) | (551,566 | ) | (7,141,168 | ) | ||||||||
Net increase in share activity | 1,361,105 | $ | 17,861,660 | 4,077,156 | $ | 54,716,184 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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. |
Invesco V.I. Global Real Estate Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | Investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | Investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 12.14 | $ | 0.21 | $ | 1.58 | $ | 1.79 | $ | — | $ | — | $ | — | $ | 13.93 | 14.74 | % | $ | 155,486 | 1.14 | %(d) | 1.14 | %(d) | 3.12 | %(d) | 32 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.74 | 0.38 | (1.52 | ) | (1.14 | ) | (1.69 | ) | (4.03 | ) | (5.72 | ) | 21.88 | (5.54 | ) | 143,773 | 1.13 | 1.22 | 1.31 | 57 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 11.87 | 0.19 | 1.54 | 1.73 | — | — | — | 13.60 | 14.57 | 88,515 | 1.39 | (d) | 1.39 | (d) | 2.87 | (d) | 32 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.57 | 0.29 | (1.49 | ) | (1.20 | ) | (1.68 | ) | (4.03 | ) | (5.71 | ) | 21.66 | (5.76 | ) | 2,646 | 1.38 | 1.47 | 1.06 | 57 | ||||||||||||||||||||||||||||||||||||
(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 $147,036 and $76,862 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,147.40 | $ | 6.09 | $ | 1,019.19 | $ | 5.72 | 1.14 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,145.70 | 7.42 | 1,017.95 | 6.97 | 1.39 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Global Real Estate Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 – Real Estate Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers presented an analysis to the Board that included an explanation of reasons for differences in performance relative to that of the universe and index, including differences between the Fund’s
Invesco V.I. Global Real Estate Fund
investment strategies and those of peers. The Board discussed actions that Invesco Advisers had taken or was taking to address performance issues and Invesco Adviser’s resources and responsiveness to performance concerns. These explanations provided a sound basis for understanding comparative performance and monitoring and addressing it going forward, and were part of the Board’s overall conclusion about the nature, extent and quality of the services provided by Invesco Advisers. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund advised by Invesco 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 three off-shore funds with comparable investment strategies, two of which had higher effective fee rates than the Fund and one of which had a lower effective fee rate.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Government Securities Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIGOV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 1.84 | % | ||
Series II Shares | 1.69 | |||
Barclays U.S. Aggregate Index▼(Broad Market Index) | 2.37 | |||
Barclays U.S. Government Bond Index▼(Style-Specific Index) | 1.48 | |||
Lipper VUF General U.S. Government Funds Index▼(Peer Group Index) | 2.57 | |||
Source(s): ▼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 Bond Index is an unmanaged index considered representative of fixed income obligations issued by the US Treasury, government agencies and quasi-federal corporations.
The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general US government variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.70% and 0.95%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.75% and 1.00%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses
incurred during the period covered by this report.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2013. See current prospectus for more information. |
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (5/5/93) | 5.17 | % | ||||||
10 | Years | 4.80 | ||||||
5 | Years | 6.45 | ||||||
1 | Year | 7.80 | ||||||
Series II Shares | ||||||||
Inception (9/19/01) | 4.54 | % | ||||||
10 | Years | 4.53 | ||||||
5 | Years | 6.16 | ||||||
1 | Year | 7.51 |
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2012
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–68.28% | ||||||||
Collateralized Mortgage Obligations–38.52% | ||||||||
Fannie Mae REMICs, 4.00%, 07/25/18 to 07/25/40 | $ | 17,070,931 | $ | 18,099,393 | ||||
4.50%, 07/25/19 to 07/25/27 | 8,955,023 | 9,255,999 | ||||||
5.00%, 08/25/19 to 09/25/37 | 24,651,527 | 25,841,136 | ||||||
4.25%, 12/25/19 to 02/25/37 | 13,138,997 | 13,931,597 | ||||||
3.00%, 07/25/22 to 09/25/36 | 16,736,798 | 17,341,884 | ||||||
2.50%, 03/25/26 | 5,143,722 | 5,360,611 | ||||||
7.00%, 09/18/27 | 909,447 | 1,068,500 | ||||||
6.50%, 01/25/30 to 03/25/32 | 3,068,996 | 3,511,365 | ||||||
3.50%, 12/25/31 | 2,478,324 | 2,527,751 | ||||||
4.75%, 07/25/33 | 4,538,989 | 4,674,549 | ||||||
5.75%, 10/25/35 | 1,096,619 | 1,233,855 | ||||||
0.55%, 05/25/36(a) | 11,816,215 | 11,838,821 | ||||||
0.75%, 03/25/37 to 05/25/41(a) | 17,149,736 | 17,201,717 | ||||||
1.02%, 06/25/37(a) | 10,182,773 | 10,315,125 | ||||||
6.58%, 06/25/39(a) | 9,449,503 | 11,144,415 | ||||||
0.80%, 02/25/41(a) | 9,482,138 | 9,533,629 | ||||||
0.77%, 11/25/41(a) | 3,521,073 | 3,535,145 | ||||||
0.65%, 06/25/38 | 11,966,815 | 11,991,455 | ||||||
Fannie Mae Whole Loans, 5.50%, 07/25/34 | 556,784 | 561,805 | ||||||
Federal Home Loan Bank, 5.27%, 12/28/12 | 8,491,592 | 8,648,673 | ||||||
5.07%, 10/20/15 | 1,748,575 | 1,890,090 | ||||||
5.46%, 11/27/15 | 25,148,564 | 27,371,001 | ||||||
5.77%, 03/23/18 | 4,183,041 | 4,617,381 | ||||||
Freddie Mac REMICs, 0.85%, 03/15/13 | 1,728,369 | 1,728,708 | ||||||
3.50%, 10/15/16 to 12/15/27 | 2,261,738 | 2,312,691 | ||||||
4.38%, 05/15/17 | 219,515 | 220,701 | ||||||
4.16%, 07/15/17 | 335,048 | 337,554 | ||||||
3.77%, 09/15/17 | 421,970 | 426,678 | ||||||
3.84%, 09/15/17 | 662,248 | 670,542 | ||||||
4.00%, 12/15/17 to 03/15/38 | 16,221,132 | 16,783,640 | ||||||
5.00%, 02/15/18 to 09/15/32 | 12,531,695 | 13,219,842 | ||||||
4.50%, 07/15/18 to 10/15/36 | 10,574,246 | 10,871,705 | ||||||
3.00%, 10/15/18 to 04/15/26 | 14,678,391 | 15,270,472 | ||||||
3.75%, 10/15/18 | 4,779,164 | 4,921,840 | ||||||
4.25%, 01/15/19 | 1,026,280 | 1,052,661 | ||||||
4.75%, 05/15/23 | 378,144 | 379,364 | ||||||
0.64%, 04/15/28 to 06/15/37(a) | 19,477,380 | 19,530,316 | ||||||
5.50%, 09/15/30 to 02/15/33 | 79,497 | 80,052 | ||||||
5.25%, 08/15/32 | 5,938,187 | 6,088,979 | ||||||
0.74%, 12/15/35 to 03/15/40(a) | 12,115,210 | 12,192,426 | ||||||
0.54%, 03/15/36(a) | 11,236,082 | 11,271,665 | ||||||
5.75%, 05/15/36 | 908,908 | 950,573 | ||||||
0.59%, 11/15/36(a) | 12,148,465 | 12,185,924 | ||||||
1.10%, 11/15/39(a) | 4,690,581 | 4,739,342 | ||||||
0.69%, 11/15/41(a) | 13,999,333 | 14,057,829 | ||||||
Ginnie Mae REMICs, 6.00%, 01/16/25 | 2,441,058 | 2,754,449 | ||||||
5.00%, 09/16/27 to 08/16/35 | 3,536,934 | 3,889,572 | ||||||
4.50%, 01/16/31 to 11/20/34 | 47,842,540 | 50,033,468 | ||||||
4.75%, 09/20/32 | 1,720,626 | 1,811,325 | ||||||
4.00%, 04/16/33 to 02/20/38 | 22,597,741 | 23,548,087 | ||||||
5.76%, 08/20/34(a) | 3,592,923 | 4,139,467 | ||||||
5.84%, 01/20/39(a) | 10,615,377 | 12,209,499 | ||||||
1.04%, 09/16/39(a) | 5,096,693 | 5,195,090 | ||||||
4.51%, 07/20/41(a) | 2,978,866 | 3,285,858 | ||||||
477,656,216 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–15.38% | ||||||||
Pass Through Ctfs., 6.50%, 10/01/12 to 12/01/35 | 10,811,836 | 12,222,406 | ||||||
6.00%, 09/01/13 to 07/01/38 | 5,757,292 | 6,322,110 | ||||||
7.00%, 07/01/14 to 12/01/37 | 11,042,545 | 12,872,435 | ||||||
8.00%, 07/01/15 to 09/01/36 | 10,811,727 | 13,182,762 | ||||||
5.00%, 07/01/18 to 01/01/40 | 5,972,557 | 6,496,974 | ||||||
10.50%, 08/01/19 | 2,547 | 2,847 | ||||||
4.50%, 09/01/20 to 08/01/41 | 26,689,050 | 29,064,367 | ||||||
8.50%, 09/01/20 to 08/01/31 | 863,783 | 1,043,160 | ||||||
10.00%, 03/01/21 | 51,789 | 61,313 | ||||||
9.00%, 06/01/21 to 06/01/22 | 367,844 | 424,099 | ||||||
7.50%, 09/01/22 to 08/01/36 | 4,133,990 | 5,000,841 | ||||||
5.50%, 12/01/22 to 11/01/39 | 3,053,222 | 3,334,700 | ||||||
3.50%, 08/01/26 | 2,683,198 | 2,869,143 | ||||||
7.05%, 05/20/27 | 262,338 | 301,665 | ||||||
6.03%, 10/20/30 | 1,861,424 | 2,154,340 | ||||||
Pass Through Ctfs., ARM, 2.67%, 09/01/35(a) | 15,623,837 | 16,753,700 | ||||||
2.82%, 07/01/36(a) | 11,694,194 | 12,546,381 | ||||||
2.33%, 10/01/36(a) | 5,654,353 | 6,041,610 | ||||||
2.66%, 10/01/36(a) | 554,691 | 595,892 | ||||||
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 Home Loan Mortgage Corp. (FHLMC)–(continued) | ||||||||
Pass Through Ctfs., ARM, (continued) | ||||||||
5.51%, 11/01/37(a) | $ | 4,340,511 | $ | 4,706,008 | ||||
5.43%, 01/01/38(a) | 309,569 | 332,848 | ||||||
Pass Through Ctfs., TBA, 3.50%, 08/01/42(b) | 16,000,000 | 16,742,501 | ||||||
4.00%, 08/01/42(b) | 35,500,000 | 37,613,361 | ||||||
190,685,463 | ||||||||
Federal National Mortgage Association (FNMA)–11.08% | ||||||||
Pass Through Ctfs., 7.50%, 09/01/12 to 08/01/37 | 13,150,035 | 15,896,321 | ||||||
6.50%, 05/01/13 to 04/01/38 | 12,766,535 | 14,221,561 | ||||||
10.00%, 09/01/13 | 3,481 | 3,531 | ||||||
6.00%, 01/01/14 to 10/01/38 | 11,371,712 | 12,594,705 | ||||||
7.00%, 01/15/14 to 06/01/36 | 15,582,010 | 17,645,726 | ||||||
8.00%, 02/01/14 to 11/01/37 | 10,578,288 | 12,760,685 | ||||||
8.50%, 09/01/15 to 08/01/37 | 4,302,881 | 5,205,517 | ||||||
5.00%, 11/01/17 to 03/01/40 | 3,720,633 | 4,035,623 | ||||||
4.50%, 04/01/19 to 08/01/41 | 25,004,453 | 27,402,991 | ||||||
5.50%, 03/01/21 to 05/01/35 | 6,500,211 | 7,169,963 | ||||||
6.75%, 07/01/24 | 948,725 | 1,081,516 | ||||||
6.95%, 10/01/25 | 26,774 | 30,823 | ||||||
Pass Through Ctfs., ARM, 2.33%, 05/01/35(a) | 1,058,148 | 1,123,018 | ||||||
2.49%, 10/01/34(a) | 5,156,254 | 5,516,691 | ||||||
3.21%, 03/01/38(a) | 206,409 | 220,221 | ||||||
Pass Through Ctfs., Balloon, 3.84%, 04/01/18 | 6,586,086 | 7,244,669 | ||||||
Pass Through Ctfs., TBA, 3.00%, 08/01/42 | 2,500,000 | 2,557,813 | ||||||
4.00%, 08/01/42 | 2,500,000 | 2,656,641 | ||||||
137,368,015 | ||||||||
Government National Mortgage Association (GNMA)–3.30% | ||||||||
Pass Through Ctfs., 6.50%, 11/20/12 to 01/15/37 | 10,790,490 | 12,436,997 | ||||||
6.75%, 08/15/13 | 2,356 | 2,430 | ||||||
7.50%, 10/15/14 to 10/15/35 | 5,627,340 | 6,584,088 | ||||||
11.00%, 10/15/15 | 1,391 | 1,401 | ||||||
9.00%, 10/20/16 to 12/20/16 | 72,473 | 73,717 | ||||||
7.00%, 04/15/17 to 01/15/37 | 3,732,630 | 4,386,771 | ||||||
8.00%, 05/15/17 to 01/15/37 | 3,234,930 | 3,877,369 | ||||||
10.50%, 09/15/17 to 11/15/19 | 2,956 | 2,978 | ||||||
8.50%, 12/15/17 to 01/15/37 | 630,095 | 719,386 | ||||||
10.00%, 06/15/19 | 24,496 | 26,886 | ||||||
6.00%, 09/15/20 to 08/15/33 | 1,662,437 | 1,875,438 | ||||||
5.00%, 02/15/25 | 661,011 | 736,069 | ||||||
6.95%, 08/20/25 to 08/20/27 | 585,867 | 685,217 | ||||||
6.38%, 10/20/27 to 04/20/28 | 600,739 | 677,499 | ||||||
6.10%, 12/20/33 | 7,595,092 | 8,796,430 | ||||||
40,882,676 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $824,717,412) | 846,592,370 | |||||||
U.S. Government Sponsored Agency Securities–18.58% | ||||||||
Federal Agricultural Mortgage Corp.–2.90% | ||||||||
Sec. Gtd. Notes, 5.13%, 04/19/17(c) | 14,000,000 | 16,598,521 | ||||||
Sr. Unsec. Notes, 2.00%, 07/27/16 | 4,000,000 | 4,177,012 | ||||||
Unsec. Medium-Term Notes, 1.25%, 12/06/13 | 8,000,000 | 8,104,838 | ||||||
0.85%, 08/11/14 | 7,000,000 | 7,042,512 | ||||||
35,922,883 | ||||||||
Federal Deposit Insurance Co. (FDIC)–0.08% | ||||||||
Series 2010-S1, Class 1A, Gtd. Floating Rate Notes, 0.80%, 02/25/48 (Acquired 03/05/10; Cost $990,507)(a)(c) | 958,446 | 959,874 | ||||||
Federal Farm Credit Bank (FFCB)–4.83% | ||||||||
Bonds, 1.13%, 02/27/14 | 13,000,000 | 13,167,433 | ||||||
3.00%, 09/22/14 | 5,000,000 | 5,287,682 | ||||||
1.63%, 11/19/14 | 4,800,000 | 4,935,933 | ||||||
1.50%, 11/16/15 | 11,000,000 | 11,328,304 | ||||||
1.05%, 03/28/16 | 7,000,000 | 7,090,943 | ||||||
5.43%, 06/07/24 | 2,885,000 | 3,757,244 | ||||||
Global Bonds, 1.38%, 06/25/13 | 10,000,000 | 10,112,081 | ||||||
Medium-Term Notes, 5.75%, 12/07/28 | 3,100,000 | 4,185,172 | ||||||
59,864,792 | ||||||||
Federal Home Loan Bank (FHLB)–4.90% | ||||||||
Unsec. Bonds, 2.50%, 06/13/14 | 13,000,000 | 13,526,983 | ||||||
3.13%, 03/11/16 | 20,000,000 | 21,781,027 | ||||||
1.50%, 10/12/17 | 4,800,000 | 4,896,509 | ||||||
4.50%, 09/13/19 | 5,000,000 | 6,018,140 | ||||||
3.38%, 06/12/20 | 6,220,000 | 6,964,236 | ||||||
Series 1, Unsec. Global Bonds, 1.00%, 06/21/17 | 7,500,000 | 7,535,547 | ||||||
60,722,442 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.20% | ||||||||
Global Notes, 0.50%, 04/17/15 | 5,000,000 | 5,005,283 | ||||||
1.00%, 03/08/17 | 6,500,000 | 6,535,700 | ||||||
Unsec. Global Notes, 1.00%, 06/29/17 | 6,800,000 | 6,819,077 | ||||||
Series 1, Unsec. Global Notes, 1.00%, 07/28/17 | 8,950,000 | 8,966,378 | ||||||
27,326,438 | ||||||||
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)–1.38% | ||||||||
Unsec. Global Notes, 0.50%, 05/27/15 | $ | 5,850,000 | $ | 5,852,992 | ||||
2.25%, 03/15/16 | 5,000,000 | 5,282,059 | ||||||
2.38%, 04/11/16 | 2,300,000 | 2,446,413 | ||||||
1.13%, 04/27/17 | 3,500,000 | 3,536,318 | ||||||
17,117,782 | ||||||||
Financing Corp. (FICO)–0.32% | ||||||||
Sec. Bonds, Sec. Bonds, 9.80%, 04/06/18 | 700,000 | 1,028,576 | ||||||
Series E, Sec. Bonds, 9.65%, 11/02/18 | 1,985,000 | 2,944,596 | ||||||
3,973,172 | ||||||||
Tennessee Valley Authority (TVA)–1.97% | ||||||||
Global Bonds, 4.88%, 12/15/16 | 13,553,000 | 15,891,699 | ||||||
Global Notes, 5.50%, 07/18/17 | 7,042,000 | 8,582,811 | ||||||
24,474,510 | ||||||||
Total U.S. Government Sponsored Agency Securities (Cost $225,805,892) | 230,361,893 | |||||||
U.S. Treasury Securities–11.89% | ||||||||
U.S. Treasury Bonds–2.68% | ||||||||
8.75%, 05/15/20 | 3,500,000 | 5,476,406 | ||||||
7.88%, 02/15/21 | 1,100,000 | 1,682,656 | ||||||
7.50%, 11/15/24 | 4,370,000 | 7,062,330 | ||||||
7.63%, 02/15/25 | 550,000 | 900,281 | ||||||
5.38%, 02/15/31 | 3,800,000 | 5,537,906 | ||||||
4.25%, 05/15/39(d) | 3,685,000 | 4,812,380 | ||||||
4.38%, 11/15/39 | 3,000,000 | 3,995,625 | ||||||
4.63%, 02/15/40 | 1,700,000 | 2,351,844 | ||||||
4.75%, 02/15/41 | 1,000,000 | 1,412,656 | ||||||
33,232,084 | ||||||||
U.S. Treasury Notes–8.76% | ||||||||
0.38%, 11/15/14 | 5,500,000 | 5,502,578 | ||||||
1.25%, 08/31/15 | 3,000,000 | 3,075,000 | ||||||
2.00%, 01/31/16 | 1,200,000 | 1,262,813 | ||||||
1.00%, 10/31/16 | 3,500,000 | 3,553,594 | ||||||
0.88%, 12/31/16 | 10,000,000 | 10,089,063 | ||||||
1.00%, 03/31/17 | 7,000,000 | 7,097,344 | ||||||
0.63%, 05/31/17 | 8,000,000 | 7,963,750 | ||||||
2.75%, 05/31/17(d) | 10,000,000 | 10,970,312 | ||||||
2.38%, 07/31/17(d) | 10,000,000 | 10,798,437 | ||||||
1.38%, 12/31/18 | 3,000,000 | 3,067,500 | ||||||
1.25%, 01/31/19 | 2,000,000 | 2,027,500 | ||||||
2.13%, 08/15/21 | 2,700,000 | 2,837,531 | ||||||
2.00%, 11/15/21 | 13,000,000 | 13,479,375 | ||||||
2.00%, 02/15/22 | 7,000,000 | 7,235,156 | ||||||
1.75%, 05/15/22 | 19,500,000 | 19,664,531 | ||||||
108,624,484 | ||||||||
U.S. Treasury Inflation–Indexed Bonds–0.45% | ||||||||
0.75%, 02/15/42 | 5,293,860(e | ) | 5,556,072 | |||||
Total U.S. Treasury Securities (Cost $138,138,148) | 147,412,640 | |||||||
Foreign Bonds–2.59% | ||||||||
Collaterized Mortgage Obligations–2.20% | ||||||||
La Hipotecaria S.A. de C.V. (Panama), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 3.25%, 09/08/39 (Acquired 11/05/10; Cost $27,127,467)(a)(c) | 26,257,683 | 27,283,374 | ||||||
Sovereign Debt–0.39% | ||||||||
Israel Government Agency for International Development (AID) Bond (Israel), Gtd. Bonds, 5.13%, 11/01/24 | 3,800,000 | 4,834,486 | ||||||
Total Foreign Bonds (Cost $30,925,519) | 32,117,860 | |||||||
Corporate Bonds & Notes–1.74% | ||||||||
Diversified Banks–0.53% | ||||||||
Ally Financial, Inc., Gtd. Notes, 2.20%, 12/19/12 | 1,700,000 | 1,715,182 | ||||||
Citibank N.A., Sr. Unsec. Gtd. Notes, 1.75%, 12/28/12 | 2,500,000 | 2,517,831 | ||||||
U.S. Central Federal Credit Union, Unsec. Gtd. Notes, 1.90%, 10/19/12 | 2,260,000 | 2,271,629 | ||||||
6,504,642 | ||||||||
Industrial Conglomerates–0.23% | ||||||||
General Electric Capital Corp., Series G, Sr. Unsec. Gtd. Medium-Term Global Notes, 2.63%, 12/28/12 | 2,800,000 | 2,832,409 | ||||||
Private Export Funding Corp.–0.98% | ||||||||
Sec. Gtd. Notes, 2.13%, 07/15/16 | 5,000,000 | 5,258,666 | ||||||
1.38%, 02/15/17 | 5,000,000 | 5,088,251 | ||||||
4.30%, 12/15/21 | 1,540,000 | 1,831,914 | ||||||
12,178,831 | ||||||||
Total Corporate Bonds & Notes (Cost $20,800,375) | 21,515,882 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Shares | Value | |||||||
Money Market Funds–1.70% | ||||||||
Government & Agency Portfolio–Institutional Class (Cost $21,077,692)(f) | 21,077,692 | $ | 21,077,692 | |||||
TOTAL INVESTMENTS–104.78% (Cost $1,261,465,038) | 1,299,078,337 | |||||||
OTHER ASSETS LESS LIABILITIES–(4.78)% | (59,220,171 | ) | ||||||
NET ASSETS–100.00% | $ | 1,239,858,166 | ||||||
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
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, 2012. | |
(b) | Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1I. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $44,841,769, which represented 3.62% of the Fund’s Net Assets. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1J and Note 4. | |
(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. |
By security type, based on Total Investments
as of June 30, 2012
U.S. Government Sponsored Mortgage-Backed Securities | 65.2 | % | ||
U.S. Government Sponsored Agency Securities | 17.7 | |||
U.S. Treasury Securities | 11.3 | |||
Foreign Bonds | 2.5 | |||
U.S. Dollar Denominated Bonds & Notes | 1.7 | |||
Money Market Funds | 1.6 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,240,387,346) | $ | 1,278,000,645 | ||
Investments in affiliated money market funds, at value and cost | 21,077,692 | |||
Total investments, at value (Cost $1,261,465,038) | 1,299,078,337 | |||
Cash | 69,336 | |||
Receivable for: | ||||
Investments sold | 65,032,132 | |||
Fund shares sold | 626,165 | |||
Dividends and interest | 4,352,586 | |||
Principal paydowns | 223,488 | |||
Investment for trustee deferred compensation and retirement plans | 68,794 | |||
Other assets | 22,914 | |||
Total assets | 1,369,473,752 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 124,616,289 | |||
Fund shares reacquired | 1,906,495 | |||
Variation margin | 1,870,485 | |||
Accrued fees to affiliates | 911,821 | |||
Accrued other operating expenses | 100,271 | |||
Trustee deferred compensation and retirement plans | 210,225 | |||
Total liabilities | 129,615,586 | |||
Net assets applicable to shares outstanding | $ | 1,239,858,166 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,151,386,650 | ||
Undistributed net investment income | 45,515,777 | |||
Undistributed net realized gain | 2,911,081 | |||
Unrealized appreciation | 40,044,658 | |||
$ | 1,239,858,166 | |||
Net Assets: | ||||
Series I | $ | 950,607,802 | ||
Series II | $ | 289,250,364 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 74,721,582 | |||
Series II | 22,950,309 | |||
Series I: | ||||
Net asset value per share | $ | 12.72 | ||
Series II: | ||||
Net asset value per share | $ | 12.60 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Interest | $ | 14,182,975 | ||
Dividends from affiliated money market funds | 1,945 | |||
Total investment income | 14,184,920 | |||
Expenses: | ||||
Advisory fees | 2,830,094 | |||
Administrative services fees | 1,645,995 | |||
Custodian fees | 29,560 | |||
Distribution fees — Series II | 345,977 | |||
Transfer agent fees | 17,784 | |||
Trustees’ and officers’ fees and benefits | 34,673 | |||
Other | 126,624 | |||
Total expenses | 5,030,707 | |||
Less: Fees waived | (996,415 | ) | ||
Net expenses | 4,034,292 | |||
Net investment income | 10,150,628 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 8,973,737 | |||
Futures contracts | 4,121,947 | |||
13,095,684 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (2,721,233 | ) | ||
Futures contracts | 1,090,200 | |||
(1,631,033 | ) | |||
Net realized and unrealized gain | 11,464,651 | |||
Net increase in net assets resulting from operations | $ | 21,615,279 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 10,150,628 | $ | 24,664,503 | ||||
Net realized gain | 13,095,684 | 50,868,064 | ||||||
Change in net unrealized appreciation (depreciation) | (1,631,033 | ) | 23,149,702 | |||||
Net increase in net assets resulting from operations | 21,615,279 | 98,682,269 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (36,635,024 | ) | |||||
Series II | — | (1,001,427 | ) | |||||
Total distributions from net investment income | — | (37,636,451 | ) | |||||
Share transactions–net: | ||||||||
Series I | (36,521,795 | ) | (145,217,239 | ) | ||||
Series II | (10,581,891 | ) | 253,038,769 | |||||
Net increase (decrease) in net assets resulting from share transactions | (47,103,686 | ) | 107,821,530 | |||||
Net increase (decrease) in net assets | (25,488,407 | ) | 168,867,348 | |||||
Net assets: | ||||||||
Beginning of period | 1,265,346,573 | 1,096,479,225 | ||||||
End of period (includes undistributed net investment income of $45,515,777 and $35,365,149, respectively) | $ | 1,239,858,166 | $ | 1,265,346,573 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco V.I. Government Securities Fund
independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Government Securities Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | 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 pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .50% | ||
Over $250 million | 0 | .45% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 0.70% and Series II shares to 0.95% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense
Invesco V.I. Government Securities Fund
reimbursements (excluding certain items discussed below) of Series I to 0.60% and Series II to 0.85% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. To the extent that the annualized expense ratio does not exceed the expense limitation, the adviser will retain its ability to be reimbursed for such fee waiver or reimbursement prior to the end of each fiscal year.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $996,415.
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, 2012, Invesco was paid $146,445 for accounting and fund administrative services and reimbursed $1,499,550 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 21,077,692 | $ | — | $ | — | $ | 21,077,692 | ||||||||
U.S. Treasury Securities | — | 147,412,640 | — | 147,412,640 | ||||||||||||
U.S. Government Sponsored Securities | — | 1,076,954,263 | — | 1,076,954,263 | ||||||||||||
Corporate Debt Securities | — | 21,515,882 | — | 21,515,882 | ||||||||||||
Foreign Debt Securities | 27,283,374 | 27,283,374 | ||||||||||||||
Foreign Sovereign Debt Securities | — | 4,834,486 | — | 4,834,486 | ||||||||||||
$ | 21,077,692 | $ | 1,278,000,645 | $ | — | $ | 1,299,078,337 | |||||||||
Futures* | 2,431,359 | — | — | 2,431,359 | ||||||||||||
Total Investments | $ | 23,509,051 | $ | 1,278,000,645 | $ | — | $ | 1,301,509,696 | ||||||||
* | Unrealized appreciation. |
Invesco V.I. Government Securities Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 2,958,330 | $ | (526,971 | ) | |||
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 4,121,947 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | 1,090,200 | |||
Total | $ | 5,212,147 | ||
* | The average notional value of futures outstanding during the period was $585,487,344. |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Expiration | Notional | Appreciation | |||||||||||||
Long Contracts | Contracts | Month | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 623 | September-2012 | $ | 137,176,813 | $ | (44,214 | ) | |||||||||
U.S. Treasury 10 Year Notes | 1,209 | September-2012 | 161,250,375 | 797,415 | ||||||||||||
Ultra U.S. Treasury Bonds | 847 | September-2012 | 141,316,656 | 2,121,067 | ||||||||||||
Subtotal | $ | 439,743,844 | $ | 2,874,268 | ||||||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 5 Year Notes | 164 | September-2012 | $ | (20,330,875 | ) | $ | (37,501 | ) | ||||||||
U.S. Treasury 30 Year Bonds | 663 | September-2012 | (98,103,281 | ) | (405,408 | ) | ||||||||||
Subtotal | $ | (118,434,156 | ) | $ | (442,909 | ) | ||||||||||
Total | $ | 321,309,688 | $ | 2,431,359 | ||||||||||||
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceed 5% of the Fund’s total assets.
Invesco V.I. Government Securities Fund
NOTE 7—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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 3,869,214 | $ | — | $ | 3,869,214 | ||||||
December 31, 2017 | 4,362,785 | — | 4,362,785 | |||||||||
$ | 8,231,999 | $ | — | $ | 8,231,999 | |||||||
* | 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 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, 2012 was $827,983,647 and $854,787,408, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $62,010,945 and $65,224,188, 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 | $ | 39,366,713 | ||
Aggregate unrealized (depreciation) of investment securities | (2,364,861 | ) | ||
Net unrealized appreciation of investment securities | $ | 37,001,852 | ||
Cost of investments for tax purposes is $1,262,076,485. |
Invesco V.I. Government Securities Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 6,531,266 | $ | 81,855,334 | 10,663,153 | $ | 128,843,040 | ||||||||||
Series II | 2,636,568 | 33,080,918 | 5,300,488 | 64,070,452 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 3,158,192 | 36,635,024 | ||||||||||||
Series II | — | — | 86,854 | 1,001,427 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 2,587,718 | 30,250,210 | ||||||||||||
Series II | — | — | 22,298,634 | 259,005,451 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (9,451,283 | ) | (118,377,129 | ) | (28,160,963 | ) | (340,945,513 | ) | ||||||||
Series II | (3,516,001 | ) | (43,662,809 | ) | (5,875,436 | ) | (71,038,561 | ) | ||||||||
Net increase (decrease) in share activity | (3,799,450 | ) | $ | (47,103,686 | ) | 10,058,640 | $ | 107,821,530 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 86% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011 the Fund acquired all the net assets of Invesco Van Kampen V.I. Government Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 24,886,352 shares of the Fund for 32,516,244 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund as of the close of business on April 29, 2011. The Target Fund’s net assets at that date of $289,255,661, including $4,992,514 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $1,059,348,706. The net assets of the Fund subsequent to the acquisition were $1,348,604,367. Assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, the pro forma results of operations for the year ended December 31, 2011 are as follows: |
Net investment income | $ | 28,166,317 | ||
Net realized/unrealized gains | 72,785,041 | |||
Change in net assets resulting from operations | $ | 100,951,358 | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, and it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011.
Invesco V.I. Government Securities Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 12.49 | $ | 0.11 | $ | 0.12 | $ | 0.23 | $ | — | $ | — | $ | — | $ | 12.72 | 1.84 | % | $ | 950,608 | 0.60 | %(d) | 0.76 | %(d) | 1.71 | %(d) | 69 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.80 | 0.59 | 0.16 | 0.75 | (0.49 | ) | — | (0.49 | ) | 12.06 | 6.43 | 1,169,985 | 0.73 | 0.76 | 4.93 | 106 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 12.39 | 0.09 | 0.12 | 0.21 | — | — | — | 12.60 | 1.69 | 289,250 | 0.85 | (d) | 1.01 | (d) | 1.46 | (d) | 69 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 11.74 | 0.56 | 0.15 | 0.71 | (0.46 | ) | — | (0.46 | ) | 11.99 | 6.11 | 18,770 | 0.98 | 1.01 | 4.68 | 106 | ||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $309,171,077 and sold of $25,033,352 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Government Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s) of $958,651 and $278,302 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,018.40 | $ | 3.01 | $ | 1,021.88 | $ | 3.02 | 0.60 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,016.90 | 4.26 | 1,020.64 | 4.27 | 0.85 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, the adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit Total Annual Fund Operating Expense of Series I and Series II shares to 0.70% and 0.95% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 0.70% and 0.95% 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 $3.51 and $4.76 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 $3.52 and $4.77 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Government Securities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the
Invesco V.I. Government Securities Fund
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. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – General U.S. Government Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of its performance universe for the one year period, the fourth 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 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. 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
Invesco V.I. High Yield Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.74 | % | ||
Series II Shares | 7.75 | |||
Barclays U.S. Aggregate Index▼ (Broad Market Index) | 2.37 | |||
Barclays U.S. Corporate High Yield 2% Issuer Cap Index▼ (Style-Specific Index) | 7.23 | |||
Lipper VUF High Current Yield Bond Funds Category Average▼ (Peer Group) | 6.48 | |||
Source(s): ▼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. Corporate High Yield 2% Issuer Cap Index is an unmanaged index that covers 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 Category Average represents an average of all of the variable insurance underlying funds in the Lipper High Current Yield Bond Funds category.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
Inception (5/1/98) | 3.83 | % | ||||||
10 Years | 8.82 | |||||||
5 Years | 6.58 | |||||||
1 Year | 5.23 | |||||||
Series II Shares | ||||||||
Inception (3/26/02) | 7.67 | % | ||||||
10 Years | 8.60 | |||||||
5 Years | 6.34 | |||||||
1 Year | 5.04 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.80% and 1.05%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2013. See current prospectus for more information. |
Invesco V.I. High Yield Fund |
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–89.58% | ||||||||
Advertising–0.05% | ||||||||
National CineMedia LLC, Sr. Sec. Gtd. Notes, 6.00%, 04/15/22(b) | $ | 45,000 | $ | 45,956 | ||||
Aerospace & Defense–0.83% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | 230,000 | 258,175 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
6.88%, 03/15/18 | 165,000 | 173,250 | ||||||
7.13%, 03/15/21 | 95,000 | 99,037 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 240,000 | 261,600 | ||||||
792,062 | ||||||||
Airlines–3.61% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16 (Acquired 03/15/11-11/29/11; Cost $747,331)(b)(c) | 905,000 | 859,750 | ||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 246,538 | 242,840 | ||||||
Continental Airlines Pass Through Trust, Series 2000-2, Class B, Sec. Pass Through Ctfs., 8.31%, 04/02/18 | 52,019 | 53,449 | ||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | 239,925 | 244,123 | ||||||
Series 2009-1, Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 53,085 | 61,181 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 136,847 | 150,147 | ||||||
Delta Air Lines Pass Through Trust, Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14 | 362,307 | 374,082 | ||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 85,000 | 85,637 | ||||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | 125,000 | 126,875 | ||||||
Delta Air Lines, Inc., Sec. Notes, 12.25%, 03/15/15(b) | 85,000 | 92,862 | ||||||
Sr. Sec. Notes, 9.50%, 09/15/14(b) | 222,000 | 235,875 | ||||||
UAL Pass Through Trust, | ||||||||
Series 2007-1, Class A, Sec. Gtd. Global Pass Through Ctfs., 6.64%, 07/02/22 | 38,962 | 40,837 | ||||||
Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19 | 114,176 | 111,892 | ||||||
Series 2009-1, Sr. Sec. Gtd. Global Pass Through Ctfs., 10.40%, 11/01/16 | 134,688 | 154,891 | ||||||
Series 2009-2, Class B, Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 193,170 | 211,038 | ||||||
US Airways Pass Through Trust, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | 204,459 | 186,058 | ||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | 60,000 | 62,213 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 60,000 | 61,650 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 75,000 | 75,938 | ||||||
3,431,338 | ||||||||
Alternative Carriers–1.20% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 395,000 | 424,625 | ||||||
Level 3 Communications Inc., Sr. Unsec. Global Notes, 11.88%, 02/01/19 | 245,000 | 273,175 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 07/01/19 | 230,000 | 237,475 | ||||||
8.63%, 07/15/20 | 105,000 | 110,775 | ||||||
9.38%, 04/01/19 | 85,000 | 92,225 | ||||||
1,138,275 | ||||||||
Aluminum–0.99% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | 950,630 | 941,718 | ||||||
Apparel Retail–1.38% | ||||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 390,000 | 423,150 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 310,000 | 323,369 | ||||||
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | 305,000 | 316,437 | ||||||
Limited Brands Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
5.63%, 02/15/22 | 60,000 | 61,875 | ||||||
8.50%, 06/15/19 | 100,000 | 117,500 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 04/01/21 | 40,000 | 44,000 | ||||||
7.00%, 05/01/20 | 25,000 | 27,750 | ||||||
1,314,081 | ||||||||
Apparel, Accessories & Luxury Goods–2.21% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | 475,000 | 503,500 | ||||||
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | 535,000 | 516,275 | ||||||
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–(continued) | ||||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 7.63%, 05/15/20 | $ | 525,000 | $ | 561,750 | ||||
Sr. Unsec. Notes, 6.88%, 05/01/22(b) | 35,000 | 36,050 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 505,000 | 488,903 | ||||||
2,106,478 | ||||||||
Auto Parts & Equipment–1.35% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 360,000 | 378,000 | ||||||
American Axle & Manufacturing, Inc., Sr. Unsec. Gtd. Notes, 7.75%, 11/15/19 | 90,000 | 95,850 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 6.75%, 02/15/21 | 450,000 | 488,250 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 12/15/20 | 190,000 | 206,150 | ||||||
7.75%, 08/15/18 | 110,000 | 119,900 | ||||||
1,288,150 | ||||||||
Automobile Manufacturers–0.49% | ||||||||
Chrysler Group LLC/CG Co-Issuer Inc., Sec. Gtd. Global Notes, 8.00%, 06/15/19 | 450,000 | 464,625 | ||||||
Motors Liquidation Corp., Sr. Unsec. Global Notes, 7.20%(c)(d) | 445,000 | 0 | ||||||
Sr. Unsec. Notes, 8.38%, 07/15/33(c)(d) | 755,000 | 0 | ||||||
464,625 | ||||||||
Biotechnology–0.25% | ||||||||
Grifols Inc. (Spain), Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/18 | 70,000 | 75,600 | ||||||
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | 90,000 | 29,700 | ||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 125,000 | 132,188 | ||||||
237,488 | ||||||||
Broadcasting–0.45% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 130,000 | 136,500 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 7.63%, 03/15/20(b) | 300,000 | 294,375 | ||||||
430,875 | ||||||||
Building Products–4.62% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 310,000 | 272,025 | ||||||
Associated Materials LLC/AMH New Finance Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 11/01/17 | 355,000 | 318,612 | ||||||
Building Materials Corp. of America, Sr. Unsec. Gtd. Notes, 7.50%, 03/15/20(b) | 265,000 | 283,550 | ||||||
Sr. Unsec. Notes, 6.88%, 08/15/18(b) | 490,000 | 513,275 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 535,000 | 547,372 | ||||||
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | 120,000 | 124,650 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 605,000 | 595,925 | ||||||
10.00%, 12/01/18 | 90,000 | 94,275 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | 70,000 | 68,950 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 13.13%, 07/15/14 | 265,000 | 266,988 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Unsec. Gtd. Notes, 10.00%, 06/01/20(b) | 310,000 | 324,725 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.88%, 03/30/20(b) | 365,000 | 380,512 | ||||||
8.38%, 10/15/18(b) | 25,000 | 26,313 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 545,000 | 576,337 | ||||||
4,393,509 | ||||||||
Cable & Satellite–2.73% | ||||||||
DISH DBS Corp., Sr. Unsec. Gtd. Notes, 4.63%, 07/15/17(b) | 460,000 | 465,750 | ||||||
Hughes Satellite Systems Corp., Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | 140,000 | 149,800 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 80,000 | 87,200 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 10/15/20 | 415,000 | 438,863 | ||||||
7.50%, 04/01/21 | 390,000 | 414,375 | ||||||
Sr. Unsec. Gtd. Notes, 7.25%, 10/15/20(b) | 190,000 | 201,400 | ||||||
Nara Cable Funding Ltd. (Spain), Sr. Sec. Gtd. Notes, 8.88%, 12/01/18(b) | 200,000 | 175,000 | ||||||
Unitymedia Hessen GmbH & Co KG / Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. Notes, 7.50%, 03/15/19(b) | 410,000 | 428,142 | ||||||
ViaSat Inc., Sr. Unsec. Gtd. Notes, 6.88%, 06/15/20(b) | 230,000 | 233,450 | ||||||
2,593,980 | ||||||||
Casinos & Gaming–5.10% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | 345,000 | 370,875 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Gtd. Global Notes, 12.75%, 04/15/18 | 265,000 | 208,025 | ||||||
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | 389,000 | 322,870 | ||||||
Chester Downs & Marina LLC, Sr. Sec. Gtd. Sub. Notes, 9.25%, 02/01/20(b) | 45,000 | 46,800 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sec. Gtd. PIK Global Notes, 10.75%, 01/15/17 | 263,201 | 290,179 | ||||||
Sr. Sec. Gtd. Global Notes, 7.63%, 01/15/16 | 335,000 | 352,587 | ||||||
Mandalay Resort Group, Sr. Unsec. Gtd. Sub. Notes, 7.63%, 07/15/13 | 200,000 | 205,500 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | $ | 95,000 | $ | 96,544 | ||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 393,000 | 404,790 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 02/27/14 | 10,000 | 10,350 | ||||||
7.75%, 03/15/22 | 390,000 | 398,775 | ||||||
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 195,000 | 214,500 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 180,000 | 185,400 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.53%, 02/01/14(b)(e) | 630,000 | 603,225 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 374,000 | 380,545 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sec. Gtd. First Mortgage Global Notes, 7.75%, 08/15/20 | 450,000 | 497,250 | ||||||
Sr. Sec. Gtd. First Mortgage Notes, 5.38%, 03/15/22(b) | 260,000 | 259,350 | ||||||
4,847,565 | ||||||||
Coal & Consumable Fuels–0.61% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/01/17 | 35,000 | 36,575 | ||||||
8.25%, 04/01/20 | 70,000 | 74,200 | ||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 380,000 | 380,475 | ||||||
Westmoreland Coal Co./Westmoreland Partners, Sr. Sec. Gtd. Notes, 10.75%, 02/01/18(b) | 100,000 | 89,250 | ||||||
580,500 | ||||||||
Communications Equipment–0.64% | ||||||||
Avaya Inc., Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 505,000 | 468,388 | ||||||
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | 170,000 | 141,100 | ||||||
609,488 | ||||||||
Computer & Electronics Retail–0.43% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 385,000 | 410,988 | ||||||
Computer Storage & Peripherals–0.42% | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Notes, 7.00%, 11/01/21 | 365,000 | 396,938 | ||||||
Construction & Engineering–1.32% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 585,000 | 602,550 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 650,000 | 654,062 | ||||||
1,256,612 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.46% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/17 | 215,000 | 247,519 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 235,000 | 240,875 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 105,000 | 113,925 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 505,000 | 487,325 | ||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | 290,000 | 300,150 | ||||||
1,389,794 | ||||||||
Construction Materials–1.27% | ||||||||
Cemex Espana Luxembourg (Mexico), Sr. Sec. Gtd. Notes, 9.88%, 04/30/19(b) | 501,000 | 449,083 | ||||||
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Bonds, 9.50%, 12/14/16(b) | 395,000 | 386,386 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 325,000 | 328,250 | ||||||
U.S. Concrete Inc., Sr. Sec. Conv. Notes, 9.50%, 08/31/15(b) | 40,000 | 42,350 | ||||||
1,206,069 | ||||||||
Consumer Finance–1.74% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 4.63%, 06/26/15 | 20,000 | 20,050 | ||||||
8.00%, 03/15/20 | 815,000 | 947,437 | ||||||
8.00%, 11/01/31 | 216,000 | 252,720 | ||||||
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 395,000 | 437,463 | ||||||
1,657,670 | ||||||||
Data Processing & Outsourced Services–1.19% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Notes, 7.25%, 06/01/21(b) | 770,000 | 793,100 | ||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 135,000 | 138,375 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.38%, 11/15/18 | 65,000 | 69,875 | ||||||
7.63%, 11/15/20 | 123,000 | 131,917 | ||||||
1,133,267 | ||||||||
Department Stores–0.33% | ||||||||
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | 350,000 | 315,875 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Distillers & Vintners–0.60% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 9.13%, 12/01/16(b) | $ | 305,000 | $ | 192,150 | ||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 295,000 | 334,825 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | 40,000 | 43,000 | ||||||
569,975 | ||||||||
Diversified Banks–0.10% | ||||||||
RBS Capital Trust II (United Kingdom), Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(f) | 150,000 | 99,000 | ||||||
Diversified Metals & Mining–1.26% | ||||||||
FMG Resources Pty. Ltd. (Australia),Sr. Unsec. Gtd. Notes, | ||||||||
6.38%, 02/01/16(b) | 250,000 | 252,192 | ||||||
7.00%, 11/01/15(b) | 185,000 | 188,700 | ||||||
Sr. Unsec. Notes, 6.88%, 04/01/22(b) | 280,000 | 281,706 | ||||||
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | 275,000 | 176,134 | ||||||
Vedanta Resources PLC (India), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 295,000 | 297,672 | ||||||
1,196,404 | ||||||||
Electric Utilities–0.49% | ||||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series C, Sr. Sec. Mortgage Bonds, 7.16%, 01/15/14 | 61,046 | 50,821 | ||||||
Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(c) | 275,000 | 229,625 | ||||||
Viridian Group FundCo II (United Kingdom), Sr. Sec. Gtd. Notes, 11.13%, 04/01/17(b) | 200,000 | 182,176 | ||||||
462,622 | ||||||||
Electrical Components & Equipment–0.07% | ||||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 65,000 | 69,550 | ||||||
Electronic Manufacturing Services–0.54% | ||||||||
Sanmina-SCI Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | 530,000 | 516,750 | ||||||
Environmental & Facilities Services–0.11% | ||||||||
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | 125,000 | 106,563 | ||||||
Food Retail–0.17% | ||||||||
New Albertsons Inc., Sr. Unsec. Bonds, 8.00%, 05/01/31 | 205,000 | 160,413 | ||||||
Forest Products–0.23% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | 260,000 | 211,900 | ||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17 (Acquired 10/14/10; Cost $30,000)(b)(c) | 30,000 | 7,500 | ||||||
219,400 | ||||||||
Gas Utilities–0.87% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | 433,000 | 397,277 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 410,000 | 426,400 | ||||||
823,677 | ||||||||
Health Care Equipment–0.34% | ||||||||
DJO Finance LLC/Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.75%, 04/15/18 | 35,000 | 29,400 | ||||||
10.88%, 11/15/14 | 195,000 | 201,338 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | 130,000 | 94,900 | ||||||
325,638 | ||||||||
Health Care Facilities–2.51% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, | ||||||||
5.88%, 03/15/22 | 210,000 | 219,975 | ||||||
7.88%, 02/15/20 | 288,000 | 321,120 | ||||||
Sr. Unsec. Notes, 7.19%, 11/15/15 | 155,000 | 164,300 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Notes, 7.25%, 10/01/18 | 90,000 | 95,850 | ||||||
7.75%, 09/15/22 | 85,000 | 91,163 | ||||||
8.13%, 02/15/20 | 90,000 | 99,225 | ||||||
Radiation Therapy Services Inc., Sr. Sec. Gtd. Notes, 8.88%, 01/15/17(b) | 325,000 | 313,625 | ||||||
Select Medical Holdings Corp., Sr. Unsec. Floating Rate Global Notes, 6.49%, 09/15/15(e) | 155,000 | 150,350 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, 8.00%, 08/01/20 | 310,000 | 321,625 | ||||||
9.25%, 02/01/15 | 545,000 | 609,037 | ||||||
2,386,270 | ||||||||
Health Care Services–0.47% | ||||||||
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | 230,000 | 225,975 | ||||||
Radnet Management Inc., Sr. Unsec. Gtd. Global Notes, 10.38%, 04/01/18 | 225,000 | 225,563 | ||||||
451,538 | ||||||||
Health Care Supplies–0.14% | ||||||||
Alere Inc., Sr. Unsec. Gtd. Sub. Notes, 9.00%, 05/15/16 | 135,000 | 137,700 | ||||||
Health Care Technology–0.37% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | 330,000 | 350,625 | ||||||
Homebuilding–2.22% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/15 | 140,000 | 134,400 | ||||||
8.13%, 06/15/16 | 300,000 | 288,000 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Homebuilding–(continued) | ||||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Global Notes, 10.63%, 10/15/16 | $ | 490,000 | $ | 469,175 | ||||
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 435,000 | 466,537 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 205,000 | 208,075 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Notes, 7.00%, 04/01/22(b) | 140,000 | 144,900 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 7.75%, 04/15/20(b) | 260,000 | 273,650 | ||||||
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | 120,000 | 127,500 | ||||||
2,112,237 | ||||||||
Hotels, Resorts & Cruise Lines–0.18% | ||||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 7.25%, 03/15/18 | 85,000 | 92,225 | ||||||
7.50%, 10/15/27 | 75,000 | 75,938 | ||||||
168,163 | ||||||||
Household Products–0.35% | ||||||||
Central Garden & Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 325,000 | 328,250 | ||||||
Housewares & Specialties–0.20% | ||||||||
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | 180,000 | 192,150 | ||||||
Independent Power Producers & Energy Traders–1.93% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 7.75%, 10/15/15 | 340,000 | 384,200 | ||||||
8.00%, 10/15/17 | 190,000 | 217,075 | ||||||
Calpine Corp., Sr. Sec. Gtd. Notes, 7.25%, 10/15/17(b) | 360,000 | 388,800 | ||||||
7.50%, 02/15/21(b) | 385,000 | 419,650 | ||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | 210,000 | 217,875 | ||||||
Red Oak Power LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 198,963 | 212,393 | ||||||
1,839,993 | ||||||||
Industrial Conglomerates–0.00% | ||||||||
Indalex Holding Corp., Series B, Sec. Gtd. Global Notes, 11.50%, 02/01/14(c) | 230,000 | 0 | ||||||
Industrial Machinery–0.53% | ||||||||
Actuant Corp., Sr. Unsec. Gtd. Notes, 5.63%, 06/15/22(b) | 135,000 | 139,050 | ||||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 125,000 | 135,156 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | 25,000 | 26,594 | ||||||
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | 45,000 | 45,225 | ||||||
SPX Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 09/01/17 | 145,000 | 159,500 | ||||||
505,525 | ||||||||
Industrial REIT’s–0.12% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 100,000 | 110,250 | ||||||
Integrated Telecommunication Services–0.21% | ||||||||
Integra Telecom Holdings Inc., Sr. Sec. Gtd. Notes, 10.75%, 04/15/16(b) | 200,000 | 195,500 | ||||||
Internet Software & Services–0.36% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 7.00%, 07/15/21 | 50,000 | 55,500 | ||||||
8.13%, 03/01/18 | 255,000 | 283,688 | ||||||
339,188 | ||||||||
Investment Banking & Brokerage–0.45% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 325,000 | 324,271 | ||||||
E*TRADE Financial Corp., Sr. Unsec. Notes, 6.75%, 06/01/16 | 100,000 | 102,250 | ||||||
426,521 | ||||||||
Leisure Facilities–0.08% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 70,000 | 73,325 | ||||||
Leisure Products–0.57% | ||||||||
Toys R US-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | 550,000 | 543,125 | ||||||
Life Sciences Tools & Services–0.20% | ||||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 190,000 | 186,200 | ||||||
Marine–0.15% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Global Notes, 8.63%, 11/01/17 | 40,000 | 37,600 | ||||||
Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | 105,000 | 104,606 | ||||||
142,206 | ||||||||
Movies & Entertainment–1.01% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 314,000 | 337,550 | ||||||
Carmike Cinemas Inc., Sec. Gtd. Global Notes, 7.38%, 05/15/19 | 140,000 | 145,775 | ||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | 430,000 | 477,300 | ||||||
960,625 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Multi-Line Insurance–2.27% | ||||||||
American International Group Inc., Jr. Unsec. Sub. Global Deb., 8.18%, 05/15/58 | $ | 380,000 | $ | 410,875 | ||||
Fairfax Financial Holdings Ltd. (Canada), Sr. Unsec. Notes, 5.80%, 05/15/21(b) | 255,000 | 248,784 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 190,000 | 201,400 | ||||||
Sr. Unsec. Global Notes, 5.95%, 10/15/36 | 90,000 | 85,397 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 495,000 | 504,900 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | 545,000 | 707,317 | ||||||
2,158,673 | ||||||||
Office Services & Supplies–0.31% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 265,000 | 257,381 | ||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 35,000 | 37,188 | ||||||
294,569 | ||||||||
Oil & Gas Drilling–0.04% | ||||||||
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | 40,000 | 42,000 | ||||||
Oil & Gas Equipment & Services–1.26% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 530,000 | 547,225 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 505,000 | 494,900 | ||||||
SESI, LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 05/01/19 | 145,000 | 152,567 | ||||||
1,194,692 | ||||||||
Oil & Gas Exploration & Production–6.71% | ||||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.75%, 11/01/20 | 95,000 | 99,275 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 09/01/21 | 305,000 | 324,062 | ||||||
Sr. Unsec. Gtd. Notes, 7.63%, 11/15/22(b) | 95,000 | 96,663 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 100,000 | 99,250 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 02/15/21 | 185,000 | 179,913 | ||||||
6.63%, 08/15/20 | 510,000 | 505,537 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | 175,000 | 182,437 | ||||||
Continental Resources Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.13%, 04/01/21 | 85,000 | 94,988 | ||||||
7.38%, 10/01/20 | 190,000 | 212,325 | ||||||
8.25%, 10/01/19 | 130,000 | 145,113 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 09/15/22(b) | 80,000 | 81,600 | ||||||
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 680,000 | 593,300 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 195,000 | 179,400 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Notes, 7.38%, 05/01/22(b) | 45,000 | 46,800 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 610,000 | 627,919 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 268,000 | 285,085 | ||||||
OGX Austria GmbH (Brazil), Sr. Unsec. Gtd. Notes, 8.38%, 04/01/22(b) | 400,000 | 348,545 | ||||||
8.50%, 06/01/18(b) | 260,000 | 232,351 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, | ||||||||
6.13%, 06/15/19 | 170,000 | 170,850 | ||||||
7.63%, 06/01/18 | 270,000 | 288,225 | ||||||
8.63%, 10/15/19 | 100,000 | 110,875 | ||||||
QEP Resources Inc., Sr. Unsec. Notes, 5.38%, 10/01/22 | 240,000 | 241,500 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 65,000 | 64,269 | ||||||
5.75%, 06/01/21 | 340,000 | 356,150 | ||||||
Samson Investment Co., Sr. Unsec. Notes, 9.75%, 02/15/20(b) | 130,000 | 129,675 | ||||||
SM Energy Co., | ||||||||
Sr. Unsec. Global Notes, 6.50%, 11/15/21 | 180,000 | 184,050 | ||||||
6.63%, 02/15/19 | 140,000 | 144,200 | ||||||
Sr. Unsec. Notes, 6.50%, 01/01/23(b) | 85,000 | 86,806 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | 80,000 | 85,100 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | 190,000 | 190,000 | ||||||
6,386,263 | ||||||||
Oil & Gas Refining & Marketing–0.71% | ||||||||
Crosstex Energy, L.P./Crosstex Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 06/01/22(b) | 150,000 | 148,500 | ||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 520,000 | 530,400 | ||||||
678,900 | ||||||||
Oil & Gas Storage & Transportation–3.21% | ||||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/15/18 | 225,000 | 241,875 | ||||||
Chesapeake Midstream Partners L.P./CHKM Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.88%, 04/15/21 | 235,000 | 229,125 | ||||||
6.13%, 07/15/22 | 40,000 | 39,400 | ||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 470,000 | 486,450 | ||||||
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 Storage & Transportation–(continued) | ||||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | $ | 385,000 | $ | 424,944 | ||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 08/01/21 | 183,000 | 182,085 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.25%, 06/15/22 | 410,000 | 424,862 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 205,000 | 143,500 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | 245,000 | 259,394 | ||||||
Sabine Pass LNG, L.P., Sr. Sec. Gtd. Global Notes, 7.50%, 11/30/16 | 100,000 | 105,500 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | 305,000 | 317,962 | ||||||
Sr. Unsec. Gtd. Notes, 6.38%, 08/01/22(b) | 90,000 | 90,113 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 105,000 | 106,838 | ||||||
3,052,048 | ||||||||
Packaged Foods & Meats–0.97% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | 305,000 | 317,962 | ||||||
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | 390,000 | 412,425 | ||||||
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | 205,000 | 191,675 | ||||||
922,062 | ||||||||
Paper Packaging–0.26% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 250,000 | 250,625 | ||||||
Paper Products–1.56% | ||||||||
Boise Cascade LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/15/14 | 785,000 | 791,378 | ||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | 225,000 | 237,937 | ||||||
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 205,000 | 212,175 | ||||||
NewPage Corp., Sr. Sec. Gtd. Global Notes, 11.38%, 12/31/14 | 215,000 | 138,138 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 7.13%, 05/01/16 | 105,000 | 107,363 | ||||||
1,486,991 | ||||||||
Personal Products–0.47% | ||||||||
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | 400,000 | 444,000 | ||||||
Pharmaceuticals–0.42% | ||||||||
Elan Finance PLC/Corp. (Ireland), Sr. Unsec. Gtd. Global Notes, | ||||||||
8.75%, 10/15/16 | 105,000 | 114,975 | ||||||
8.75%, 10/15/16 | 100,000 | 109,500 | ||||||
Endo Health Solutions Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 12/15/20 | 30,000 | 32,775 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 135,000 | 143,775 | ||||||
401,025 | ||||||||
Property & Casualty Insurance–0.39% | ||||||||
QBE Capital Funding III Ltd. (Australia), Unsec. Gtd. Sub. Notes, 7.25%, 05/24/41(b) | 200,000 | 182,000 | ||||||
XL Group PLC (Ireland), Series E, Jr. Sub. Global Pfd. Bonds, 6.50%(f) | 225,000 | 185,625 | ||||||
367,625 | ||||||||
Publishing–0.03% | ||||||||
MediMedia USA Inc., Sr. Unsec. Sub. Notes, 11.38%, 11/15/14(b) | 30,000 | 27,375 | ||||||
Real Estate Services–0.24% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 215,000 | 227,900 | ||||||
Regional Banks–2.08% | ||||||||
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | 75,000 | 70,875 | ||||||
BB&T Capital Trust II, Jr. Unsec. Ltd. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 180,000 | 180,347 | ||||||
Regions Financial Corp., Sr. Unsec. Notes, 5.75%, 06/15/15 | 500,000 | 521,250 | ||||||
Unsec. Sub. Notes, 7.38%, 12/10/37 | 465,000 | 460,350 | ||||||
Susquehanna Capital II, Jr. Unsec. Gtd. Sub. Notes, 11.00%, 03/23/40 | 175,000 | 186,871 | ||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 215,000 | 227,362 | ||||||
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 355,000 | 326,600 | ||||||
1,973,655 | ||||||||
Research & Consulting Services–0.18% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 160,000 | 170,000 | ||||||
Semiconductor Equipment–0.91% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 6.63%, 06/01/21 | 210,000 | 211,312 | ||||||
7.38%, 05/01/18 | 315,000 | 329,175 | ||||||
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 320,000 | 328,800 | ||||||
869,287 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Semiconductors–0.93% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 9.25%, 04/15/18(b) | $ | 125,000 | $ | 135,000 | ||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
8.05%, 02/01/20 | 565,000 | 560,762 | ||||||
10.75%, 08/01/20 | 175,000 | 189,000 | ||||||
884,762 | ||||||||
Specialized Consumer Services–0.22% | ||||||||
Carlson Wagonlit B.V. (Netherlands), Sr. Sec. Gtd. Notes, 6.88%, 06/15/19(b) | 200,000 | 205,500 | ||||||
Specialized Finance–3.73% | ||||||||
Air Lease Corp., Sr. Unsec. Notes, 5.63%, 04/01/17(b) | 150,000 | 148,125 | ||||||
Aircastle Ltd., Sr. Unsec. Global Notes, 6.75%, 04/15/17 | 640,000 | 652,800 | ||||||
7.63%, 04/15/20 | 90,000 | 91,800 | ||||||
CIT Group Inc., Sr. Unsec. Global Notes, 5.25%, 03/15/18 | 550,000 | 569,250 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 05/02/17(b) | 138,208 | 137,862 | ||||||
Sr. Unsec. Notes, 5.00%, 05/15/17 | 85,000 | 87,550 | ||||||
5.50%, 02/15/19(b) | 245,000 | 253,575 | ||||||
International Lease Finance Corp., Sr. Sec. Notes, | ||||||||
6.75%, 09/01/16(b) | 145,000 | 155,784 | ||||||
7.13%, 09/01/18(b) | 200,000 | 222,438 | ||||||
Sr. Unsec. Global Notes, | ||||||||
5.75%, 05/15/16 | 65,000 | 66,073 | ||||||
5.88%, 04/01/19 | 90,000 | 90,422 | ||||||
6.25%, 05/15/19 | 100,000 | 102,469 | ||||||
8.63%, 09/15/15 | 215,000 | 238,435 | ||||||
8.75%, 03/15/17 | 285,000 | 321,159 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 360,000 | 413,325 | ||||||
3,551,067 | ||||||||
Specialized REIT’s–0.88% | ||||||||
Host Hotels & Resorts L.P., Sr. Gtd. Global Notes, 6.00%, 11/01/20 | 205,000 | 224,475 | ||||||
Sr. Unsec. Notes, 5.25%, 03/15/22(b) | 230,000 | 236,325 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | 200,000 | 209,500 | ||||||
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | 155,000 | 164,881 | ||||||
835,181 | ||||||||
Specialty Chemicals–0.67% | ||||||||
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | 260,000 | 256,425 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 360,000 | 381,600 | ||||||
638,025 | ||||||||
Specialty Stores–0.35% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | 315,000 | 332,325 | ||||||
Steel–0.36% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 6.25%, 02/25/22 | 120,000 | 116,991 | ||||||
United States Steel Corp., Sr. Unsec. Global Notes, 7.50%, 03/15/22 | 90,000 | 86,400 | ||||||
Sr. Unsec. Notes, 7.00%, 02/01/18 | 140,000 | 138,950 | ||||||
342,341 | ||||||||
Systems Software–0.53% | ||||||||
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16 (Acquired 11/12/10-01/06/11; Cost $620,650)(b) | 615,000 | 507,375 | ||||||
Technology Distributors–0.33% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 305,000 | 315,675 | ||||||
Tires & Rubber–0.73% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 350,000 | 378,000 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Notes, 7.00%, 05/15/22 | 310,000 | 313,100 | ||||||
691,100 | ||||||||
Trading Companies & Distributors–2.55% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.25%, 01/15/19 | 585,000 | 628,875 | ||||||
9.75%, 03/15/20 | 70,000 | 78,225 | ||||||
Sr. Unsec. Gtd. Notes, 8.25%, 01/15/19(b) | 85,000 | 90,525 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 260,000 | 268,125 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, | ||||||||
6.75%, 04/15/19 | 260,000 | 269,750 | ||||||
7.38%, 01/15/21 | 500,000 | 533,750 | ||||||
7.50%, 10/15/18 | 170,000 | 181,900 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 125,000 | 130,625 | ||||||
UR Merger Sub Corp., Sec. Gtd. Notes, 5.75%, 07/15/18(b) | 30,000 | 31,350 | ||||||
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 195,000 | 207,675 | ||||||
2,420,800 | ||||||||
Wireless Telecommunication Services–4.78% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc., Sr. Sec. Gtd. Notes, | ||||||||
12.00%, 12/01/15(b) | 465,000 | 420,825 | ||||||
14.75%, 12/01/16(b) | 205,000 | 201,413 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 8.25%, 12/01/17(b)(g) | 60,000 | 37,950 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | $ | 825,000 | $ | 794,062 | ||||
Digicel Group Ltd. (Ireland), Sr. Unsec. Notes, 8.88%, 01/15/15(b) | 320,000 | 324,400 | ||||||
Digicel Ltd. (Ireland), Sr. Unsec. Notes, 8.25%, 09/01/17(b) | 255,000 | 258,825 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 11/15/20 | 350,000 | 347,375 | ||||||
7.88%, 09/01/18 | 190,000 | 197,956 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 130,000 | 122,850 | ||||||
Sprint Nextel Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 03/01/20(b) | 135,000 | 141,413 | ||||||
9.00%, 11/15/18(b) | 285,000 | 321,337 | ||||||
Sr. Unsec. Notes, 8.38%, 08/15/17 | 340,000 | 351,050 | ||||||
11.50%, 11/15/21(b) | 125,000 | 140,625 | ||||||
VimpelCom (Russia), Unsec. Loan Participation Notes, 7.75%, 02/02/21(b) | 400,000 | 380,520 | ||||||
Wind Acquisition Finance S.A. (Italy), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 625,000 | 509,375 | ||||||
4,549,976 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes (Cost $83,065,500) | 85,204,501 | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–6.08%(h) | ||||||||
Canada–0.27% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17(b) | CAD | 240,000 | 254,002 | |||||
Czech Republic–0.37% | ||||||||
Central European Media Enterprises Ltd., REGS, Jr. Sec. Gtd. Euro Notes, 11.63%, 09/15/16(b) | EUR | 150,000 | 195,381 | |||||
CET 21 spol sro, Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | EUR | 115,000 | 153,064 | |||||
348,445 | ||||||||
France–0.35% | ||||||||
Europcar Groupe S.A., REGS, Sr. Sec. Gtd. Floating Rate Euro Bonds, 4.19%, 05/15/13(b)(e) | EUR | 265,000 | 335,538 | |||||
Italy–0.26% | ||||||||
Lottomatica S.p.A., REGS, Jr. Unsec. Sub. Euro Bonds, 8.25%, 03/31/66(b) | EUR | 130,000 | 143,026 | |||||
Wind Acquisition Finance S.A., Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | EUR | 100,000 | 101,801 | |||||
244,827 | ||||||||
Luxembourg–1.52% | ||||||||
Ardagh Packaging Finance PLC, Sr. Sec. Gtd. Notes, 9.25%, 10/15/20(b) | EUR | 400,000 | 511,531 | |||||
Codere Finance Luxembourg S.A., Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | EUR | 100,000 | 93,896 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 06/15/15(b) | EUR | 390,000 | 366,196 | |||||
ConvaTec Healthcare S.A., Sr. Unsec. Gtd. Notes, 10.88%, 12/15/18(b) | EUR | 100,000 | 124,563 | |||||
Mark IV Europe Lux SCA/Mark IV USA SCA, Sr. Sec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 270,000 | 346,564 | |||||
1,442,750 | ||||||||
Netherlands–0.06% | ||||||||
Boats Investments B.V., Sr. Sec. PIK Medium-Term Euro Notes, 11.00%, 03/31/17 | EUR | 86,003 | 58,849 | |||||
Poland–0.65% | ||||||||
CEDC Finance Corp. International Inc., Sr. Sec. Gtd. Notes, 8.88%, 12/01/16(b) | EUR | 115,000 | 94,529 | |||||
Eileme 2 A.B., Sr. Sec. Gtd. Notes, 11.75%, 01/31/20(b) | EUR | 245,000 | 319,122 | |||||
Polish Television Holding B.V., Sr. Sec. Notes, 11.25%, 05/15/17(b)(i) | EUR | 60,000 | 77,014 | |||||
TVN Finance Corp II A.B., Sr. Unsec. Gtd. Notes, 10.75%, 11/15/17(b) | EUR | 100,000 | 132,783 | |||||
623,448 | ||||||||
Spain–0.87% | ||||||||
Cirsa Funding Luxembourg S.A., Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | EUR | 180,000 | 186,655 | |||||
REGS, Sr. Unsec. Gtd. Euro Notes, 8.75%, 05/15/18(b) | EUR | 300,000 | 311,092 | |||||
Nara Cable Funding Ltd., Sr. Sec. Notes, 8.88%, 12/01/18(b) | EUR | 300,000 | 333,854 | |||||
831,601 | ||||||||
United Kingdom–1.18% | ||||||||
Boparan Finance PLC, REGS, Sr. Unsec. Gtd. Euro Notes, 9.75%, 04/30/18(b) | EUR | 230,000 | 306,855 | |||||
Kerling PLC, Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | EUR | 130,000 | 145,492 | |||||
Odeon & UCI Finco PLC, Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | GBP | 110,000 | 167,534 | |||||
R&R Ice Cream PLC, Sr. Sec. Gtd. Notes, 8.38%, 11/15/17(b) | EUR | 300,000 | 378,431 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.38%, 11/15/17(b) | EUR | 100,000 | 126,144 | |||||
1,124,456 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal | ||||||||
Amount | Value | |||||||
United States–0.55% | ||||||||
Boardriders S.A., Sr. Unsec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 315,000 | $ | 395,362 | ||||
Goodyear Dunlop Tires Europe B.V., Sr. Unsec. Gtd. Notes, 6.75%, 04/15/19(b) | EUR | 100,000 | 128,989 | |||||
524,351 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $6,461,514) | 5,788,267 | |||||||
Shares | ||||||||
Preferred Stocks–2.87% | ||||||||
Automobile Manufacturers–0.13% | ||||||||
General Motors Co., Series B, $2.38 Conv. Pfd. | 3,580 | 118,856 | ||||||
Consumer Finance–0.95% | ||||||||
Ally Financial, Inc., Series A, 8.50% Pfd. | 7,845 | 180,043 | ||||||
Ally Financial, Inc., Series G, 7.00% Pfd.(b) | 581 | 517,653 | ||||||
GMAC Capital Trust I, Series 2, 8.13% Jr. Gtd. Sub. Pfd. | 8,630 | 207,551 | ||||||
905,247 | ||||||||
Diversified Banks–0.29% | ||||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | 13,950 | 274,118 | ||||||
Industrial REIT’s–0.08% | ||||||||
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | 3,020 | 78,460 | ||||||
Multi-Line Insurance–0.64% | ||||||||
Hartford Financial Services Group Inc., 7.88% Jr. Sub. Pfd. | 22,455 | 606,992 | ||||||
Regional Banks–0.67% | ||||||||
Zions Bancorp., Series C, 9.50% Pfd. | 24,300 | 637,146 | ||||||
Tires & Rubber–0.11% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 2,490 | 107,568 | ||||||
Total Preferred Stocks (Cost $2,621,992) | 2,728,387 | |||||||
Common Stocks & Other Equity Interests–0.45% | ||||||||
Automobile Manufacturers–0.20% | ||||||||
General Motors Co.(d)(j) | 4,888 | 96,391 | ||||||
General Motors Co., Wts. expiring 07/10/16(d)(j) | 4,443 | 48,962 | ||||||
General Motors Co., Wts. expiring 07/10/19(d)(j) | 4,443 | 30,123 | ||||||
Motors Liquidation Co. GUC Trust(j) | 1,227 | 15,031 | ||||||
190,507 | ||||||||
Broadcasting–0.01% | ||||||||
Adelphia Communications Corp.(k) | — | 2,559 | ||||||
Adelphia Recovery Trust, Series ACC-1(k) | 318,570 | 478 | ||||||
Adelphia Recovery Trust, Series Arahova(k) | 109,170 | 2,183 | ||||||
5,220 | ||||||||
Building Products–0.01% | ||||||||
Nortek, Inc.(j) | 215 | 10,759 | ||||||
Construction Materials–0.10% | ||||||||
U.S. Concrete, Inc.(j) | 20,786 | 99,565 | ||||||
Integrated Telecommunication Services–0.12% | ||||||||
Hawaiian Telcom Holdco Inc., Wts. expiring 10/28/15(j) | 1,527 | 12,216 | ||||||
Largo Limited, Class A (Luxembourg)(j) | 17,563 | 9,839 | ||||||
Largo Limited, Class B (Luxembourg)(j) | 158,069 | 88,553 | ||||||
110,608 | ||||||||
Publishing–0.00% | ||||||||
Reader’s Digest Association Inc. (The) (China), Wts. expiring 02/19/14(j) | 669 | 0 | ||||||
Semiconductors–0.01% | ||||||||
Magnachip Semiconductor Corp. (South Korea)(j) | 1,372 | 13,075 | ||||||
Total Common Stocks & Other Equity Interests (Cost $2,420,122) | 429,734 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Treasury Bills–0.19%(l) | ||||||||
0.13%, 11/15/12(m)(Cost $179,909) | $ | 180,000 | 179,924 | |||||
Bundled Securities–0.02% | ||||||||
Investment Banking & Brokerage–0.02% | ||||||||
Targeted Return Index Securities Trust, Series HY 2006-1, Sec. Variable Rate Bonds, 7.12%, 05/01/16 (Acquired 08/15/08; Cost $18,900) (Cost $19,369)(b)(e) | 20,000 | 19,661 | ||||||
TOTAL INVESTMENTS–99.19% (Cost $94,768,406) | 94,350,474 | |||||||
OTHER ASSETS LESS LIABILITIES–0.81% | 765,722 | |||||||
NET ASSETS–100.00% | $ | 95,116,196 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind | |
REGS | – Regulation S | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $31,993,900, which represented 33.64% of the Fund’s Net Assets. | |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2012 was $1,096,875, which represented 1.15% of the Fund’s Net Assets. | |
(d) | Acquired as part of the General Motors reorganization. | |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(i) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. | |
(j) | Non-income producing security. | |
(k) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. | |
(l) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(m) | A portion of the principal balance was pledged as collateral for open credit default swap contracts. See Note 1L and Note 4. |
By credit quality, based on Net Assets
as of June 30, 2012
A | 0.8 | % | ||
BBB | 5.9 | |||
BB | 34.1 | |||
B | 42.9 | |||
CCC | 10.7 | |||
Other | 5.6 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $94,768,406) | $ | 94,350,474 | ||
Foreign currencies, at value (Cost $17,921) | 17,760 | |||
Receivable for: | ||||
Investments sold | 2,910,232 | |||
Fund shares sold | 73,205 | |||
Dividends and interest | 1,725,713 | |||
Foreign currency contracts | 248,078 | |||
Investment for trustee deferred compensation and retirement plans | 41,834 | |||
Total assets | 99,367,296 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 200,000 | |||
Fund shares reacquired | 30,478 | |||
Amount due custodian | 3,833,993 | |||
Accrued fees to affiliates | 68,778 | |||
Accrued other operating expenses | 36,676 | |||
Trustee deferred compensation and retirement plans | 51,437 | |||
Unrealized depreciation on swap agreements | 5,139 | |||
Premiums received on swap agreements | 24,599 | |||
Total liabilities | 4,251,100 | |||
Net assets applicable to shares outstanding | $ | 95,116,196 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 96,760,345 | ||
Undistributed net investment income | 9,020,866 | |||
Undistributed net realized gain (loss) | (10,412,665 | ) | ||
Unrealized appreciation (depreciation) | (252,350 | ) | ||
$ | 95,116,196 | |||
Net Assets: | ||||
Series I | $ | 83,328,191 | ||
Series II | $ | 11,788,005 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 15,334,363 | |||
Series II | 2,173,910 | |||
Series I: | ||||
Net asset value per share | $ | 5.43 | ||
Series II: | ||||
Net asset value per share | $ | 5.42 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Interest | $ | 3,865,995 | ||
Dividends | 112,487 | |||
Dividends from affiliated money market funds | 8,959 | |||
Total investment income | 3,987,441 | |||
Expenses: | ||||
Advisory fees | 359,854 | |||
Administrative services fees | 160,654 | |||
Custodian fees | 9,193 | |||
Distribution fees — Series II | 10,350 | |||
Transfer agent fees | 13,022 | |||
Trustees’ and officers’ fees and benefits | 12,848 | |||
Other | 44,113 | |||
Total expenses | 610,034 | |||
Less: Fees waived | (149,910 | ) | ||
Net expenses | 460,124 | |||
Net investment income | 3,527,317 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 773,272 | |||
Foreign currencies | (19,397 | ) | ||
Foreign currency contracts | 446,244 | |||
Swap agreements | 104,939 | |||
1,305,058 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 3,861,194 | |||
Foreign currencies | 12,119 | |||
Foreign currency contracts | (308,023 | ) | ||
Swap agreements | (22,578 | ) | ||
3,542,712 | ||||
Net realized and unrealized gain | 4,847,770 | |||
Net increase in net assets resulting from operations | $ | 8,375,087 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,527,317 | $ | 5,596,509 | ||||
Net realized gain | 1,305,058 | 1,988,968 | ||||||
Change in net unrealized appreciation (depreciation) | 3,542,712 | (7,882,234 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 8,375,087 | (296,757 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,229,022 | ) | |||||
Series II | — | (46,712 | ) | |||||
Total distributions from net investment income | — | (4,275,734 | ) | |||||
Share transactions–net: | ||||||||
Series I | (31,080,598 | ) | 55,281,125 | |||||
Series II | 5,901,971 | 4,911,560 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (25,178,627 | ) | 60,192,685 | |||||
Net increase (decrease) in net assets | (16,803,540 | ) | 55,620,194 | |||||
Net assets: | ||||||||
Beginning of period | 111,919,736 | 56,299,542 | ||||||
End of period (includes undistributed net investment income of $9,020,866 and $5,493,549, respectively) | $ | 95,116,196 | $ | 111,919,736 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Senior secured floating rate loans and senior secured floating rate debt securities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by |
Invesco V.I. High Yield Fund
independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. High Yield Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. | |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index. | ||
A CDS is an agreement between two parties (“Counterparties”) to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a counterparty becomes bankrupt or otherwise fails to perform its obligations due |
Invesco V.I. High Yield Fund
to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. | ||
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets. | ||
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to cover the Fund’s exposure to the counterparty. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. | ||
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $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 June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.80% and Series II shares to 1.05% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $149,910.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $135,791 for services provided by insurance companies.
Invesco V.I. High Yield 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,932,525 | $ | 1,225,596 | $ | — | $ | 3,158,121 | ||||||||
U.S. Treasury Securities | 179,924 | — | — | 179,924 | ||||||||||||
Corporate Debt Securities | — | 76,837,899 | — | 76,837,899 | ||||||||||||
Foreign Corporate Debt Securities | — | 14,174,530 | — | 14,174,530 | ||||||||||||
$ | 2,112,449 | $ | 92,238,025 | $ | — | $ | 94,350,474 | |||||||||
Foreign Currency Contracts* | — | 168,897 | — | 168,897 | ||||||||||||
Swap Agreements* | — | (5,139 | ) | — | (5,139 | ) | ||||||||||
Total Investments | $ | 2,112,449 | $ | 92,401,783 | $ | — | $ | 94,514,232 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Swap agreements(a) | $ | — | $ | (5,139 | ) | |||
Currency risk | ||||||||
Foreign currency contracts(b) | 248,078 | — | ||||||
Total | $ | 248,078 | $ | (5,139 | ) | |||
(a) | Value is disclosed on the Statement of Assets and Liabilities as Unrealized depreciation on swap agreements. | |
(b) | Values are disclosed on the Statement of Assets and Liabilities as Foreign currency contracts. |
Invesco V.I. High Yield Fund
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Foreign Currency | Swap | |||||||
Contracts* | Agreements* | |||||||
Realized Gain | ||||||||
Credit risk | $ | — | $ | 104,939 | ||||
Currency risk | 446,244 | — | ||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Credit risk | — | (22,578 | ) | |||||
Currency risk | (308,023 | ) | — | |||||
Total | $ | 138,221 | $ | 82,361 | ||||
* | The average notional value of foreign currency contracts and swap agreements outstanding during the period was $6,448,824 and $5,062,500, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||||
Settlement | Contract to | Notional | Unrealized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||
08/09/12 | RBC Dain Rauscher | EUR | 4,172,000 | USD | 5,446,963 | $ | 5,278,066 | $ | 168,897 | |||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||||
Closed | Contract to | Notional | Realized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Gain | |||||||||||||||||
05/16/12 | RBC Dain Rauscher | EUR | 237,000 | USD | 309,427 | $ | 301,817 | $ | 7,610 | |||||||||||||
05/24/12 | Morgan Stanley | GBP | 107,000 | USD | 172,077 | 168,156 | 3,921 | |||||||||||||||
05/24/12 | RBC Dain Rauscher | EUR | 211,000 | USD | 275,481 | 265,885 | 9,596 | |||||||||||||||
06/12/12 | RBC Dain Rauscher | EUR | 472,000 | USD | 616,243 | 589,103 | 27,140 | |||||||||||||||
06/19/12 | RBC Dain Rauscher | EUR | 138,000 | USD | 180,173 | 174,680 | 5,493 | |||||||||||||||
06/27/12 | RBC Dain Rauscher | EUR | 290,000 | USD | 378,624 | 361,300 | 17,324 | |||||||||||||||
06/29/12 | RBC Dain Rauscher | EUR | 205,000 | USD | 267,648 | 259,551 | 8,097 | |||||||||||||||
Total closed foreign currency contracts | $ | 2,120,492 | $ | 79,181 | ||||||||||||||||||
Total foreign currency contracts | $ | 248,078 | ||||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Credit Default Swap Agreements | ||||||||||||||||||||||||||||||
Implied | Notional | Unrealized | ||||||||||||||||||||||||||||
Buy/Sell | (Pay)/Receive | Expiration | Credit | Value | Upfront | Appreciation | ||||||||||||||||||||||||
Counterparty | Reference Entity | Protection | Fixed Rate | Date | Spread(a) | (000) | Payments | (Depreciation) | ||||||||||||||||||||||
JPMorgan Chase Bank | MGM Resorts International | Sell | 5.00 | % | 06/20/2017 | 7.02 | % | $ | 365 | $ | (24,599 | ) | $ | (5,139 | ) | |||||||||||||||
(a) | Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets generally. |
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. High Yield 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 329,831 | $ | — | $ | 329,831 | ||||||
December 31, 2016 | 9,020,578 | — | 9,020,578 | |||||||||
December 31, 2017 | 1,834,418 | — | 1,834,418 | |||||||||
Total capital loss carryforward | $ | 11,184,827 | $ | — | $ | 11,184,827 | ||||||
* | 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 Van Kampen V.I. High Yield 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, 2012 was $29,419,260 and $34,816,650, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 4,125,829 | ||
Aggregate unrealized (depreciation) of investment securities | (4,599,738 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (473,909 | ) | |
Cost of investments for tax purposes is $94,824,383. |
Invesco V.I. High Yield Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,272,681 | $ | 12,119,722 | 11,649,443 | $ | 59,272,659 | ||||||||||
Series II | 1,555,400 | 8,289,065 | 1,343,316 | 6,766,855 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 814,841 | 4,229,022 | ||||||||||||
Series II | — | — | 9,000 | 46,711 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 6,239,174 | 32,616,526 | ||||||||||||
Series II | — | — | 1,983 | 10,369 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (8,086,898 | ) | (43,200,320 | ) | (7,984,170 | ) | (40,837,082 | ) | ||||||||
Series II | (447,078 | ) | (2,387,094 | ) | (381,629 | ) | (1,912,375 | ) | ||||||||
Net increase (decrease) in share activity | (4,705,895 | ) | $ | (25,178,627 | ) | 11,691,958 | $ | 60,192,685 | ||||||||
(a) | There are entities that are record owners of more than xx% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco Van Kampen V.I. High Yield Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 6,241,157 shares of the Fund for 2,940,652 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund, based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target Fund’s net assets at that date of $32,626,895 including $1,685,415 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $63,972,559. The net assets immediately after the acquisition were $96,599,454. | |
The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
Net investment income | $ | 6,329,832 | ||
Net realized/unrealized gains (losses) | (4,990,283 | ) | ||
Change in net assets resulting from operations | $ | 1,339,549 | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. High Yield Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 5.04 | $ | 0.16 | $ | 0.23 | $ | 0.39 | $ | — | $ | 5.43 | 7.74 | % | $ | 83,328 | 0.78 | %(d) | 1.04 | %(d) | 6.15 | %(d) | 29 | % | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.12 | 0.46 | (0.38 | ) | 0.08 | (0.46 | ) | 5.74 | 1.24 | 51,225 | 0.96 | 1.15 | 7.42 | 113 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 5.03 | 0.16 | 0.23 | 0.39 | — | 5.42 | 7.75 | 11,788 | 1.03 | (d) | 1.29 | (d) | 5.90 | (d) | 29 | |||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 6.09 | 0.44 | (0.38 | ) | 0.06 | (0.43 | ) | 5.72 | 1.01 | 666 | 1.21 | 1.40 | 7.17 | 113 | ||||||||||||||||||||||||||||||||||
(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 $107,460 and $8,326 for Series I and Series II, 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,077.40 | $ | 4.03 | $ | 1,020.98 | $ | 3.92 | 0.78 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,077.50 | 5.32 | 1,019.74 | 5.17 | 1.03 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. High Yield Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco V.I. High Yield Fund
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 fifth quintile of its 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 below the performance of the Index for the one year period and above 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rates of three mutual funds managed by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, which had an effective fee rate higher 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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least June 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. 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
Invesco V.I. High Yield Securities Fund
Semiannual Report to Shareholders • June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.43 | % | ||
Series II Shares | 9.43 | |||
Barclays U.S. Corporate High Yield 2% Issuer Cap Index▼ (Broad Market/Style-Specific Index) | 7.23 | |||
Source(s): ▼Lipper Inc.
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index that covers 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 Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment High Yield Portfolio, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. High Yield Securities Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. High Yield Securities Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.67% and 1.92%, respectively. The expense ratios presented above may vary from the expense
ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. High Yield Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
Inception (3/9/84) | 4.33 | % | ||||||
10 | Years | 8.04 | ||||||
5 | Years | 6.61 | ||||||
1 | Year | 6.92 | ||||||
Series II Shares | ||||||||
Inception (6/5/00) | -0.55 | % | ||||||
10 | Years | 7.80 | ||||||
5 | Years | 6.39 | ||||||
1 | Year | 6.57 |
Invesco V.I. High Yield Securities Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Principal | ||||||||
Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–86.55% | ||||||||
Advertising–0.04% | ||||||||
National CineMedia LLC, Sr. Sec. Gtd. Notes, 6.00%, 04/15/22(b) | $ | 10,000 | $ | 10,213 | ||||
Aerospace & Defense–0.79% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | 20,000 | 22,450 | ||||||
Huntington Ingalls Industries Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 03/15/18 | 35,000 | 36,750 | ||||||
7.13%, 03/15/21 | 80,000 | 83,400 | ||||||
Spirit Aerosystems Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 55,000 | 59,950 | ||||||
202,550 | ||||||||
Airlines–3.56% | ||||||||
American Airlines Inc., Sr. Sec. Gtd. Notes, 7.50%, 03/15/16 (Acquired 03/15/11-10/18/11; Cost $115,450)(b)(c) | 130,000 | 123,500 | ||||||
American Airlines Pass Through Trust, | ||||||||
Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 88,382 | 87,056 | ||||||
Continental Airlines Pass Through Trust, | ||||||||
Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 7.34%, 04/19/14 | 137,411 | 139,816 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 105,568 | 115,828 | ||||||
Delta Air Lines Pass Through Trust, | ||||||||
Series 2010-1, Class B, Sec. Pass Through Ctfs., 6.38%, 01/02/16(b) | 30,000 | �� | 30,225 | |||||
Series 2010-2, Class B, Sec. Pass Through Ctfs., 6.75%, 11/23/15(b) | 40,000 | 40,600 | ||||||
Delta Air Lines, Inc., Sec. Notes, 12.25%, 03/15/15(b) | 150,000 | 163,875 | ||||||
UAL Pass Through Trust, | ||||||||
Series 2007-1, Class A, Sec. Gtd. Global Pass Through Ctfs., 6.64%, 07/02/22 | 35,066 | 36,753 | ||||||
Series 2009-2, Class B, Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 73,404 | 80,194 | ||||||
US Airways Pass Through Trust, | ||||||||
Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/14 | 72,413 | 65,895 | ||||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 5.90%, 10/01/24 | 10,000 | 10,369 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 10,000 | 10,275 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 10,000 | 10,125 | ||||||
914,511 | ||||||||
Alternative Carriers–1.18% | ||||||||
Cogent Communications Group, Inc., Sr. Sec. Gtd. Notes, 8.38%, 02/15/18(b) | 85,000 | 91,375 | ||||||
Level 3 Communications Inc., Sr. Unsec. Global Notes, 11.88%, 02/01/19 | 90,000 | 100,350 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.13%, 07/01/19 | 35,000 | 36,137 | ||||||
8.63%, 07/15/20 | 25,000 | 26,375 | ||||||
9.38%, 04/01/19 | 45,000 | 48,825 | ||||||
303,062 | ||||||||
Aluminum–0.50% | ||||||||
Century Aluminum Co., Sr. Sec. Gtd. Notes, 8.00%, 05/15/14 | 130,000 | 128,781 | ||||||
Apparel Retail–1.30% | ||||||||
Express LLC/Express Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 03/01/18 | 90,000 | 97,650 | ||||||
Gap, Inc. (The), Sr. Unsec. Notes, 5.95%, 04/12/21 | 95,000 | 99,097 | ||||||
J. Crew Group Inc., Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/19 | 75,000 | 77,812 | ||||||
Limited Brands Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 02/15/22 | 15,000 | 15,469 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | 40,000 | 44,000 | ||||||
334,028 | ||||||||
Apparel, Accessories & Luxury Goods–2.61% | ||||||||
Hanesbrands Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 12/15/20 | 110,000 | 116,600 | ||||||
Jones Group Inc./Apparel Group Holdings/Apparel Group USA/Footwear Accessories Retail, Sr. Unsec. Notes, 6.88%, 03/15/19 | 190,000 | 183,350 | ||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 7.63%, 05/15/20 | 165,000 | 176,550 | ||||||
Quiksilver Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 04/15/15 | 200,000 | 193,625 | ||||||
670,125 | ||||||||
Auto Parts & Equipment–1.15% | ||||||||
Allison Transmission Inc., Sr. Unsec. Gtd. Notes, 7.13%, 05/15/19(b) | 100,000 | 105,000 | ||||||
American Axle & Manufacturing, Inc., Sr. Unsec. Gtd. Notes, 7.75%, 11/15/19 | 25,000 | 26,625 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 6.75%, 02/15/21 | 85,000 | 92,225 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 12/15/20 | 25,000 | 27,125 | ||||||
7.75%, 08/15/18 | 40,000 | 43,600 | ||||||
294,575 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Automobile Manufacturers–0.38% | ||||||||
Ford Motor Co., Sr. Unsec. Global Notes, 7.45%, 07/16/31 | $ | 77,000 | $ | 96,731 | ||||
Motors Liquidation Corp., Sr. Unsec. Notes, 8.38%, 07/15/33 (Acquired 06/25/10–02/24/11; Cost $5,977)(b)(c)(d) | 305,000 | — | ||||||
96,731 | ||||||||
Biotechnology–0.33% | ||||||||
Grifols Inc. (Spain), Sr. Unsec. Gtd. Global Notes, 8.25%, 02/01/18 | 30,000 | 32,400 | ||||||
Savient Pharmaceuticals Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18 | 30,000 | 9,900 | ||||||
STHI Holding Corp., Sec. Gtd. Notes, 8.00%, 03/15/18(b) | 40,000 | 42,300 | ||||||
84,600 | ||||||||
Broadcasting–0.43% | ||||||||
Allbritton Communications Co., Sr. Unsec. Global Notes, 8.00%, 05/15/18 | 45,000 | 47,250 | ||||||
Clear Channel Worldwide Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 7.63%, 03/15/20(b) | 65,000 | 63,781 | ||||||
111,031 | ||||||||
Building Products–4.00% | ||||||||
American Standard Americas, Sr. Sec. Notes, 10.75%, 01/15/16(b) | 80,000 | 70,200 | ||||||
Associated Materials LLC/AMH New Finance Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 11/01/17 | 85,000 | 76,287 | ||||||
Building Materials Corp. of America, Sr. Unsec. Gtd. Notes, 7.50%, 03/15/20(b) | 135,000 | 144,450 | ||||||
Sr. Unsec. Notes, 6.88%, 08/15/18(b) | 50,000 | 52,375 | ||||||
Gibraltar Industries Inc., Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.00%, 12/01/15 | 105,000 | 107,428 | ||||||
Masco Corp., Sr. Unsec. Global Notes, 5.95%, 03/15/22 | 30,000 | 31,163 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 125,000 | 123,125 | ||||||
10.00%, 12/01/18 | 65,000 | 68,087 | ||||||
Ply Gem Industries Inc., Sr. Sec. Gtd. Global Notes, 8.25%, 02/15/18 | 70,000 | 68,950 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 13.13%, 07/15/14 | 55,000 | 55,413 | ||||||
Roofing Supply Group LLC/Roofing Supply Finance Inc., Sr. Unsec. Gtd. Notes, 10.00%, 06/01/20(b) | 65,000 | 68,088 | ||||||
USG Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 7.88%, 03/30/20(b) | 80,000 | 83,400 | ||||||
8.38%, 10/15/18(b) | 10,000 | 10,525 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 65,000 | 68,737 | ||||||
1,028,228 | ||||||||
Cable & Satellite–1.93% | ||||||||
DISH DBS Corp., Sr. Unsec. Gtd. Notes, 4.63%, 07/15/17(b) | 100,000 | 101,250 | ||||||
Hughes Satellite Systems Corp., Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | 40,000 | 42,800 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 25,000 | 27,250 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 10/15/20 | 240,000 | 253,800 | ||||||
7.50%, 04/01/21 | 10,000 | 10,625 | ||||||
Sr. Unsec. Gtd. Notes, 7.25%, 10/15/20(b) | 10,000 | 10,600 | ||||||
ViaSat Inc., Sr. Unsec. Gtd. Notes, 6.88%, 06/15/20(b) | 50,000 | 50,750 | ||||||
497,075 | ||||||||
Casinos & Gaming–5.00% | ||||||||
Ameristar Casinos Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 04/15/21 | 90,000 | 96,750 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Gtd. Global Notes, 12.75%, 04/15/18 | 85,000 | 66,725 | ||||||
Sr. Unsec. Gtd. Global Bonds, 5.63%, 06/01/15 | 115,000 | 95,450 | ||||||
Chester Downs & Marina LLC, Sr. Sec. Gtd. Sub. Notes, 9.25%, 02/01/20(b) | 10,000 | 10,400 | ||||||
CityCenter Holdings LLC/CityCenter Finance Corp., Sec. Gtd. PIK Global Notes, 10.75%, 01/15/17 | 86,068 | 94,890 | ||||||
Sr. Sec. Gtd. Global Notes, 7.63%, 01/15/16 | 60,000 | 63,150 | ||||||
Sr. Sec. Gtd. Notes, 7.63%, 01/15/16(b) | 10,000 | 10,500 | ||||||
Mandalay Resort Group, Sr. Unsec. Gtd. Sub. Notes, 7.63%, 07/15/13 | 100,000 | 102,750 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15 | 65,000 | 66,950 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 105,000 | 107,362 | ||||||
Resort at Summerlin L.P., Series B, Sr. Unsec. Sub. Notes, 13.00%, 12/15/07(c) | 7,210,050 | — | ||||||
Scientific Games International Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.25%, 06/15/19 | 80,000 | 88,000 | ||||||
Seneca Gaming Corp., Sr. Unsec. Gtd. Notes, 8.25%, 12/01/18(b) | 75,000 | 77,250 | ||||||
Snoqualmie Entertainment Authority, Sr. Sec. Floating Rate Notes, 4.53%, 02/01/14(b)(e) | 75,000 | 71,813 | ||||||
Sr. Sec. Notes, 9.13%, 02/01/15(b) | 128,000 | 130,240 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., | ||||||||
Sec. Gtd. First Mortgage Global Notes, 7.75%, 08/15/20 | 130,000 | 143,650 | ||||||
Sr. Sec. Gtd. First Mortgage Notes, 5.38%, 03/15/22(b) | 60,000 | 59,850 | ||||||
1,285,730 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Coal & Consumable Fuels–0.46% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 04/01/20 | $ | 35,000 | $ | 37,100 | ||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 60,000 | 60,075 | ||||||
Westmoreland Coal Co./Westmoreland Partners, Sr. Sec. Gtd. Notes, 10.75%, 02/01/18(b) | 23,000 | 20,528 | ||||||
117,703 | ||||||||
Communications Equipment–0.47% | ||||||||
Avaya Inc., | ||||||||
Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 100,000 | 92,750 | ||||||
Sr. Unsec. Gtd. Global Notes, 9.75%, 11/01/15 | 35,000 | 29,050 | ||||||
121,800 | ||||||||
Computer & Electronics Retail–0.33% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 80,000 | 85,400 | ||||||
Computer Storage & Peripherals–0.24% | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Global Notes, 7.00%, 11/01/21 | 30,000 | 32,625 | ||||||
7.75%, 12/15/18 | 25,000 | 27,813 | ||||||
60,438 | ||||||||
Construction & Engineering–1.44% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 115,000 | 118,450 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 250,000 | 251,562 | ||||||
370,012 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.85% | ||||||||
Case New Holland Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 12/01/17 | 75,000 | 86,344 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 95,000 | 97,375 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Notes, 8.50%, 11/01/20 | 50,000 | 54,250 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 155,000 | 149,575 | ||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 7.88%, 10/01/17 | 85,000 | 87,975 | ||||||
475,519 | ||||||||
Construction Materials–0.91% | ||||||||
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Bonds, 9.50%, 12/14/16(b) | 100,000 | 97,819 | ||||||
Texas Industries Inc., Sr. Unsec. Gtd. Global Notes, 9.25%, 08/15/20 | 135,000 | 136,350 | ||||||
234,169 | ||||||||
Consumer Finance–1.55% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, 4.63%, 06/26/15 | 5,000 | 5,013 | ||||||
7.50%, 09/15/20 | 75,000 | 84,937 | ||||||
8.00%, 03/15/20 | 140,000 | 162,750 | ||||||
8.00%, 11/01/31 | 15,000 | 17,550 | ||||||
National Money Mart Co., Sr. Unsec. Gtd. Global Notes, 10.38%, 12/15/16 | 115,000 | 127,362 | ||||||
397,612 | ||||||||
Data Processing & Outsourced Services–1.07% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Notes, 7.25%, 06/01/21(b) | 150,000 | 154,500 | ||||||
First Data Corp., Sr. Sec. Gtd. Notes, 7.38%, 06/15/19(b) | 60,000 | 61,500 | ||||||
SunGard Data Systems Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/18 | 30,000 | 32,250 | ||||||
7.63%, 11/15/20 | 25,000 | 26,812 | ||||||
275,062 | ||||||||
Department Stores–0.23% | ||||||||
Sears Holdings Corp., Sr. Sec. Gtd. Global Notes, 6.63%, 10/15/18 | 65,000 | 58,663 | ||||||
Distillers & Vintners–0.57% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Mortgage Notes, 9.13%, 12/01/16(b) | 100,000 | 63,000 | ||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17 | 65,000 | 73,775 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22 | 10,000 | 10,750 | ||||||
147,525 | ||||||||
Diversified Banks–0.13% | ||||||||
RBS Capital Trust II (United Kingdom), Jr. Unsec. Gtd. Sub. Global Bonds, 6.43%(f) | 50,000 | 33,000 | ||||||
Diversified Metals & Mining–1.40% | ||||||||
FMG Resources Pty. Ltd. (Australia), | ||||||||
Sr. Unsec. Gtd. Notes, 6.38%, 02/01/16(b) | 90,000 | 90,789 | ||||||
7.00%, 11/01/15(b) | 10,000 | 10,200 | ||||||
Sr. Unsec. Notes, 6.88%, 04/01/22(b) | 110,000 | 110,670 | ||||||
Midwest Vanadium Pty. Ltd. (Australia), Sr. Sec. Gtd. Mortgage Notes, 11.50%, 02/15/18(b) | 75,000 | 48,037 | ||||||
Vedanta Resources PLC (India), Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 100,000 | 100,906 | ||||||
360,602 | ||||||||
Electrical Components & Equipment–0.10% | ||||||||
Polypore International Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 11/15/17 | 25,000 | 26,750 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Electronic Manufacturing Services–0.38% | ||||||||
Sanmina-SCI Corp., Sr. Unsec. Gtd. Notes, 7.00%, 05/15/19(b) | $ | 100,000 | $ | 97,500 | ||||
Environmental & Facilities Services–0.12% | ||||||||
EnergySolutions Inc./LLC, Sr. Unsec. Gtd. Global Notes, 10.75%, 08/15/18 | 35,000 | 29,838 | ||||||
Food Retail–0.29% | ||||||||
Simmons Foods Inc., Sr. Sec. Notes, 10.50%, 11/01/17(b) | 80,000 | 74,800 | ||||||
Forest Products–0.28% | ||||||||
Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 8.50%, 04/01/21 | 85,000 | 69,275 | ||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17 (Acquired 10/14/10; Cost $10,000)(b)(c) | 10,000 | 2,500 | ||||||
71,775 | ||||||||
Gas Utilities–0.67% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, 6.50%, 05/01/21 | 90,000 | 82,575 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Notes, 7.38%, 03/15/20 | 85,000 | 88,400 | ||||||
170,975 | ||||||||
Health Care Equipment–0.45% | ||||||||
DJO Finance LLC/Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.75%, 04/15/18 | 10,000 | 8,400 | ||||||
10.88%, 11/15/14 | 90,000 | 92,925 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 9.75%, 10/15/17 | 20,000 | 14,600 | ||||||
115,925 | ||||||||
Health Care Facilities–2.05% | ||||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 50,000 | 52,375 | ||||||
7.88%, 02/15/20 | 105,000 | 117,075 | ||||||
HealthSouth Corp., Sr. Unsec. Gtd. Notes, 7.25%, 10/01/18 | 60,000 | 63,900 | ||||||
7.75%, 09/15/22 | 35,000 | 37,537 | ||||||
Radiation Therapy Services Inc., Sr. Sec. Gtd. Notes, 8.88%, 01/15/17(b) | 70,000 | 67,550 | ||||||
Select Medical Holdings Corp., Sr. Unsec. Floating Rate Global Notes, 6.49%, 09/15/15(e) | 45,000 | 43,650 | ||||||
Tenet Healthcare Corp., Sr. Unsec. Global Notes, 8.00%, 08/01/20 | 20,000 | 20,750 | ||||||
9.25%, 02/01/15 | 110,000 | 122,925 | ||||||
525,762 | ||||||||
Health Care Services–0.50% | ||||||||
Prospect Medical Holdings Inc., Sr. Sec. Notes, 8.38%, 05/01/19(b) | 50,000 | 49,125 | ||||||
Radnet Management Inc., Sr. Unsec. Gtd. Global Notes, 10.38%, 04/01/18 | 80,000 | 80,200 | ||||||
129,325 | ||||||||
Health Care Technology–0.52% | ||||||||
MedAssets Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/18 | 125,000 | 132,813 | ||||||
Homebuilding–2.05% | ||||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/15 | 80,000 | 76,800 | ||||||
8.13%, 06/15/16 | 100,000 | 96,000 | ||||||
K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Global Notes, 10.63%, 10/15/16 | 130,000 | 124,475 | ||||||
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 85,000 | 91,162 | ||||||
M/I Homes Inc., Sr. Unsec. Gtd. Global Notes, 8.63%, 11/15/18 | 35,000 | 35,525 | ||||||
Meritage Homes Corp., Sr. Unsec. Gtd. Notes, 7.00%, 04/01/22(b) | 30,000 | 31,050 | ||||||
Taylor Morrison Communities Inc./ Monarch Communities Inc., Sr. Unsec. Gtd. Notes, 7.75%, 04/15/20(b) | 37,000 | 38,943 | ||||||
Toll Brothers Finance Corp., Sr. Unsec. Gtd. Notes, 5.88%, 02/15/22 | 30,000 | 31,875 | ||||||
525,830 | ||||||||
Hotels, Resorts & Cruise Lines–0.09% | ||||||||
Choice Hotels International Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | 7,000 | 7,359 | ||||||
Royal Caribbean Cruises Ltd., Sr. Unsec. Global Notes, 7.25%, 03/15/18 | 15,000 | 16,275 | ||||||
23,634 | ||||||||
Household Products–0.31% | ||||||||
Central Garden & Pet Co., Sr. Gtd. Sub. Notes, 8.25%, 03/01/18 | 80,000 | 80,800 | ||||||
Housewares & Specialties–0.21% | ||||||||
American Greetings Corp., Sr. Unsec. Gtd. Notes, 7.38%, 12/01/21 | 50,000 | 53,375 | ||||||
Independent Power Producers & Energy Traders–1.87% | ||||||||
AES Corp. (The), Sr. Unsec. Global Notes, 7.75%, 10/15/15 | 220,000 | 248,600 | ||||||
Calpine Corp., Sr. Sec. Gtd. Notes, 7.25%, 10/15/17(b) | 85,000 | 91,800 | ||||||
7.50%, 02/15/21(b) | 82,000 | 89,380 | ||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | 50,000 | 51,875 | ||||||
481,655 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Industrial Machinery–0.71% | ||||||||
Actuant Corp., Sr. Unsec. Gtd. Notes, 5.63%, 06/15/22(b) | $ | 30,000 | $ | 30,900 | ||||
Cleaver-Brooks Inc., Sr. Sec. Notes, 12.25%, 05/01/16(b) | 65,000 | 70,281 | ||||||
Columbus McKinnon Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.88%, 02/01/19 | 10,000 | 10,638 | ||||||
Mcron Finance Sub LLC/Mcron Finance Corp., Sr. Sec. Notes, 8.38%, 05/15/19(b) | 10,000 | 10,050 | ||||||
SPX Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 09/01/17 | 55,000 | 60,500 | ||||||
182,369 | ||||||||
Industrial REIT’s–0.15% | ||||||||
DuPont Fabros Technology L.P., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/15/17 | 35,000 | 38,588 | ||||||
Integrated Telecommunication Services–0.27% | ||||||||
Integra Telecom Holdings Inc., Sr. Sec. Gtd. Notes, 10.75%, 04/15/16(b) | 70,000 | 68,425 | ||||||
Internet Software & Services–0.43% | ||||||||
Equinix Inc., Sr. Unsec. Notes, 7.00%, 07/15/21 | 60,000 | 66,600 | ||||||
8.13%, 03/01/18 | 40,000 | 44,500 | ||||||
111,100 | ||||||||
Investment Banking & Brokerage–0.53% | ||||||||
Cantor Fitzgerald L.P., Bonds, 7.88%, 10/15/19(b) | 105,000 | 104,765 | ||||||
E*TRADE Financial Corp., Sr. Unsec. Notes, 6.75%, 06/01/16 | 30,000 | 30,675 | ||||||
135,440 | ||||||||
Leisure Facilities–0.10% | ||||||||
Speedway Motorsports Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/19 | 25,000 | 26,188 | ||||||
Leisure Products–0.42% | ||||||||
Toys R US-Delaware Inc., Sr. Sec. Gtd. Notes, 7.38%, 09/01/16(b) | 110,000 | 108,625 | ||||||
Life Sciences Tools & Services–0.25% | ||||||||
Patheon Inc. (Canada), Sr. Sec. Gtd. Notes, 8.63%, 04/15/17(b) | 65,000 | 63,700 | ||||||
Marine–0.19% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Global Notes, 8.63%, 11/01/17 | 10,000 | 9,400 | ||||||
Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.00%, 12/01/16 | 40,000 | 39,850 | ||||||
49,250 | ||||||||
Movies & Entertainment–1.19% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/01/19 | 85,000 | 91,375 | ||||||
Carmike Cinemas Inc., Sec. Gtd. Global Notes, 7.38%, 05/15/19 | 30,000 | 31,237 | ||||||
NAI Entertainment Holdings LLC, Sr. Sec. Notes, 8.25%, 12/15/17(b) | 165,000 | 183,150 | ||||||
305,762 | ||||||||
Multi-Line Insurance–3.17% | ||||||||
American International Group Inc., Jr. Unsec. Sub. Global Deb., 8.18%, 05/15/58 | 215,000 | 232,469 | ||||||
Fairfax Financial Holdings Ltd. (Canada), Sr. Unsec. Notes, 5.80%, 05/15/21(b) | 45,000 | 43,903 | ||||||
Hartford Financial Services Group Inc. (The), Jr. Unsec. Sub. Deb., 8.13%, 06/15/38 | 85,000 | 90,100 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 230,000 | 234,600 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 9.38%, 08/15/39(b) | 165,000 | 214,142 | ||||||
815,214 | ||||||||
Office Services & Supplies–0.21% | ||||||||
IKON Office Solutions, Inc., Sr. Unsec. Notes, 6.75%, 12/01/25 | 35,000 | 33,994 | ||||||
Interface Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 12/01/18 | 20,000 | 21,250 | ||||||
55,244 | ||||||||
Oil & Gas Equipment & Services–1.14% | ||||||||
Atwood Oceanics Inc., Sr. Unsec. Notes, 6.50%, 02/01/20 | 9,000 | 9,450 | ||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17 | 110,000 | 113,575 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 125,000 | 122,500 | ||||||
SESI, LLC, Sr. Unsec. Gtd. Global Notes, 6.38%, 05/01/19 | 45,000 | 47,348 | ||||||
292,873 | ||||||||
Oil & Gas Exploration & Production–7.25% | ||||||||
Berry Petroleum Co., Sr. Unsec. Notes, 6.75%, 11/01/20 | 35,000 | 36,575 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 09/01/21 | 110,000 | 116,875 | ||||||
Sr. Unsec. Gtd. Notes, 7.63%, 11/15/22(b) | 20,000 | 20,350 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 65,000 | 64,512 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 02/15/21 | 10,000 | 9,725 | ||||||
6.63%, 08/15/20 | 138,000 | 136,792 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 5.88%, 05/01/22 | 40,000 | 41,700 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 04/01/21 | $ | 30,000 | $ | 33,525 | ||||
7.38%, 10/01/20 | 55,000 | 61,463 | ||||||
8.25%, 10/01/19 | 50,000 | 55,813 | ||||||
EXCO Resources Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/18 | 150,000 | 130,875 | ||||||
Forest Oil Corp., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19 | 45,000 | 41,400 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Notes, 7.38%, 05/01/22(b) | 10,000 | 10,400 | ||||||
McMoRan Exploration Co., Sr. Unsec. Gtd. Notes, 11.88%, 11/15/14 | 155,000 | 159,553 | ||||||
Newfield Exploration Co., Sr. Unsec. Global Notes, 5.63%, 07/01/24 | 15,000 | 15,366 | ||||||
Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18 | 70,000 | 74,462 | ||||||
Oasis Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 6.88%, 01/15/23 | 40,000 | 40,200 | ||||||
OGX Austria GmbH (Brazil), Sr. Unsec. Gtd. Notes, 8.50%, 06/01/18(b) | 200,000 | 178,732 | ||||||
Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 6.13%, 06/15/19 | 65,000 | 65,325 | ||||||
7.63%, 06/01/18 | 120,000 | 128,100 | ||||||
QEP Resources Inc., Sr. Unsec. Notes, 5.38%, 10/01/22 | 55,000 | 55,344 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 15,000 | 14,831 | ||||||
5.75%, 06/01/21 | 105,000 | 109,987 | ||||||
Samson Investment Co., Sr. Unsec. Notes, 9.75%, 02/15/20(b) | 50,000 | 49,875 | ||||||
SM Energy Co., | ||||||||
Sr. Unsec. Global Notes, 6.50%, 11/15/21 | 15,000 | 15,338 | ||||||
6.63%, 02/15/19 | 70,000 | 72,100 | ||||||
Sr. Unsec. Notes, 6.50%, 01/01/23(b) | 20,000 | 20,425 | ||||||
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Notes, 6.50%, 10/01/18 | 45,000 | 47,869 | ||||||
WPX Energy Inc., Sr. Unsec. Global Notes, 6.00%, 01/15/22 | 55,000 | 55,000 | ||||||
1,862,512 | ||||||||
Oil & Gas Refining & Marketing–0.77% | ||||||||
United Refining Co., Sr. Sec. Gtd. Global Notes, 10.50%, 02/28/18 | 195,000 | 198,900 | ||||||
Oil & Gas Storage & Transportation–3.36% | ||||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.75%, 06/15/18 | 60,000 | 64,500 | ||||||
Chesapeake Midstream Partners L.P./CHKM Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 04/15/21 | 75,000 | 73,125 | ||||||
6.13%, 07/15/22 | 10,000 | 9,850 | ||||||
Copano Energy LLC/Copano Energy Finance Corp., Sr. Unsec. Gtd. Notes, 7.13%, 04/01/21 | 145,000 | 150,075 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 95,000 | 104,856 | ||||||
Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 08/01/21 | 66,000 | 65,670 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.25%, 06/15/22 | 45,000 | 46,631 | ||||||
6.50%, 08/15/21 | 40,000 | 41,700 | ||||||
Overseas Shipholding Group, Inc., Sr. Unsec. Notes, 8.13%, 03/30/18 | 60,000 | 42,000 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 12/01/18 | 75,000 | 79,406 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/21 | 105,000 | 109,463 | ||||||
Sr. Unsec. Gtd. Notes, 6.38%, 08/01/22(b) | 20,000 | 20,025 | ||||||
Teekay Corp. (Canada), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 55,000 | 55,963 | ||||||
863,264 | ||||||||
Packaged Foods & Meats–0.43% | ||||||||
Del Monte Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/15/19 | 65,000 | 67,763 | ||||||
Post Holdings Inc., Sr. Unsec. Gtd. Notes, 7.38%, 02/15/22(b) | 40,000 | 42,300 | ||||||
110,063 | ||||||||
Paper Packaging–0.57% | ||||||||
Cascades Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.88%, 01/15/20 | 145,000 | 145,363 | ||||||
Paper Products–1.87% | ||||||||
Boise Cascade LLC, Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/15/14 | 165,000 | 166,341 | ||||||
Clearwater Paper Corp., Sr. Unsec. Gtd. Global Notes, 7.13%, 11/01/18 | 75,000 | 79,312 | ||||||
Mercer International Inc., Sr. Unsec. Gtd. Global Notes, 9.50%, 12/01/17 | 75,000 | 77,625 | ||||||
NewPage Corp., Sr. Sec. Gtd. Global Notes, 11.38%, 12/31/14 | 70,000 | 44,975 | ||||||
P.H. Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 7.13%, 05/01/16 | 110,000 | 112,475 | ||||||
480,728 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Personal Products–0.43% | ||||||||
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | $ | 100,000 | $ | 111,000 | ||||
Pharmaceuticals–0.70% | ||||||||
Elan Finance PLC/Corp. (Ireland), Sr. Unsec. Gtd. Global Notes, 8.75%, 10/15/16 | 100,000 | 109,500 | ||||||
Endo Health Solutions Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 12/15/20 | 15,000 | 16,388 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(b) | 50,000 | 53,250 | ||||||
179,138 | ||||||||
Property & Casualty Insurance–0.27% | ||||||||
XL Group PLC (Ireland), Series E, Jr. Sub. Global Notes, 6.50%(f) | 85,000 | 70,125 | ||||||
Real Estate Services–0.33% | ||||||||
CB Richard Ellis Services Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/15/20 | 80,000 | 84,800 | ||||||
Regional Banks–1.71% | ||||||||
AmSouth Bancorp., Unsec. Sub. Deb., 6.75%, 11/01/25 | 25,000 | 23,625 | ||||||
BB&T Capital Trust II, Jr. Unsec. Gtd. Sub. Global Notes, 6.75%, 06/07/36 | 60,000 | 60,115 | ||||||
Regions Financial Corp., Sr. Unsec. Notes, 5.75%, 06/15/15 | 60,000 | 62,550 | ||||||
Unsec. Sub. Notes, 7.38%, 12/10/37 | 150,000 | 148,500 | ||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 50,000 | 52,875 | ||||||
Unsec. Sub. Global Notes, 5.13%, 06/15/17 | 100,000 | 92,000 | ||||||
439,665 | ||||||||
Research & Consulting Services–0.37% | ||||||||
FTI Consulting Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/01/20 | 90,000 | 95,625 | ||||||
Semiconductor Equipment–1.02% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 6.63%, 06/01/21 | 45,000 | 45,281 | ||||||
7.38%, 05/01/18 | 100,000 | 104,500 | ||||||
Sensata Technologies B.V. (Luxembourg), Sr. Unsec. Gtd. Notes, 6.50%, 05/15/19(b) | 110,000 | 113,025 | ||||||
262,806 | ||||||||
Semiconductors–0.83% | ||||||||
Freescale Semiconductor Inc., | ||||||||
Sr. Sec. Gtd. Notes, | ||||||||
9.25%, 04/15/18(b) | 109,000 | 117,720 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.05%, 02/01/20 | 25,000 | 24,812 | ||||||
10.75%, 08/01/20 | 65,000 | 70,200 | ||||||
212,732 | ||||||||
Specialized Finance–2.81% | ||||||||
Air Lease Corp., Sr. Unsec. Notes, 5.63%, 04/01/17(b) | 35,000 | 34,562 | ||||||
Aircastle Ltd., Sr. Unsec. Global Notes, 6.75%, 04/15/17 | 140,000 | 142,800 | ||||||
7.63%, 04/15/20 | 20,000 | 20,400 | ||||||
CIT Group Inc., Sr. Sec. Gtd. Notes, 7.00%, 05/02/17(b) | 32,632 | 32,551 | ||||||
Sr. Unsec. Global Notes, 5.25%, 03/15/18 | 90,000 | 93,150 | ||||||
Sr. Unsec. Notes, 5.00%, 05/15/17 | 20,000 | 20,600 | ||||||
5.50%, 02/15/19(b) | 55,000 | 56,925 | ||||||
International Lease Finance Corp., | ||||||||
Sr. Sec. Notes, 6.75%, 09/01/16(b) | 45,000 | 48,347 | ||||||
7.13%, 09/01/18(b) | 65,000 | 72,292 | ||||||
Sr. Unsec. Global Notes, 5.75%, 05/15/16 | 20,000 | 20,330 | ||||||
6.25%, 05/15/19 | 30,000 | 30,741 | ||||||
8.63%, 09/15/15 | 75,000 | 83,175 | ||||||
8.75%, 03/15/17 | 44,000 | 49,582 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 15,000 | 17,222 | ||||||
722,677 | ||||||||
Specialized REIT’s–0.93% | ||||||||
Host Hotels & Resorts L.P., | ||||||||
Sr. Gtd. Global Notes, 6.00%, 11/01/20 | 75,000 | 82,125 | ||||||
Sr. Unsec. Notes, 5.25%, 03/15/22(b) | 50,000 | 51,375 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | 45,000 | 47,138 | ||||||
Omega Healthcare Investors, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 10/15/22 | 55,000 | 58,506 | ||||||
239,144 | ||||||||
Specialty Chemicals–0.98% | ||||||||
Ferro Corp., Sr. Unsec. Notes, 7.88%, 08/15/18 | 105,000 | 103,556 | ||||||
PolyOne Corp., Sr. Unsec. Notes, 7.38%, 09/15/20 | 140,000 | 148,400 | ||||||
251,956 | ||||||||
Specialty Stores–0.23% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 11/01/18 | 55,000 | 58,025 | ||||||
Steel–0.32% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, 6.25%, 02/25/22 | 30,000 | 29,248 | ||||||
United States Steel Corp., Sr. Unsec. Global Notes, 7.50%, 03/15/22 | 20,000 | 19,200 | ||||||
Sr. Unsec. Notes, 7.00%, 02/01/18 | 35,000 | 34,737 | ||||||
83,185 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Systems Software–0.72% | ||||||||
Allen Systems Group Inc., Sec. Gtd. Notes, 10.50%, 11/15/16 (Acquired 11/12/10-01/06/11; Cost $227,013)(b) | $ | 225,000 | $ | 185,625 | ||||
Technology Distributors–0.04% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 10,000 | 10,350 | ||||||
Tires & Rubber–0.61% | ||||||||
Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19 | 75,000 | 81,000 | ||||||
Goodyear Tire & Rubber Co. (The), Sr. Unsec. Gtd. Notes, 7.00%, 05/15/22 | 75,000 | 75,750 | ||||||
156,750 | ||||||||
Trading Companies & Distributors–2.42% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 8.25%, 01/15/19 | 110,000 | 118,250 | ||||||
9.75%, 03/15/20 | 25,000 | 27,938 | ||||||
Sr. Unsec. Gtd. Notes, 8.25%, 01/15/19(b) | 20,000 | 21,300 | ||||||
H&E Equipment Services Inc., Sr. Unsec. Gtd. Global Notes, 8.38%, 07/15/16 | 95,000 | 97,969 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 6.75%, 04/15/19 | 45,000 | 46,687 | ||||||
7.38%, 01/15/21 | 125,000 | 133,437 | ||||||
7.50%, 10/15/18 | 75,000 | 80,250 | ||||||
Interline Brands, Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 11/15/18 | 40,000 | 41,800 | ||||||
UR Merger Sub Corp., Sec. Gtd. Notes, 5.75%, 07/15/18(b) | 10,000 | 10,450 | ||||||
Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 40,000 | 42,600 | ||||||
620,681 | ||||||||
Wireless Telecommunication Services–5.08% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc., | ||||||||
Sr. Sec. Gtd. Notes, 12.00%, 12/01/15(b) | 165,000 | 149,325 | ||||||
Sr. Unsec. Gtd. Conv. Notes, 8.25%, 12/01/17(b)(g) | 35,000 | 22,138 | ||||||
Cricket Communications, Inc., Sr. Unsec. Gtd. Global Notes, 7.75%, 10/15/20 | 180,000 | 173,250 | ||||||
Digicel Group Ltd. (Ireland), Sr. Unsec. Notes, 8.88%, 01/15/15(b) | 150,000 | 152,062 | ||||||
MetroPCS Wireless Inc., Sr. Unsec. Gtd. Notes, 6.63%, 11/15/20 | 120,000 | 119,100 | ||||||
7.88%, 09/01/18 | 65,000 | 67,722 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.90%, 05/01/19 | 145,000 | 137,025 | ||||||
Sprint Nextel Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | 30,000 | 31,425 | ||||||
9.00%, 11/15/18(b) | 65,000 | 73,287 | ||||||
Sr. Unsec. Notes, 11.50%, 11/15/21(b) | 25,000 | 28,125 | ||||||
VimpelCom (Russia), Unsec. Loan Participation Notes, 7.75%, 02/02/21(b) | 200,000 | 190,260 | ||||||
Wind Acquisition Finance S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 11.75%, 07/15/17(b) | 200,000 | 163,000 | ||||||
1,306,719 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes (Cost $29,030,441) | 22,244,113 | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–7.05%(h) | ||||||||
Canada–0.35% | ||||||||
Gateway Casinos & Entertainment Ltd., Sec. Gtd. Notes, 8.88%, 11/15/17(b) | CAD | 85,000 | 89,959 | |||||
Czech Republic–0.51% | ||||||||
Central European Media Enterprises Ltd.-REGS, Jr. Sec. Gtd. Euro Notes, 11.63%, 09/15/16(b) | EUR | 50,000 | 65,127 | |||||
CET 21 spol sro, Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | EUR | 50,000 | 66,549 | |||||
131,676 | ||||||||
France–0.49% | ||||||||
Europcar Groupe S.A.–REGS, Sr. Sec. Gtd. Floating Rate Euro Bonds, 4.19%, 05/15/13(b)(e) | EUR | 100,000 | 126,618 | |||||
Italy–0.21% | ||||||||
Lottomatica S.p.A–REGS, Jr. Unsec. Sub. Euro Bonds, 8.25%, 03/31/66(b) | EUR | 50,000 | 55,010 | |||||
Luxembourg–1.68% | ||||||||
Ardagh Packaging Finance PLC, Sr. Sec. Gtd. Notes, 9.25%, 10/15/20(b) | EUR | 100,000 | 127,883 | |||||
Codere Finance Luxembourg S.A., Sr. Sec. Gtd. Notes, 8.25%, 06/15/15(b) | EUR | 100,000 | 93,896 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 06/15/15(b) | EUR | 100,000 | 93,897 | |||||
Mark IV Europe Lux SCA/Mark IV USA SCA, Sr. Sec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 90,000 | 115,521 | |||||
431,197 | ||||||||
Mexico–0.47% | ||||||||
Cemex Finance Europe B.V., Gtd. Euro Notes, 4.75%, 03/05/14 | EUR | 100,000 | 120,453 | |||||
Poland–0.93% | ||||||||
CEDC Finance Corp. International Inc., Sr. Sec. Gtd. Notes, 8.88%, 12/01/16(b) | EUR | 50,000 | 41,100 | |||||
Eileme 2 AB, Sr. Sec. Gtd. Notes, 11.75%, 01/31/20(b) | EUR | 100,000 | 130,254 | |||||
TVN Finance Corp II A.B., Sr. Unsec. Gtd. Notes, 10.75%, 11/15/17(b) | EUR | 50,000 | 66,391 | |||||
237,745 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Principal | ||||||||
Amount | Value | |||||||
Spain–1.18% | ||||||||
Cirsa Funding Luxembourg S.A., | ||||||||
Sr. Unsec. Gtd. Notes, 8.75%, 05/15/18(b) | EUR | 50,000 | $ | 51,848 | ||||
REGS, Sr. Unsec. Gtd. Euro Notes, 8.75%, 05/15/18(b) | EUR | 50,000 | 51,849 | |||||
Ono Finance II PLC-REGS, Sr. Unsec. Gtd. Euro Notes, 11.13%, 07/15/19(b) | EUR | 200,000 | 199,807 | |||||
303,504 | ||||||||
United Kingdom–1.23% | ||||||||
Boparan Finance PLC–REGS, Sr. Unsec. Gtd. Euro Notes, 9.75%, 04/30/18(b) | EUR | 100,000 | 133,415 | |||||
Kerling PLC, Sr. Sec. Gtd. Notes, 10.63%, 02/01/17(b) | EUR | 50,000 | 55,959 | |||||
R&R Ice Cream PLC, Sr. Sec. Gtd. Notes, 8.38%, 11/15/17(b) | EUR | 100,000 | 126,144 | |||||
315,518 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $1,950,623) | 1,811,680 | |||||||
Shares | ||||||||
Preferred Stocks–3.85% | ||||||||
Automobile Manufacturers–0.28% | ||||||||
General Motors Co., Series B, $2.38 Conv. Pfd.(d) | 2,130 | 70,716 | ||||||
Consumer Finance–1.44% | ||||||||
Ally Financial, Inc., Series A, 8.50% Pfd. | 2,690 | 61,735 | ||||||
Ally Financial, Inc., Series G, 7.00% Pfd.(b) | 264 | 235,216 | ||||||
GMAC Capital Trust I, Series 2, 8.13% Jr. Gtd. Sub. Pfd. | 3,025 | 72,751 | ||||||
369,702 | ||||||||
Diversified Banks–0.25% | ||||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Series T, 7.25% Jr. Sub. Pfd. | 3,335 | 65,533 | ||||||
Industrial REIT’s–0.11% | ||||||||
DuPont Fabros Technology, Inc., Series B, 7.63% Pfd. | 1,045 | 27,149 | ||||||
Multi-Line Insurance–0.45% | ||||||||
Hartford Financial Services Group Inc., 7.88% Jr. Sub. Pfd. | 4,255 | 115,019 | ||||||
Regional Banks–1.18% | ||||||||
Zions Bancorp., Series C, 9.50% Pfd. | 11,600 | 304,152 | ||||||
Tires & Rubber–0.14% | ||||||||
Goodyear Tire & Rubber Co. (The), $2.94 Conv. Pfd. | 855 | 36,936 | ||||||
Total Preferred Stocks (Cost $954,478) | 989,207 | |||||||
Common Stocks & Other Equity Interests–0.19% | ||||||||
Automobile Manufacturers–0.19% | ||||||||
General Motors Co.(d)(i) | 1,239 | 24,433 | ||||||
General Motors Co., Wts. expiring 07/10/16(d)(j) | 1,125 | 12,397 | ||||||
General Motors Co., Wts. expiring 07/10/19(d)(j) | 1,125 | 7,628 | ||||||
Motors Liquidation Co. GUC Trust(d)(i) | 311 | 3,810 | ||||||
Total Common Stocks & Other Equity Interests (Cost $101,219) | 48,268 | |||||||
Money Market Funds–0.43% | ||||||||
Liquid Assets Portfolio–Institutional Class(k) | 55,175 | 55,175 | ||||||
Premier Portfolio–Institutional Class(k) | 55,174 | 55,174 | ||||||
Total Money Market Funds (Cost $110,349) | 110,349 | |||||||
TOTAL INVESTMENTS–98.07% (Cost $32,147,110) | 25,203,617 | |||||||
OTHER ASSETS LESS LIABILITIES–1.93% | 495,694 | |||||||
NET ASSETS–100.00% | $ | 25,699,311 | ||||||
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
EUR | – Euro | |
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 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $8,273,817, which represented 32.19% of the Fund’s Net Assets. | |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2012 was $126,000, which represented 0.49% of the Fund’s Net Assets. | |
(d) | Acquired as part of the General Motors reorganization. | |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(f) | Perpetual bond with no specified maturity date. | |
(g) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. | |
(i) | Non-income producing security. | |
(j) | Non-income producing security acquired through a corporate action. | |
(k) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By credit quality, based on Net Assets
as of June 30, 2012
A | 0.9 | % | ||
BBB | 5.5 | |||
BB | 34.4 | |||
B | 42.2 | |||
CCC | 10.3 | |||
Not-rated | 6.2 | |||
Cash | 0.5 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $32,036,761) | $ | 25,093,268 | ||
Investments in affiliated money market funds, at value and cost | 110,349 | |||
Total investments, at value (Cost $32,147,110) | 25,203,617 | |||
Foreign currencies, at value (Cost $943) | 938 | |||
Receivable for: | ||||
Investments sold | 285,171 | |||
Fund shares sold | 61,291 | |||
Dividends and interest | 466,910 | |||
Foreign currency contracts | 55,307 | |||
Investment for trustee deferred compensation and retirement plans | 5,691 | |||
Other assets | 2,038 | |||
Total assets | 26,080,963 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 268,016 | |||
Fund shares reacquired | 881 | |||
Accrued fees to affiliates | 14,147 | |||
Accrued other operating expenses | 90,743 | |||
Trustee deferred compensation and retirement plans | 7,865 | |||
Total liabilities | 381,652 | |||
Net assets applicable to shares outstanding | $ | 25,699,311 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 132,145,257 | ||
Undistributed net investment income | 2,367,350 | |||
Undistributed net realized gain (loss) | (101,914,901 | ) | ||
Unrealized appreciation (depreciation) | (6,898,395 | ) | ||
$ | 25,699,311 | |||
Net Assets: | ||||
Series I | $ | 13,711,551 | ||
Series II | $ | 11,987,760 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 11,837,392 | |||
Series II | 10,361,427 | |||
Series I: | ||||
Net asset value per share | $ | 1.16 | ||
Series II: | ||||
Net asset value per share | $ | 1.16 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Interest | $ | 987,056 | ||
Dividends | 37,296 | |||
Dividends from affiliated money market funds | 260 | |||
Total investment income | 1,024,612 | |||
Expenses: | ||||
Advisory fees | 54,741 | |||
Administrative services fees | 37,898 | |||
Custodian fees | 5,106 | |||
Distribution fees — Series II | 15,296 | |||
Transfer agent fees | 1,339 | |||
Trustees’ and officers’ fees and benefits | 11,244 | |||
Professional services fees | 33,388 | |||
Other | 8,403 | |||
Total expenses | 167,415 | |||
Less: Fees waived | (243 | ) | ||
Net expenses | 167,172 | |||
Net investment income | 857,440 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 316,598 | |||
Foreign currencies | (4,794 | ) | ||
Foreign currency contracts | 89,181 | |||
400,985 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 1,017,452 | |||
Foreign currencies | (612 | ) | ||
Foreign currency contracts | (54,908 | ) | ||
961,932 | ||||
Net realized and unrealized gain | 1,362,917 | |||
Net increase in net assets resulting from operations | $ | 2,220,357 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Securities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 857,440 | $ | 1,769,132 | ||||
Net realized gain | 400,985 | 1,092,339 | ||||||
Change in net unrealized appreciation (depreciation) | 961,932 | (2,352,285 | ) | |||||
Net increase in net assets resulting from operations | 2,220,357 | 509,186 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,187,359 | ) | |||||
Series II | — | (1,065,238 | ) | |||||
Total distributions from net investment income | — | (2,252,597 | ) | |||||
Share transactions–net: | ||||||||
Series I | (871,857 | ) | (1,728,255 | ) | ||||
Series II | (1,304,688 | ) | (3,049,386 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (2,176,545 | ) | (4,777,641 | ) | ||||
Net increase (decrease) in net assets | 43,812 | (6,521,052 | ) | |||||
Net assets: | ||||||||
Beginning of period | 25,655,499 | 32,176,551 | ||||||
End of period (includes undistributed net investment income of $2,367,350 and $1,509,910, respectively) | $ | 25,699,311 | $ | 25,655,499 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide a high level of current income by investing in a diversified portfolio consisting principally of fixed-income securities, which may include both non-convertible and convertible debt securities and preferred stocks. As a secondary objective the Fund will seek capital appreciation, but only when consistent with its primary objective.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. |
Invesco V.I. High Yield Securities Fund
Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. |
Invesco V.I. High Yield Securities Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $500 million | 0 | .42% | ||
Next $250 million | 0 | .345% | ||
Next $250 million | 0 | .295% | ||
Next $1 billion | 0 | .27% | ||
Next $1 billion | 0 | .245% | ||
Over $3 billion | 0 | .22% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco V.I. High Yield Securities Fund
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.75% and Series II shares to 2.00% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $243.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $13,035 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. High Yield Securities Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 797,589 | $ | 350,235 | $ | — | $ | 1,147,824 | ||||||||
Corporate Debt Securities | — | 20,073,267 | 0 | 20,073,267 | ||||||||||||
Foreign Debt Securities | — | 3,982,526 | — | 3,982,526 | ||||||||||||
797,589 | 24,406,028 | 0 | 25,203,617 | |||||||||||||
Foreign Currency Contracts* | — | 47,082 | — | 47,082 | ||||||||||||
Total Investments | $ | 797,589 | $ | 24,453,110 | $ | 0 | $ | 25,250,699 | ||||||||
* | Unrealized appreciation |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign Currency Contracts(a) | $ | 47,082 | $ | — | ||||
(a) | Values are disclosed on the Statement of Assets and Liabilities under Foreign currency contracts. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Foreign Currency | ||||
Contracts* | ||||
Realized Gain | ||||
Currency risk | $ | 89,181 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (54,908 | ) | |
Total | $ | 34,273 | ||
* | The average notional value of foreign currency contracts outstanding during the period was $1,802,396. |
Open Foreign Currency Contracts | ||||||||||||||||||||||
Settlement | Contract to | Notional | Unrealized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||
08/09/12 | RBC Dain Rauscher | EUR | 1,163,000 | USD | 1,518,413 | $ | 1,471,331 | $ | 47,082 | |||||||||||||
Closed Foreign Currency Contracts | ||||||||||||||||||||||
Closed | Contract to | Notional | Realized | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Gain | |||||||||||||||||
05/16/12 | RBC Dain Rauscher | EUR | 7,000 | USD | 9,139 | $ | 8,914 | $ | 225 | |||||||||||||
05/24/12 | RBC Dain Rauscher | EUR | 49,000 | USD | 63,975 | 61,746 | 2,229 | |||||||||||||||
06/12/12 | RBC Dain Rauscher | EUR | 4,000 | USD | 5,222 | 4,992 | 230 | |||||||||||||||
06/19/12 | RBC Dain Rauscher | EUR | 39,000 | USD | 50,918 | 49,366 | 1,552 | |||||||||||||||
06/29/12 | RBC Dain Rauscher | EUR | 101,000 | USD | 131,865 | 127,876 | 3,989 | |||||||||||||||
Total closed foreign currency contracts | $ | 8,225 | ||||||||||||||||||||
Total foreign currency contracts | $ | 55,307 | ||||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
USD | – U.S. Dollar |
Invesco V.I. High Yield Securities 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2012 | $ | 24,097,705 | $ | — | $ | 24,097,705 | ||||||
December 31, 2013 | 15,736,680 | — | 15,736,680 | |||||||||
December 31, 2014 | 6,219,062 | — | 6,219,062 | |||||||||
December 31, 2016 | 1,794,343 | — | 1,794,343 | |||||||||
December 31, 2017 | 10,401,018 | — | 10,401,018 | |||||||||
December 31, 2018 | 43,961,613 | — | 43,961,613 | |||||||||
$ | 102,210,421 | $ | — | $ | 102,210,421 | |||||||
* | 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, 2012 was $6,218,694 and $7,311,749, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 1,024,176 | ||
Aggregate unrealized (depreciation) of investment securities | (8,293,183 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (7,269,007 | ) | |
Cost of investments for tax purposes is $32,472,624. |
Invesco V.I. High Yield Securities Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 616,415 | $ | 691,903 | 692,930 | $ | 784,581 | ||||||||||
Series II | 154,593 | 176,319 | 139,366 | 158,013 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 1,164,078 | 1,187,359 | ||||||||||||
Series II | — | — | 1,044,351 | 1,065,238 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,378,414 | ) | (1,563,760 | ) | (3,232,497 | ) | (3,700,195 | ) | ||||||||
Series II | (1,310,145 | ) | (1,481,007 | ) | (3,722,675 | ) | (4,272,637 | ) | ||||||||
Net increase (decrease) in share activity | (1,917,551 | ) | $ | (2,176,545 | ) | (3,914,447 | ) | $ | (4,777,641 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 93% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 1.06 | $ | 0.04 | $ | 0.06 | $ | 0.10 | $ | — | $ | 1.16 | 9.43 | % | $ | 13,712 | 1.17 | %(d) | 1.17 | %(d) | 6.70 | %(d) | 24 | % | ||||||||||||||||||||||||
Year ended 12/31/11 | 1.15 | 0.07 | (0.06 | ) | 0.01 | (0.10 | ) | 1.06 | 1.10 | 13,403 | 1.67 | 1.67 | 6.24 | 63 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.13 | 0.08 | 0.04 | 0.12 | (0.10 | ) | 1.15 | 10.19 | 16,049 | 1.97 | 1.98 | 7.37 | 116 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 0.85 | 0.09 | 0.27 | 0.36 | (0.08 | ) | 1.13 | 44.56 | 16,824 | 1.74 | (e) | 1.75 | (e) | 8.76 | (e) | 75 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.13 | 0.07 | (0.33 | ) | (0.26 | ) | (0.02 | ) | 0.85 | (23.13 | ) | 13,226 | 1.48 | (e) | 1.48 | (e) | 6.90 | (e) | 44 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.16 | 0.08 | (0.03 | ) | 0.05 | (0.08 | ) | 1.13 | 4.17 | 21,625 | 1.18 | 1.18 | 6.48 | 26 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 1.06 | 0.04 | 0.06 | 0.10 | — | 1.16 | 9.43 | 11,988 | 1.42 | (d) | 1.42 | (d) | 6.45 | (d) | 24 | |||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 1.15 | 0.07 | (0.06 | ) | 0.01 | (0.10 | ) | 1.06 | 0.77 | 12,252 | 1.92 | 1.92 | 5.99 | 63 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.13 | 0.08 | 0.03 | 0.11 | (0.09 | ) | 1.15 | 10.36 | 16,128 | 2.22 | 2.23 | 7.12 | 116 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 0.85 | 0.08 | 0.28 | 0.36 | (0.08 | ) | 1.13 | 44.27 | 16,723 | 1.99 | (e) | 2.00 | (e) | 8.51 | (e) | 75 | ||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.13 | 0.07 | (0.33 | ) | (0.26 | ) | (0.02 | ) | 0.85 | (23.20 | ) | 13,973 | 1.73 | (e) | 1.73 | (e) | 6.65 | (e) | 44 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.16 | 0.07 | (0.03 | ) | 0.04 | (0.07 | ) | 1.13 | 3.90 | 24,433 | 1.43 | 1.43 | 6.23 | 26 | ||||||||||||||||||||||||||||||||||
(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 $13,906 and $12,304 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 are 0.01% and less than 0.005% for the years ended December 31, 2009 and 2008, respectively. |
Invesco V.I. High Yield Securities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,094.30 | $ | 6.09 | $ | 1,019.05 | $ | 5.87 | 1.17 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,094.30 | 7.39 | 1,017.80 | 7.12 | 1.42 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Securities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. High Yield Securities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco V.I. High Yield Securities Fund
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 fourth quintile of its performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was below the rates of two mutual funds and the same as the rate of one mutual fund managed by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, which had an effective fee rate higher 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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. 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 Securities Fund
Invesco V.I. International Growth Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIIGR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.44 | % | ||
Series II Shares | 4.33 | |||
MSCI EAFE Index▼ (Broad Market Index) | 2.96 | |||
MSCI EAFE Growth Index▼ (Style-Specific Index) | 3.86 | |||
Lipper VUF International Growth Funds Index▼ (Peer Group Index) | 5.33 | |||
Source(s): ▼Lipper Inc. |
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East.
The MSCI EAFE® Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East.
The Lipper VUF International Growth Funds Index is an unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. International Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (5/5/93) | 7.04 | % | ||||||
10 | Years | 7.51 | ||||||
5 | Years | -2.08 | ||||||
1 | Year | -8.66 | ||||||
Series II Shares | ||||||||
Inception (9/19/01) | 7.38 | % | ||||||
10 | Years | 7.23 | ||||||
5 | Years | -2.32 | ||||||
1 | Year | -8.87 |
Invesco V.I. International Growth Fund
Schedule of Investments
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–89.47% | ||||||||
Australia–5.20% | ||||||||
BHP Billiton Ltd. | 390,290 | $ | 12,725,839 | |||||
Brambles Ltd. | 2,829,543 | 17,952,138 | ||||||
CSL Ltd. | 459,057 | 18,624,070 | ||||||
WorleyParsons Ltd. | 682,879 | 17,742,635 | ||||||
67,044,682 | ||||||||
Belgium–2.23% | ||||||||
Anheuser-Busch InBev N.V. | 370,351 | 28,771,644 | ||||||
Brazil–1.64% | ||||||||
Banco Bradesco S.A.–ADR | 1,418,752 | 21,096,842 | ||||||
Canada–7.62% | ||||||||
Agrium Inc. | 135,042 | 11,968,215 | ||||||
Canadian National Railway Co. | 132,235 | 11,183,021 | ||||||
Canadian Natural Resources Ltd. | 258,986 | 6,947,164 | ||||||
Cenovus Energy Inc. | 327,688 | 10,418,682 | ||||||
CGI Group Inc.–Class A(a) | 506,789 | 12,180,657 | ||||||
Fairfax Financial Holdings Ltd. | 29,724 | 11,769,898 | ||||||
Potash Corp. of Saskatchewan Inc. | 320,458 | 14,006,857 | ||||||
Suncor Energy, Inc. | 683,037 | 19,751,114 | ||||||
98,225,608 | ||||||||
China–1.91% | ||||||||
Baidu, Inc.–ADR(a) | 7,893 | 907,537 | ||||||
CNOOC Ltd. | 5,189,000 | 10,467,650 | ||||||
Industrial & Commercial Bank of China Ltd.–Class H | 23,688,000 | 13,245,654 | ||||||
24,620,841 | ||||||||
Denmark–1.22% | ||||||||
Novo Nordisk A.S.–Class B | 109,027 | 15,762,052 | ||||||
France–6.16% | ||||||||
Cap Gemini S.A. | 265,046 | 9,763,733 | ||||||
Cie Generale des Etablissements Michelin | 107,014 | 6,994,240 | ||||||
Danone S.A. | 192,391 | 11,925,235 | ||||||
Eutelsat Communications S.A. | 279,671 | 8,581,850 | ||||||
L’Oreal S.A. | 71,492 | 8,368,844 | ||||||
Publicis Groupe S.A. | 305,520 | 13,961,978 | ||||||
Schneider Electric S.A. | 231,031 | 12,863,599 | ||||||
Total S.A. | 153,686 | 6,930,788 | ||||||
79,390,267 | ||||||||
Germany–5.75% | ||||||||
Adidas AG | 257,859 | 18,481,231 | ||||||
Fresenius Medical Care AG & Co. KGaA | 205,309 | 14,521,778 | ||||||
SAP AG | 403,023 | 23,783,012 | ||||||
Volkswagen AG (Preference) | 109,846 | 17,403,434 | ||||||
74,189,455 | ||||||||
Hong Kong–3.05% | ||||||||
China Mobile Ltd. | 1,473,500 | 16,194,414 | ||||||
Galaxy Entertainment Group Ltd.(a) | 4,016,000 | 10,087,359 | ||||||
Hutchison Whampoa Ltd. | 1,508,000 | 13,042,438 | ||||||
39,324,211 | ||||||||
Ireland–1.64% | ||||||||
Shire PLC | 261,358 | 7,511,372 | ||||||
WPP PLC | 1,121,370 | 13,629,038 | ||||||
21,140,410 | ||||||||
Israel–1.54% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 504,498 | 19,897,401 | ||||||
Japan–8.35% | ||||||||
Canon Inc. | 480,400 | 19,235,340 | ||||||
Denso Corp. | 474,700 | 16,162,037 | ||||||
Fanuc Corp. | 61,100 | 10,037,934 | ||||||
Keyence Corp. | 59,700 | 14,763,963 | ||||||
Komatsu Ltd. | 298,337 | 7,150,083 | ||||||
Nidec Corp. | 116,895 | 8,864,123 | ||||||
Toyota Motor Corp. | 375,800 | 15,145,890 | ||||||
Yamada Denki Co., Ltd. | 318,730 | 16,267,055 | ||||||
107,626,425 | ||||||||
Mexico–3.92% | ||||||||
America Movil S.A.B de C.V.–Series L–ADR | 796,605 | 20,759,526 | ||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 157,269 | 14,036,258 | ||||||
Grupo Televisa S.A.B.–ADR | 735,239 | 15,792,934 | ||||||
50,588,718 | ||||||||
Netherlands–2.13% | ||||||||
Koninklijke Ahold N.V. | 724,278 | 8,968,434 | ||||||
Unilever N.V. | 463,811 | 15,512,909 | ||||||
VimpelCom Ltd.–ADR | 370,906 | 3,008,047 | ||||||
27,489,390 | ||||||||
Russia–0.56% | ||||||||
Gazprom OAO–ADR | 761,681 | 7,210,162 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
Singapore–2.57% | ||||||||
Keppel Corp. Ltd. | 2,128,661 | $ | 17,441,763 | |||||
United Overseas Bank Ltd. | 1,052,000 | 15,632,695 | ||||||
33,074,458 | ||||||||
South Korea–2.43% | ||||||||
Hyundai Mobis | 63,177 | 15,292,922 | ||||||
NHN Corp. | 73,131 | 16,036,992 | ||||||
31,329,914 | ||||||||
Spain–1.06% | ||||||||
Amadeus IT Holding S.A.–Class A | 642,919 | 13,605,484 | ||||||
Sweden–2.88% | ||||||||
Investment AB Kinnevik–Class B | 361,478 | 7,253,298 | ||||||
Swedbank AB–Class A | 884,145 | 13,968,192 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 1,037,795 | 9,450,033 | ||||||
Volvo A.B.–Class B | 560,471 | 6,414,402 | ||||||
37,085,925 | ||||||||
Switzerland–6.96% | ||||||||
ABB Ltd.(a) | 628,759 | 10,255,545 | ||||||
Julius Baer Group Ltd.(a) | 317,417 | 11,485,840 | ||||||
Nestle S.A. | 323,613 | 19,292,795 | ||||||
Novartis AG | 239,390 | 13,345,428 | ||||||
Roche Holding AG | 93,068 | 16,056,785 | ||||||
Syngenta AG | 56,421 | 19,250,027 | ||||||
89,686,420 | ||||||||
Taiwan–1.22% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,124,595 | 15,699,346 | ||||||
Turkey–0.87% | ||||||||
Akbank T.A.S. | 3,066,436 | 11,261,071 | ||||||
United Kingdom–18.56% | ||||||||
BG Group PLC | 952,273 | 19,490,327 | ||||||
British American Tobacco PLC | 403,817 | 20,552,938 | ||||||
British Sky Broadcasting Group PLC | 989,236 | 10,790,474 | ||||||
Centrica PLC | 2,351,273 | 11,721,140 | ||||||
Compass Group PLC | 2,825,016 | 29,631,285 | ||||||
GlaxoSmithKline PLC | 424,753 | 9,631,321 | ||||||
Imperial Tobacco Group PLC | 656,346 | 25,253,452 | ||||||
Informa PLC | 1,690,787 | 10,109,735 | ||||||
Kingfisher PLC | 4,238,605 | 19,164,301 | ||||||
Next PLC | 353,916 | 17,746,047 | ||||||
Pearson PLC | 533,422 | 10,594,013 | ||||||
Reed Elsevier PLC | 2,730,288 | 21,902,962 | ||||||
Royal Dutch Shell PLC–Class B | 472,011 | 16,472,747 | ||||||
Smith & Nephew PLC | 1,128,984 | 11,301,125 | ||||||
Tesco PLC | 993,848 | 4,830,796 | ||||||
239,192,663 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $924,425,134) | 1,153,313,389 | |||||||
Money Market Funds–9.71% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 62,593,574 | 62,593,574 | ||||||
Premier Portfolio–Institutional Class(b) | 62,593,574 | 62,593,574 | ||||||
Total Money Market Funds (Cost $125,187,148) | 125,187,148 | |||||||
TOTAL INVESTMENTS–99.18% (Cost $1,049,612,282) | 1,278,500,537 | |||||||
OTHER ASSETS LESS LIABILITIES–0.82% | 10,627,129 | |||||||
NET ASSETS–100.00% | $ | 1,289,127,666 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Pfd. | – Preferred |
Notes to Schedule of Investments:
(a) | Non-income producing security. | |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
By sector, based on Net Assets
as of June 30, 2012
Consumer Discretionary | 22.3 | % | ||
Consumer Staples | 12.2 | |||
Information Technology | 10.5 | |||
Health Care | 9.8 | |||
Energy | 9.0 | |||
Industrials | 9.0 | |||
Financials | 8.2 | |||
Materials | 4.5 | |||
Telecommunication Services | 3.1 | |||
Utilities | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 10.5 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $924,425,134) | $ | 1,153,313,389 | ||
Investments in affiliated money market funds, at value and cost | 125,187,148 | |||
Total investments, at value (Cost $1,049,612,282) | 1,278,500,537 | |||
Foreign currencies, at value (Cost $947,760) | 937,035 | |||
Receivable for: | ||||
Investments sold | 6,974,433 | |||
Fund shares sold | 1,401,466 | |||
Dividends | 5,916,755 | |||
Investment for trustee deferred compensation and retirement plans | 68,566 | |||
Other assets | 190 | |||
Total assets | 1,293,798,982 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 881,877 | |||
Fund shares reacquired | 2,261,723 | |||
Accrued fees to affiliates | 1,213,059 | |||
Accrued other operating expenses | 113,753 | |||
Trustee deferred compensation and retirement plans | 200,904 | |||
Total liabilities | 4,671,316 | |||
Net assets applicable to shares outstanding | $ | 1,289,127,666 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,272,606,598 | ||
Undistributed net investment income | 31,854,941 | |||
Undistributed net realized gain (loss) | (244,479,317 | ) | ||
Unrealized appreciation | 229,145,444 | |||
$ | 1,289,127,666 | |||
Net Assets: | ||||
Series I | $ | 569,263,617 | ||
Series II | $ | 719,864,049 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 20,671,808 | |||
Series II | 26,460,220 | |||
Series I: | ||||
Net asset value per share | $ | 27.54 | ||
Series II: | ||||
Net asset value per share | $ | 27.21 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,952,198) | $ | 20,556,359 | ||
Dividends from affiliated money market funds | 81,375 | |||
Total investment income | 20,637,734 | |||
Expenses: | ||||
Advisory fees | 4,473,112 | |||
Administrative services fees | 1,670,578 | |||
Custodian fees | 145,962 | |||
Distribution fees — Series II | 854,183 | |||
Transfer agent fees | 29,314 | |||
Trustees’ and officers’ fees and benefits | 34,228 | |||
Other | (454 | ) | ||
Total expenses | 7,206,923 | |||
Less: Fees waived | (84,344 | ) | ||
Net expenses | 7,122,579 | |||
Net investment income | 13,515,155 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 14,275,410 | |||
Foreign currencies | (246,689 | ) | ||
14,028,721 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes on holdings of $52,335) | 20,969,569 | |||
Foreign currencies | (3,190 | ) | ||
20,966,379 | ||||
Net realized and unrealized gain | 34,995,100 | |||
Net increase in net assets resulting from operations | $ | 48,510,255 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 13,515,155 | $ | 19,119,924 | ||||
Net realized gain | 14,028,721 | 53,816,330 | ||||||
Change in net unrealized appreciation (depreciation) | 20,966,379 | (159,536,857 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 48,510,255 | (86,600,603 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (8,703,100 | ) | |||||
Series II | — | (6,565,728 | ) | |||||
Total distributions from net investment income | — | (15,268,828 | ) | |||||
Share transactions–net: | ||||||||
Series I | 1,739,005 | 6,595,238 | ||||||
Series II | 87,466,496 | 90,856,363 | ||||||
Net increase in net assets resulting from share transactions | 89,205,501 | 97,451,601 | ||||||
Net increase (decrease) in net assets | 137,715,756 | (4,417,830 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,151,411,910 | 1,155,829,740 | ||||||
End of period (includes undistributed net investment income of $31,854,941 and $18,339,786, respectively) | $ | 1,289,127,666 | $ | 1,151,411,910 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. International Growth Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. International Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
J. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Over $250 million | 0 | .70% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses to 1.11% and 1.36% of average daily net assets for Series I and Series II shares, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
Invesco V.I. International Growth Fund
For the six months ended June 30, 2012, the Adviser waived advisory fees of $84,344.
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, 2012, Invesco was paid $149,904 for accounting and fund administrative services and reimbursed $1,520,674 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
During the six months ended June 30, 2012, there were transfers from Level 1 to Level 2 of $442,750,192 due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 67,044,682 | $ | — | $ | 67,044,682 | ||||||||
Belgium | — | 28,771,644 | — | 28,771,644 | ||||||||||||
Brazil | 21,096,842 | — | — | 21,096,842 | ||||||||||||
Canada | 98,225,608 | — | — | 98,225,608 | ||||||||||||
China | 907,537 | 23,713,304 | — | 24,620,841 | ||||||||||||
Denmark | — | 15,762,052 | — | 15,762,052 | ||||||||||||
France | 20,507,085 | 58,883,182 | — | 79,390,267 | ||||||||||||
Germany | — | 74,189,455 | — | 74,189,455 | ||||||||||||
Hong Kong | — | 39,324,211 | — | 39,324,211 | ||||||||||||
Ireland | — | 21,140,410 | — | 21,140,410 | ||||||||||||
Israel | 19,897,401 | — | — | 19,897,401 | ||||||||||||
Japan | — | 107,626,425 | — | 107,626,425 | ||||||||||||
Mexico | 50,588,718 | — | — | 50,588,718 | ||||||||||||
Netherlands | 3,008,047 | 24,481,343 | — | 27,489,390 | ||||||||||||
Russia | — | 7,210,162 | — | 7,210,162 | ||||||||||||
Singapore | — | 33,074,458 | — | 33,074,458 | ||||||||||||
Invesco V.I. International Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
South Korea | $ | — | $ | 31,329,914 | $ | — | $ | 31,329,914 | ||||||||
Spain | — | 13,605,484 | — | 13,605,484 | ||||||||||||
Sweden | 9,450,033 | 27,635,892 | — | 37,085,925 | ||||||||||||
Switzerland | — | 89,686,420 | — | 89,686,420 | ||||||||||||
Taiwan | 15,699,346 | — | — | 15,699,346 | ||||||||||||
Turkey | — | 11,261,071 | — | 11,261,071 | ||||||||||||
United Kingdom | 10,790,474 | 228,402,189 | — | 239,192,663 | ||||||||||||
United States | 125,187,148 | — | — | 125,187,148 | ||||||||||||
Total Investments | $ | 375,358,239 | $ | 903,142,298 | $ | — | $ | 1,278,500,537 | ||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 55,375,763 | $ | — | $ | 55,375,763 | ||||||
December 31, 2017 | 143,189,697 | — | 143,189,697 | |||||||||
December 31, 2018 | 37,802,555 | — | 37,802,555 | |||||||||
$ | 236,368,015 | $ | — | $ | 236,368,015 | |||||||
* | 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 the 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. |
Invesco V.I. International Growth Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $201,415,847 and $141,704,030, 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 | $ | 248,453,141 | ||
Aggregate unrealized (depreciation) of investment securities | (41,704,909 | ) | ||
Net unrealized appreciation of investment securities | $ | 206,748,232 | ||
Cost of investments for tax purposes is $1,071,752,305. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,555,416 | $ | 71,767,108 | 4,674,557 | $ | 132,444,153 | ||||||||||
Series II | 4,804,794 | 132,052,665 | 5,695,478 | 157,043,118 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 292,246 | 8,703,100 | ||||||||||||
Series II | — | — | 222,492 | 6,565,728 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 426 | 13,190 | ||||||||||||
Series II | — | — | 1,107,888 | 34,002,342 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,521,112 | ) | (70,028,103 | ) | (4,761,021 | ) | (134,565,205 | ) | ||||||||
Series II | (1,628,672 | ) | (44,586,169 | ) | (3,833,060 | ) | (106,754,825 | ) | ||||||||
Net increase in share activity | 3,210,426 | $ | 89,205,501 | 3,399,006 | $ | 97,451,601 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 37% 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 May 2, 2011, the Fund acquired all the net assets of Invesco Van Kampen V.I. International Growth Equity Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 1,108,314 shares of the Fund for 3,524,810 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target Fund’s net assets at that date of $34,015,533, including $7,388,865 of unrealized appreciation, was combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $1,248,419,884. The net assets of the Fund immediately following the acquisition were $1,282,435,417. |
The pro forma results of operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 19,406,572 | ||
Net realized/unrealized gains (losses) | (102,914,763) | |||
Change in net assets resulting from operations | $ | (83,508,191) | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco V.I. International Growth Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 26.37 | $ | 0.32 | $ | 0.85 | $ | 1.17 | $ | — | $ | — | $ | — | $ | 27.54 | 4.44 | % | $ | 569,264 | 1.00 | %(d) | 1.01 | %(d) | 2.28 | %(d) | 12 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.44 | 0.34 | 3.98 | 4.32 | (0.13 | ) | — | (0.13 | ) | 33.63 | 14.68 | 792,779 | 1.06 | 1.07 | 1.06 | 20 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 26.08 | 0.28 | 0.85 | 1.13 | — | — | — | 27.21 | 4.33 | 719,864 | 1.25 | (d) | 1.26 | (d) | 2.03 | (d) | 12 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 29.16 | 0.26 | 3.94 | 4.20 | (0.12 | ) | — | (0.12 | ) | 33.24 | 14.41 | 745,206 | 1.31 | 1.32 | 0.81 | 20 | ||||||||||||||||||||||||||||||||||||||||
(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 based on average daily net assets (000’s omitted) of $580,096 and $687,101 for Series I and Series II shares, respectively. |
Invesco V.I. International Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,044.40 | $ | 5.08 | $ | 1,019.89 | $ | 5.02 | 1.00 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,043.30 | 6.35 | 1,018.65 | 6.27 | 1.25 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. International Growth Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided
Invesco V.I. International Growth Fund
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 – International Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one and five year periods and the second quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other mutual funds or client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. International Growth Fund
Invesco V.I. Mid Cap Core Equity Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIMCCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.33 | % | ||
Series II Shares | 4.10 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell Midcap Index▼ (Style-Specific Index) | 7.97 | |||
Lipper VUF Mid-Cap Core Funds Index▼ (Peer Group Index) | 7.39 | |||
Source(s): ▼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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
Inception (9/10/01) | 6.03 | % | ||||||
10 | Years | 5.98 | ||||||
5 | Years | 0.64 | ||||||
1 | Year | -8.18 | ||||||
Series II Shares | ||||||||
Inception (9/10/01) | 5.77 | % | ||||||
10 | Years | 5.72 | ||||||
5 | Years | 0.39 | ||||||
1 | Year | -8.48 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Mid Cap Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks–77.85% | ||||||||
Aerospace & Defense–1.44% | ||||||||
Exelis Inc. | 223,686 | $ | 2,205,544 | |||||
Moog Inc.–Class A(b) | 78,143 | 3,231,213 | ||||||
5,436,757 | ||||||||
Apparel Retail–1.53% | ||||||||
Citi Trends Inc.(b) | 102,179 | 1,577,644 | ||||||
Guess?, Inc. | 138,331 | 4,201,112 | ||||||
5,778,756 | ||||||||
Application Software–2.08% | ||||||||
Adobe Systems Inc.(b) | 241,972 | 7,832,634 | ||||||
Asset Management & Custody Banks–1.95% | ||||||||
Legg Mason, Inc. | 64,877 | 1,710,806 | ||||||
Northern Trust Corp. | 122,726 | 5,647,851 | ||||||
7,358,657 | ||||||||
Auto Parts & Equipment–0.80% | ||||||||
Tenneco Inc.(b) | 112,467 | 3,016,365 | ||||||
Brewers–3.13% | ||||||||
Boston Beer Company, Inc. (The)–Class A(b) | 30,322 | 3,668,962 | ||||||
Molson Coors Brewing Co.–Class B | 196,101 | 8,159,763 | ||||||
11,828,725 | ||||||||
Communications Equipment–2.07% | ||||||||
Juniper Networks, Inc.(b) | 132,318 | 2,158,106 | ||||||
Polycom, Inc.(b) | 196,765 | 2,069,968 | ||||||
Research In Motion Ltd. (Canada)(b) | 214,148 | 1,582,554 | ||||||
Tellabs, Inc. | 605,607 | 2,016,671 | ||||||
7,827,299 | ||||||||
Computer & Electronics Retail–1.11% | ||||||||
GameStop Corp.–Class A | 228,481 | 4,194,911 | ||||||
Computer Storage & Peripherals–1.03% | ||||||||
NetApp, Inc.(b) | 122,501 | 3,897,982 | ||||||
Construction & Engineering–0.82% | ||||||||
Chicago Bridge & Iron Co. N.V.–New York Shares | 81,227 | 3,083,377 | ||||||
Construction & Farm Machinery & Heavy Trucks–2.18% | ||||||||
Navistar International Corp.(b) | 116,213 | 3,296,963 | ||||||
Terex Corp.(b) | 275,691 | 4,915,570 | ||||||
8,212,533 | ||||||||
Construction Materials–0.92% | ||||||||
CRH PLC (Ireland) | 180,903 | 3,475,377 | ||||||
Data Processing & Outsourced Services–1.18% | ||||||||
Western Union Co. (The) | 265,008 | 4,462,735 | ||||||
Department Stores–0.73% | ||||||||
Macy’s, Inc. | 80,121 | 2,752,156 | ||||||
Diversified Chemicals–1.00% | ||||||||
Huntsman Corp. | 292,877 | 3,789,828 | ||||||
Diversified Metals & Mining–0.32% | ||||||||
Compass Minerals International, Inc. | 16,021 | 1,222,082 | ||||||
Electric Utilities–0.58% | ||||||||
Edison International | 47,596 | 2,198,935 | ||||||
Electronic Components–1.76% | ||||||||
Amphenol Corp.–Class A | 91,232 | 5,010,461 | ||||||
Dolby Laboratories Inc.–Class A(b) | 39,476 | 1,630,359 | ||||||
6,640,820 | ||||||||
Electronic Equipment & Instruments–0.44% | ||||||||
Checkpoint Systems, Inc.(b) | 188,594 | 1,642,654 | ||||||
Electronic Manufacturing Services–0.82% | ||||||||
Molex Inc. | 128,999 | 3,088,236 | ||||||
Environmental & Facilities Services–1.16% | ||||||||
Republic Services, Inc. | 165,020 | 4,366,429 | ||||||
Food Retail–0.61% | ||||||||
Safeway Inc. | 127,620 | 2,316,303 | ||||||
General Merchandise Stores–2.51% | ||||||||
Big Lots, Inc.(b) | 145,714 | 5,943,674 | ||||||
Family Dollar Stores, Inc. | 53,180 | 3,535,406 | ||||||
9,479,080 | ||||||||
Gold–0.95% | ||||||||
Agnico-Eagle Mines Ltd. (Canada) | 60,259 | 2,438,079 | ||||||
Kinross Gold Corp. (Canada) | 140,000 | 1,141,000 | ||||||
3,579,079 | ||||||||
Health Care Equipment–1.19% | ||||||||
Boston Scientific Corp.(b) | 512,227 | 2,904,327 | ||||||
Olympus Corp. (Japan)(b) | 97,900 | 1,587,716 | ||||||
4,492,043 | ||||||||
Health Care Facilities–0.48% | ||||||||
VCA Antech, Inc.(b) | 82,183 | 1,806,382 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Shares | Value | |||||||
Health Care Services–2.62% | ||||||||
DaVita, Inc.(b) | 28,511 | $ | 2,800,065 | |||||
Laboratory Corp. of America Holdings(b) | 36,264 | 3,358,409 | ||||||
Quest Diagnostics Inc. | 62,030 | 3,715,597 | ||||||
9,874,071 | ||||||||
Homebuilding–0.64% | ||||||||
D.R. Horton, Inc. | 132,409 | 2,433,677 | ||||||
Industrial Conglomerates–0.56% | ||||||||
Koninklijke Philips Electronics N.V. (Netherlands) | 107,181 | 2,117,848 | ||||||
Industrial Machinery–2.24% | ||||||||
Ingersoll-Rand PLC | 37,974 | 1,601,743 | ||||||
ITT Corp. | 89,047 | 1,567,227 | ||||||
SPX Corp. | 31,606 | 2,064,504 | ||||||
Xylem, Inc. | 127,752 | 3,215,518 | ||||||
8,448,992 | ||||||||
Insurance Brokers–1.24% | ||||||||
Marsh & McLennan Cos., Inc. | 145,297 | 4,682,922 | ||||||
Investment Banking & Brokerage–0.86% | ||||||||
Charles Schwab Corp. (The) | 250,884 | 3,243,930 | ||||||
Life & Health Insurance–1.37% | ||||||||
Torchmark Corp. | 102,154 | 5,163,885 | ||||||
Life Sciences Tools & Services–2.14% | ||||||||
Agilent Technologies, Inc. | 130,886 | 5,135,967 | ||||||
Life Technologies Corp.(b) | 64,990 | 2,923,900 | ||||||
8,059,867 | ||||||||
Managed Health Care–0.88% | ||||||||
Aetna Inc. | 85,794 | 3,326,233 | ||||||
Marine–0.69% | ||||||||
Kirby Corp.(b) | 55,181 | 2,597,922 | ||||||
Multi-Sector Holdings–0.41% | ||||||||
PICO Holdings, Inc.(b) | 69,441 | 1,556,173 | ||||||
Office Services & Supplies–1.25% | ||||||||
Pitney Bowes Inc. | 313,891 | 4,698,948 | ||||||
Oil & Gas Drilling–1.06% | ||||||||
Transocean Ltd. | 89,661 | 4,010,537 | ||||||
Oil & Gas Equipment & Services–3.53% | ||||||||
Cameron International Corp.(b) | 62,789 | 2,681,718 | ||||||
CARBO Ceramics Inc. | 32,148 | 2,466,716 | ||||||
ShawCor Ltd.–Class A (Canada) | 48,613 | 1,759,541 | ||||||
Weatherford International Ltd.(b) | 509,144 | 6,430,489 | ||||||
13,338,464 | ||||||||
Oil & Gas Exploration & Production–2.22% | ||||||||
Newfield Exploration Co.(b) | 119,236 | 3,494,807 | ||||||
Southwestern Energy Co.(b) | 57,458 | 1,834,634 | ||||||
Talisman Energy Inc. (Canada) | 265,039 | 3,038,017 | ||||||
8,367,458 | ||||||||
Packaged Foods & Meats–3.98% | ||||||||
JM Smucker Co. (The) | 51,757 | 3,908,689 | ||||||
Kellogg Co. | 128,492 | 6,338,510 | ||||||
McCormick & Co., Inc. | 78,927 | 4,786,923 | ||||||
15,034,122 | ||||||||
Personal Products–0.59% | ||||||||
Avon Products, Inc. | 138,269 | 2,241,341 | ||||||
Pharmaceuticals–1.20% | ||||||||
Endo Health Solutions Inc.(b) | 69,551 | 2,154,690 | ||||||
Warner Chilcott PLC–Class A(b) | 131,644 | 2,359,060 | ||||||
4,513,750 | ||||||||
Property & Casualty Insurance–1.37% | ||||||||
Progressive Corp. (The) | 247,514 | 5,155,717 | ||||||
Restaurants–1.17% | ||||||||
Darden Restaurants, Inc. | 87,582 | 4,434,277 | ||||||
Semiconductors–3.71% | ||||||||
Linear Technology Corp. | 247,183 | 7,744,243 | ||||||
Microchip Technology Inc. | 75,218 | 2,488,212 | ||||||
Xilinx, Inc. | 111,817 | 3,753,697 | ||||||
13,986,152 | ||||||||
Soft Drinks–1.95% | ||||||||
Dr. Pepper Snapple Group, Inc. | 168,146 | 7,356,388 | ||||||
Specialized Finance–0.82% | ||||||||
Moody’s Corp. | 85,062 | 3,109,016 | ||||||
Specialty Chemicals–2.82% | ||||||||
International Flavors & Fragrances Inc. | 89,648 | 4,912,710 | ||||||
Sigma-Aldrich Corp. | 77,547 | 5,733,050 | ||||||
10,645,760 | ||||||||
Steel–0.64% | ||||||||
Allegheny Technologies, Inc. | 75,368 | 2,403,486 | ||||||
Systems Software–3.40% | ||||||||
CA, Inc. | 120,644 | 3,268,246 | ||||||
Symantec Corp.(b) | 653,710 | 9,550,703 | ||||||
12,818,949 | ||||||||
Thrifts & Mortgage Finance–1.18% | ||||||||
People’s United Financial Inc. | 383,692 | 4,454,664 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Shares | Value | |||||||
Trucking–0.52% | ||||||||
Con-way Inc. | 54,718 | $ | 1,975,867 | |||||
Total Common Stocks (Cost $270,297,810) | 293,830,551 | |||||||
Money Market Funds–22.25% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 41,981,688 | 41,981,688 | ||||||
Premier Portfolio–Institutional Class(c) | 41,981,688 | 41,981,688 | ||||||
Total Money Market Funds (Cost $83,963,376) | 83,963,376 | |||||||
TOTAL INVESTMENTS–100.10% (Cost $354,261,186) | 377,793,927 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.10)% | (386,071 | ) | ||||||
NET ASSETS–100.00% | $ | 377,407,856 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Information Technology | 16.5 | % | ||
Industrials | 10.8 | |||
Consumer Staples | 10.3 | |||
Financials | 9.2 | |||
Consumer Discretionary | 8.5 | |||
Health Care | 8.5 | |||
Energy | 6.8 | |||
Materials | 6.7 | |||
Utilities | 0.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 22.1 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $270,297,810) | $ | 293,830,551 | ||
Investments in affiliated money market funds, at value and cost | 83,963,376 | |||
Total investments, at value (Cost $354,261,186) | 377,793,927 | |||
Receivable for: | ||||
Fund shares sold | 50,835 | |||
Dividends | 356,887 | |||
Investment for trustee deferred compensation and retirement plans | 30,640 | |||
Total assets | 378,232,289 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 150,638 | |||
Fund shares reacquired | 254,443 | |||
Accrued fees to affiliates | 295,656 | |||
Accrued other operating expenses | 27,964 | |||
Trustee deferred compensation and retirement plans | 95,732 | |||
Total liabilities | 824,433 | |||
Net assets applicable to shares outstanding | $ | 377,407,856 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 328,085,332 | ||
Undistributed net investment income | 470,991 | |||
Undistributed net realized gain | 25,318,792 | |||
Unrealized appreciation | 23,532,741 | |||
$ | 377,407,856 | |||
Net Assets: | ||||
Series I | $ | 301,366,508 | ||
Series II | $ | 76,041,348 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 24,995,331 | |||
Series II | 6,368,456 | |||
Series I: | ||||
Net asset value per share | $ | 12.06 | ||
Series II: | ||||
Net asset value per share | $ | 11.94 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $6,111) | $ | 2,469,317 | ||
Dividends from affiliated money market funds | 62,465 | |||
Total investment income | 2,531,782 | |||
Expenses: | ||||
Advisory fees | 1,468,231 | |||
Administrative services fees | 552,083 | |||
Custodian fees | 15,495 | |||
Distribution fees — Series II | 95,407 | |||
Transfer agent fees | 32,391 | |||
Trustees’ and officers’ fees and benefits | 18,629 | |||
Other | 46,832 | |||
Total expenses | 2,229,068 | |||
Less: Fees waived | (64,652 | ) | ||
Net expenses | 2,164,416 | |||
Net investment income | 367,366 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $8,192) | 24,758,660 | |||
Foreign currencies | (16,150 | ) | ||
24,742,510 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (7,771,953 | ) | ||
Foreign currencies | 189 | |||
(7,771,764 | ) | |||
Net realized and unrealized gain | 16,970,746 | |||
Net increase in net assets resulting from operations | $ | 17,338,112 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 367,366 | $ | 193,399 | ||||
Net realized gain | 24,742,510 | 34,284,773 | ||||||
Change in net unrealized appreciation (depreciation) | (7,771,764 | ) | (61,222,115 | ) | ||||
Net increase (decrease) in net assets resulting from operations | 17,338,112 | (26,743,943 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,052,469 | ) | |||||
Series II | — | (54,708 | ) | |||||
Total distributions from net investment income | — | (1,107,177 | ) | |||||
Share transactions–net: | ||||||||
Series I | (35,608,689 | ) | (66,537,862 | ) | ||||
Series II | 8,380,428 | 8,287,414 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (27,228,261 | ) | (58,250,448 | ) | ||||
Net increase (decrease) in net assets | (9,890,149 | ) | (86,101,568 | ) | ||||
Net assets: | ||||||||
Beginning of period | 387,298,005 | 473,399,573 | ||||||
End of period (includes undistributed net investment income of $470,991 and $103,625, respectively) | $ | 377,407,856 | $ | 387,298,005 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Mid Cap Core Equity Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. 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 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).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 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 the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
Invesco V.I. Mid Cap Core Equity Fund
For the six months ended June 30, 2012, the Adviser waived advisory fees of $64,652.
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, 2012, Invesco was paid $51,551 for accounting and fund administrative services and reimbursed $500,532 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 370,612,986 | $ | 7,180,941 | $ | — | $ | 377,793,927 | ||||||||
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, 2012, the Fund engaged in securities purchases of $986,595 and securities sales of $36,565, which resulted in net realized gains of $8,192.
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. Mid Cap Core Equity 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2011.
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, 2012 was $95,316,359 and $132,199,780, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 38,675,719 | ||
Aggregate unrealized (depreciation) of investment securities | (17,782,657 | ) | ||
Net unrealized appreciation of investment securities | $ | 20,893,062 | ||
Cost of investments for tax purposes is $356,900,865. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 942,261 | $ | 11,623,837 | 2,474,245 | $ | 30,771,619 | ||||||||||
Series II | 1,708,951 | 20,960,032 | 3,309,461 | 40,140,590 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 98,178 | 1,052,469 | ||||||||||||
Series II | — | — | 5,142 | 54,708 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,800,274 | ) | (47,232,526 | ) | (7,967,805 | ) | (98,361,950 | ) | ||||||||
Series II | (1,026,153 | ) | (12,579,604 | ) | (2,643,335 | ) | (31,907,884 | ) | ||||||||
Net increase (decrease) in share activity | (2,175,215 | ) | $ | (27,228,261 | ) | (4,724,114 | ) | $ | (58,250,448 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 69% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss) | unrealized) | operations | income | gains | distributions | of period | return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 11.56 | $ | 0.01 | (c) | $ | 0.49 | $ | 0.50 | $ | — | $ | — | $ | — | $ | 12.06 | 4.33 | % | $ | 301,367 | 1.02 | %(d) | 1.05 | %(d) | 0.23 | %(d) | 30 | % | |||||||||||||||||||||||||||
Year ended 12/31/11 | 12.39 | 0.01 | (c) | (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 | (c) | 1.50 | 1.53 | (0.06 | ) | — | (0.06 | ) | 12.39 | 14.11 | 411,812 | 1.01 | 1.03 | 0.27 | 61 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.59 | 0.06 | (c) | 2.53 | 2.59 | (0.13 | ) | (0.13 | ) | (0.26 | ) | 10.92 | 30.21 | 432,233 | 1.02 | 1.04 | 0.60 | 41 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.57 | 0.14 | (c) | (4.33 | ) | (4.19 | ) | (0.22 | ) | (1.57 | ) | (1.79 | ) | 8.59 | (28.52 | ) | 352,788 | 1.01 | 1.04 | 1.05 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.52 | 0.19 | 1.11 | 1.30 | (0.04 | ) | (0.21 | ) | (0.25 | ) | 14.57 | 9.55 | 585,608 | 1.00 | 1.01 | 1.23 | 62 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 11.47 | (0.00 | )(c) | 0.47 | 0.47 | — | — | — | 11.94 | 4.10 | 76,041 | 1.27 | (d) | 1.30 | (d) | (0.02 | )(d) | 30 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.28 | (0.02 | )(c) | (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 | (c) | 1.49 | 1.49 | (0.04 | ) | — | (0.04 | ) | 12.28 | 13.78 | 61,587 | 1.26 | 1.28 | 0.02 | 61 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.52 | 0.03 | (c) | 2.51 | 2.54 | (0.10 | ) | (0.13 | ) | (0.23 | ) | 10.83 | 29.85 | 56,129 | 1.27 | 1.29 | 0.35 | 41 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.45 | 0.10 | (c) | (4.28 | ) | (4.18 | ) | (0.18 | ) | (1.57 | ) | (1.75 | ) | 8.52 | (28.68 | ) | 48,489 | 1.26 | 1.29 | 0.80 | 62 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.42 | 0.13 | 1.12 | 1.25 | (0.01 | ) | (0.21 | ) | (0.22 | ) | 14.45 | 9.29 | 79,079 | 1.25 | 1.26 | 0.98 | 62 | |||||||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $330,510 and $76,745 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,043.30 | $ | 5.19 | $ | 1,019.78 | $ | 5.13 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,041.00 | 6.45 | 1,018.54 | 6.38 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Mid Cap Core Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
Invesco V.I. Mid Cap Core Equity Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of all funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one year period, the fifth quintile for the three year period and the third quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund with comparable investment strategies.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Money Market Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VIMKT-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
About your Fund
Invesco V.I. Money Market Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
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.
Invesco V.I. Money Market Fund
Schedule of Investments
June 30, 2012
(Unaudited)
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Commercial Paper–48.96%(a) | ||||||||||||||||
Asset-Backed Securities–Commercial Loans/Leases–6.20% | ||||||||||||||||
Atlantis One Funding Corp.(b)(c) | 0.22 | % | 07/03/12 | $ | 10,000 | $ | 9,999,878 | |||||||||
Asset-Backed Securities–Consumer Receivables–2.48% | ||||||||||||||||
Old Line Funding, LLC(b) | 0.24 | % | 08/01/12 | 4,000 | 3,999,173 | |||||||||||
Asset-Backed Securities–Fully Supported Bank–11.15% | ||||||||||||||||
Aspen Funding Corp. (CEP-Deutsche Bank AG)(b)(c) | 0.27 | % | 07/02/12 | 10,000 | 9,999,925 | |||||||||||
LMA Americas LLC (CEP-Credit Agricole Corporate & Investment Bank)(b)(c) | 0.50 | % | 07/02/12 | 8,000 | 7,999,889 | |||||||||||
17,999,814 | ||||||||||||||||
Asset-Backed Securities–Trade Receivables–4.36% | ||||||||||||||||
Market Street Funding LLC(b) | 0.23 | % | 07/20/12 | 7,045 | 7,044,145 | |||||||||||
Diversified Banks–22.91% | ||||||||||||||||
Bank of Montreal(c) | 0.18 | % | 07/03/12 | 4,000 | 3,999,960 | |||||||||||
Bank of Montreal(c) | 0.32 | % | 12/03/12 | 5,000 | 4,993,122 | |||||||||||
BNZ International Funding Ltd.(b)(c) | 0.27 | % | 09/07/12 | 10,000 | 9,994,900 | |||||||||||
Societe Generale North America, Inc.(c) | 0.22 | % | 07/02/12 | 8,000 | 7,999,951 | |||||||||||
Standard Chartered Bank(b)(c) | 0.29 | % | 09/12/12 | 10,000 | 9,994,120 | |||||||||||
36,982,053 | ||||||||||||||||
Other Diversified Financial Services–1.86% | ||||||||||||||||
General Electric Capital Corp. | 0.28 | % | 08/02/12 | 3,000 | 2,999,253 | |||||||||||
Total Commercial Paper (Cost $79,024,316) | 79,024,316 | |||||||||||||||
Variable Rate Demand Notes–13.16%(d) | ||||||||||||||||
Credit Enhanced–13.16% | ||||||||||||||||
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC–Wells Fargo Bank, N.A.)(e) | 0.21 | % | 10/01/33 | 4,740 | 4,740,000 | |||||||||||
Benjamin Rose Institute (The) (Kethley House); Series 2005, VRD Taxable Notes (LOC–JPMorgan Chase Bank, N.A.)(e) | 0.22 | % | 12/01/28 | 3,500 | 3,500,000 | |||||||||||
Collier (County of), Florida Industrial Development Authority (Allete, Inc.); Series 2006, Ref. VRD IDR (LOC–Wells Fargo Bank, N.A.)(e) | 0.23 | % | 10/01/25 | 1,000 | 1,000,000 | |||||||||||
Connecticut (State of) Development Authority (Northeast Foods, Inc.); Series 1998, VRD IDR (LOC–Bank of America, N.A.)(b)(e) | 0.69 | % | 06/01/13 | 625 | 625,000 | |||||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC–PNC Bank, N.A.)(e) | 0.18 | % | 05/15/17 | 600 | 600,000 | |||||||||||
M3 Realty, LLC; Series 2007, VRD RN (LOC–General Electric Capital Corp.)(b)(e) | 0.30 | % | 01/01/33 | 2,200 | 2,200,000 | |||||||||||
Massachusetts (State of) Development Finance Agency (Milton Academy); Series 2009 B, VRD Taxable RB (LOC–TD Bank, N.A.)(e) | 0.18 | % | 03/01/39 | 3,300 | 3,300,000 | |||||||||||
Massachusetts (State of) Development Finance Agency (Salema Family Limited Partnership); Series 1999 A, VRD IDR (LOC–Bank of America, N.A.)(e) | 0.70 | % | 12/01/20 | 655 | 655,000 | |||||||||||
Nashville (City of) & Davidson (County of), Tennessee Metropolitan Government Industrial Development Board (L & S, LLC); Series 2001, VRD IDR (LOC–JPMorgan Chase Bank, N.A.)(e) | 0.19 | % | 03/01/26 | 375 | 375,000 | |||||||||||
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC–Wells Fargo Bank, N.A.)(e) | 0.21 | % | 12/01/27 | 2,455 | 2,455,000 | |||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight); Series 1998 A, VRD Priority RB (LOC–U.S. Bank, N.A.)(e) | 0.34 | % | 12/01/18 | 390 | 390,000 | |||||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Principal | ||||||||||||||||
Interest | Maturity | Amount | ||||||||||||||
Rate | Date | (000) | Value | |||||||||||||
Credit Enhanced–(continued) | ||||||||||||||||
St. Jean Industries, Inc.; Series 2006, VRD Taxable Notes (LOC–General Electric Capital Corp.)(b)(e) | 0.26 | % | 10/01/21 | $ | 1,000 | $ | 1,000,000 | |||||||||
St. Paul (City of), Minnesota Port Authority; Series 2009-10 CC, VRD District Cooling RB (LOC–Deutsche Bank AG)(c)(e) | 0.20 | % | 03/01/29 | 400 | 400,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $21,240,000) | 21,240,000 | |||||||||||||||
Certificates of Deposit–5.58% | ||||||||||||||||
Bank of Nova Scotia(f) | 0.32 | % | 11/30/12 | 4,000 | 4,000,000 | |||||||||||
Bank of Nova Scotia(f) | 0.38 | % | 08/21/12 | 5,000 | 5,000,000 | |||||||||||
Total Certificates of Deposit (Cost $9,000,000) | 9,000,000 | |||||||||||||||
Medium-Term Notes–4.06% | ||||||||||||||||
Toyota Motor Credit Corp., Sr. Unsec. Floating Rate MTN(c)(f) | 0.88 | % | 01/15/13 | 4,500 | 4,500,000 | |||||||||||
General Electric Capital Corp., Series A, Sr. Unsec. Global MTN | 5.45 | % | 01/15/13 | 2,000 | 2,053,220 | |||||||||||
Total Medium-Term Notes (Cost $6,553,220) | 6,553,220 | |||||||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–71.76% (Cost $115,817,536) | 115,817,536 | |||||||||||||||
Repurchase | ||||||||||||||||
Amount | ||||||||||||||||
Repurchase Agreements–32.65%(g) | ||||||||||||||||
BNP Paribas, Joint agreement dated 06/29/12, aggregate maturing value $50,000,833 (collateralized by Corporate obligations valued at $52,500,001; 1.07%-7.37%, 12/03/12-03/06/26) | 0.20 | % | 07/02/12 | $ | 8,000,133 | 8,000,000 | ||||||||||
Credit Suisse Securities (USA) LLC, Joint open agreement dated 02/23/12, (collateralized by Mortgage-Backed securities & other instruments valued at $525,001,469; 0%-9.00%, 11/15/15-12/11/49)(c)(h) | 0.35 | % | — | — | 5,000,000 | |||||||||||
Deutsche Bank Securities Inc., Joint agreement dated 06/29/12, aggregate maturing value of $141,483,943 (collateralized by U.S. Government sponsored agency obligations valued at $144,312,283; 0.26%-5.25%, 03/05/13-04/18/19) | 0.15 | % | 07/02/12 | 7,000,088 | 7,000,000 | |||||||||||
Goldman, Sachs & Co., Joint agreement dated 06/29/12, aggregate maturing value $500,005,833 (collateralized by U.S. Government sponsored agency obligations valued at $510,000,182; 0%-6.75%, 07/05/12-08/06/38) | 0.14 | % | 07/02/12 | 8,000,093 | 8,000,000 | |||||||||||
Merrill Lynch, Pierce, Fenner & Smith, Inc., Joint agreement dated 06/29/12, aggregate maturing value $378,402,313 (collateralized by U.S. Treasury obligations valued at $385,966,576; 1.00%, 01/15/14-08/31/16) | 0.12 | % | 07/02/12 | 1,711,718 | 1,711,701 | |||||||||||
RBC Capital Markets Corp., Joint agreement dated 06/29/12, aggregate maturing value $250,003,542 (collateralized by U.S. Government sponsored agency obligations valued at $255,000,000; 2.26%-5.33%, 06/01/36-07/01/42) | 0.17 | % | 07/02/12 | 8,000,113 | 8,000,000 | |||||||||||
RBC Capital Markets Corp., Joint agreement dated 06/29/12, aggregate maturing value $900,006,000 (collateralized by U.S. Treasury obligations valued at $918,000,056; 2.63%-3.50%, 11/15/19-11/15/20) | 0.08 | % | 07/02/12 | 7,000,047 | 7,000,000 | |||||||||||
Wells Fargo Securities, LLC, Joint agreement dated 06/29/12, aggregate maturing value of $500,008,333 (collateralized by Asset-backed securities & other instruments valued at $525,000,000; 0%-10.40%, 07/15/13-11/12/49) | 0.20 | % | 07/02/12 | 8,000,133 | 8,000,000 | |||||||||||
Total Repurchase Agreements (Cost $52,711,701) | 52,711,701 | |||||||||||||||
TOTAL INVESTMENTS(i)(j)–104.41% (Cost $168,529,237) | 168,529,237 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(4.41)% | (7,123,631 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 161,405,606 | ||||||||||||||
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
IDR | – Industrial Development Revenue Bonds | |
LOC | – Letter of Credit | |
MTN | – Medium-Term Notes | |
RB | – Revenue Bonds | |
Ref. | – Refunding | |
RN | – Revenue Notes | |
Sr. | – Senior | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Notes to Schedule of Investments:
(a) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $62,857,030, which represented 38.94% 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: France: 14.9%; Germany: 6.4%; Australia: 6.2%; Netherlands: 6.2%; United Kingdom: 6.2%; Canada: 5.6%; other countries less than 5% each: 5.9%. | |
(d) | Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(e) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. | |
(f) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(g) | Principal amount equals value at period end. See Note 1I. | |
(h) | Either party may terminate the agreement upon demand. Interest rates, principal amount and collateral are redetermined daily. | |
(i) | Also represents cost for federal income tax purposes. | |
(j) | 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 obligations but may be called upon to satisfy the issuer’s obligations. No concentration of any single entity was greater than 5% each. |
Number of days to Maturity
as of June 30, 2012
1-7 | 75.6 | % | ||
8-30 | 4.2 | |||
31-60 | 4.2 | |||
61-90 | 11.9 | |||
91-180 | 3.0 | |||
181+ | 1.1 | |||
* | 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, 2012
(Unaudited)
Assets: | ||||
Investments, excluding repurchase agreements, at value and cost | $ | 115,817,536 | ||
Repurchase agreements, at value and cost | 52,711,701 | |||
Total investments, at value and cost | 168,529,237 | |||
Receivable for: | ||||
Fund shares sold | 32,471 | |||
Interest | 67,260 | |||
Fund expenses absorbed | 6,318 | |||
Investment for trustee deferred compensation and retirement plans | 41,687 | |||
Total assets | 168,676,973 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,104,087 | |||
Fund shares reacquired | 5,035,567 | |||
Dividends | 1,601 | |||
Accrued fees to affiliates | 15,305 | |||
Accrued other operating expenses | 59,734 | |||
Trustee deferred compensation and retirement plans | 55,073 | |||
Total liabilities | 7,271,367 | |||
Net assets applicable to shares outstanding | $ | 161,405,606 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 161,409,779 | ||
Undistributed net investment income | (2,496 | ) | ||
Undistributed net realized gain (loss) | (1,677 | ) | ||
$ | 161,405,606 | |||
Net Assets: | ||||
Series I | $ | 160,446,648 | ||
Series II | $ | 958,958 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 160,447,110 | |||
Series II | 958,747 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Interest | $ | 317,895 | ||
Expenses: | ||||
Advisory fees | 545,819 | |||
Administrative services fees | 50,103 | |||
Custodian fees | 23,898 | |||
Distribution fees — Series II | 1,232 | |||
Transfer agent fees | 6,806 | |||
Trustees’ and officers’ fees and benefits | 15,215 | |||
Other | 49,057 | |||
Total expenses | 692,130 | |||
Less: Fees waived | (423,954 | ) | ||
Net expenses | 268,176 | |||
Net investment income | 49,719 | |||
Net realized gain from investment securities | 466 | |||
Net increase in net assets resulting from operations | $ | 50,185 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 49,719 | $ | 53,933 | ||||
Net realized gain | 466 | — | ||||||
Net increase in net assets resulting from operations | 50,185 | 53,933 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (49,558 | ) | (53,437 | ) | ||||
Series II | (161 | ) | (496 | ) | ||||
Total distributions from net investment income | (49,719 | ) | (53,933 | ) | ||||
Share transactions–net: | ||||||||
Series I | (38,086,564 | ) | 172,954,380 | |||||
Series II | (63,064 | ) | (2,229 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (38,149,628 | ) | 172,952,151 | |||||
Net increase (decrease) in net assets | (38,149,162 | ) | 172,952,151 | |||||
Net assets: | ||||||||
Beginning of period | 199,554,768 | 26,602,617 | ||||||
End of period (includes undistributed net investment income of $(2,496) and $(2,496), respectively) | $ | 161,405,606 | $ | 199,554,768 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. | |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. |
Invesco V.I. Money Market Fund
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income are declared daily and paid monthly to separate accounts of participating insurance companies. Distributions from net realized gain, if any, are generally paid annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. | |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Eligible securities for collateral are securities consistent with the Fund’s investment objectives and may consist of U.S. Government Securities, U.S. Government Sponsored Agency Securities and/or, Investment Grade Debt Securities. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of Investment Grade Debt Securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The principal amount of the repurchase agreement is equal to the value at period-end. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the collateral and loss of income. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .40% | ||
Over $250 million | 0 | .35% | ||
Invesco V.I. Money Market Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (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, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013.
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, 2012, Invesco voluntarily waived advisory fees of $422,722 and reimbursed class level expenses of $1,232 for Series II shares in order to increase the Fund’s yield.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2012, Invesco was paid $36,756 for accounting and fund administrative services and reimbursed $13,347 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with IDI to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Short-Term Investments | $ | — | $ | 168,529,237 | $ | — | $ | 168,529,237 | ||||||||
Invesco V.I. Money Market Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2018 | $ | 2,143 | $ | — | $ | 2,143 | ||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. |
NOTE 7—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 486,578,097 | $ | 486,578,097 | 255,614,975 | $ | 255,614,975 | ||||||||||
Series II | 1,461 | 1,461 | 171,905 | 171,905 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 13,126 | 13,126 | 11,674 | 11,674 | ||||||||||||
Series II | 161 | 161 | 496 | 496 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (524,677,788 | ) | (524,677,788 | ) | (82,672,269 | ) | (82,672,269 | ) | ||||||||
Series II | (64,685 | ) | (64,685 | ) | (174,630 | ) | (174,630 | ) | ||||||||
Net increase (decrease) in share activity | (38,149,628 | ) | $ | (38,149,628 | ) | 172,952,151 | $ | 172,952,151 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 84% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
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 8—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||
to average net | to average net | Ratio of net | ||||||||||||||||||||||||||||||||||||||||||
Net asset | Net realized | Dividends | assets with | assets without | investment | |||||||||||||||||||||||||||||||||||||||
value, | Net | gains | Total from | from net | Net asset | Net assets, | fee waivers | fee waivers | income to | |||||||||||||||||||||||||||||||||||
beginning | investment | (losses) | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | average | ||||||||||||||||||||||||||||||||||
of period | income | on securities | operations | income | of period | return(a) | (000s omitted) | absorbed | absorbed | net assets | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 1.00 | $ | 0.00 | (b) | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.02 | % | $ | 160,447 | 0.19 | %(c) | 0.50 | %(c) | 0.04 | %(c) | ||||||||||||||||||||
Year ended 12/31/11 | 1.00 | 0.00 | (b) | — | 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 | (b) | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 25,578 | 0.16 | 1.01 | 0.18 | ||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | — | 0.00 | (0.00 | ) | 1.00 | 0.11 | 33,486 | 0.65 | 0.90 | 0.11 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | — | 0.02 | (0.02 | ) | 1.00 | 2.04 | 49,004 | 0.86 | 0.86 | 2.02 | |||||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | — | 0.04 | (0.04 | ) | 1.00 | 4.54 | 46,492 | 0.86 | 0.86 | 4.45 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 1.00 | 0.00 | (b) | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.02 | 959 | 0.19 | (c) | 0.75 | (c) | 0.04 | (c) | ||||||||||||||||||||||||||||
Year ended 12/31/11 | 1.00 | 0.00 | (b) | — | 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 | (b) | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 1,024 | 0.16 | 1.26 | 0.18 | ||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | (b) | — | 0.00 | (0.00 | ) | 1.00 | 0.06 | 1,690 | 0.70 | 1.15 | 0.06 | |||||||||||||||||||||||||||||||
Year ended 12/31/08 | 1.00 | 0.02 | (b) | — | 0.02 | (0.02 | ) | 1.00 | 1.78 | 2,266 | 1.11 | 1.11 | 1.77 | |||||||||||||||||||||||||||||||
Year ended 12/31/07 | 1.00 | 0.04 | — | 0.04 | (0.04 | ) | 1.00 | 4.28 | 2,515 | 1.11 | 1.11 | 4.20 | ||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Calculated using average shares outstanding. | |
(c) | Ratios are annualized and based on average daily net assets (000’s) of $276,905 and $991 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.20 | $ | 0.94 | $ | 1,023.92 | $ | 0.96 | 0.19 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,000.20 | 0.94 | 1,023.92 | 0.96 | 0.19 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Money Market Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
Invesco V.I. Money Market Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of 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 year period, the second quintile for the three year period and the fourth quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was above the median contractual advisory fee rate of funds in its expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund with comparable investment strategies. The Board noted that Invesco Advisers sub-advises one fund with similar investment strategies and the sub-advisory fee is lower than the Fund’s fee. 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 fee rates 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 has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. 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
Invesco V.I. S&P 500 Index Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
MS-VISPI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.32 | % | ||
Series II Shares | 9.29 | |||
S&P 500 Index▼(Broad Market/Style-Specific Index) | 9.49 | |||
Lipper VUF S&P 500 Funds Index▼(Peer Group Index) | 9.31 | |||
Source(s): ▼ Lipper 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 0.40% and 0.65%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. S&P 500 Index Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (5/18/98) | 3.02 | % | ||||||
10 | Years | 5.06 | ||||||
5 | Years | 0.04 | ||||||
1 | Year | 5.17 | ||||||
Series II Shares | ||||||||
Inception (6/5/00) | 0.73 | % | ||||||
10 | Years | 4.79 | ||||||
5 | Years | -0.20 | ||||||
1 | Year | 4.87 |
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.40% | ||||||||
Advertising–0.14% | ||||||||
Interpublic Group of Cos., Inc. (The) | 3,530 | $ | 38,300 | |||||
Omnicom Group Inc. | 2,196 | 106,726 | ||||||
145,026 | ||||||||
Aerospace & Defense–2.49% | ||||||||
Boeing Co. (The) | 6,045 | 449,143 | ||||||
General Dynamics Corp. | 2,910 | 191,944 | ||||||
Goodrich Corp. | 1,012 | 128,423 | ||||||
Honeywell International Inc. | 6,288 | 351,122 | ||||||
L-3 Communications Holdings, Inc. | 796 | 58,912 | ||||||
Lockheed Martin Corp. | 2,146 | 186,874 | ||||||
Northrop Grumman Corp. | 2,034 | 129,749 | ||||||
Precision Castparts Corp. | 1,168 | 192,124 | ||||||
Raytheon Co. | 2,689 | 152,170 | ||||||
Rockwell Collins, Inc. | 1,169 | 57,690 | ||||||
Textron Inc. | 2,256 | 56,107 | ||||||
United Technologies Corp. | 7,355 | 555,523 | ||||||
2,509,781 | ||||||||
Agricultural Products–0.16% | ||||||||
Archer-Daniels-Midland Co. | 5,327 | 157,253 | ||||||
Air Freight & Logistics–0.98% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,315 | 76,967 | ||||||
Expeditors International of Washington, Inc. | 1,707 | 66,146 | ||||||
FedEx Corp. | 2,544 | 233,056 | ||||||
United Parcel Service, Inc.–Class B | 7,743 | 609,839 | ||||||
986,008 | ||||||||
Airlines–0.06% | ||||||||
Southwest Airlines Co. | 6,223 | 57,376 | ||||||
Aluminum–0.07% | ||||||||
Alcoa Inc. | 8,584 | 75,110 | ||||||
Apparel Retail–0.57% | ||||||||
Abercrombie & Fitch Co.–Class A | 665 | 22,703 | ||||||
Gap, Inc. (The) | 2,673 | 73,133 | ||||||
Limited Brands, Inc. | 1,949 | 82,891 | ||||||
Ross Stores, Inc. | 1,820 | 113,696 | ||||||
TJX Cos., Inc. (The) | 5,973 | 256,421 | ||||||
Urban Outfitters, Inc.(b) | 919 | 25,355 | ||||||
574,199 | ||||||||
Apparel, Accessories & Luxury Goods–0.33% | ||||||||
Coach, Inc. | 2,316 | 135,440 | ||||||
Fossil, Inc.(b) | 417 | 31,917 | ||||||
Ralph Lauren Corp. | 520 | 72,831 | ||||||
VF Corp. | 703 | 93,815 | ||||||
334,003 | ||||||||
Application Software–0.61% | ||||||||
Adobe Systems Inc.(b) | 4,003 | 129,577 | ||||||
Autodesk, Inc.(b) | 1,854 | 64,872 | ||||||
Citrix Systems, Inc.(b) | 1,494 | 125,406 | ||||||
Intuit Inc. | 2,374 | 140,897 | ||||||
Salesforce.com, Inc.(b) | 1,113 | 153,883 | ||||||
614,635 | ||||||||
Asset Management & Custody Banks–1.12% | ||||||||
Ameriprise Financial, Inc. | 1,764 | 92,187 | ||||||
Bank of New York Mellon Corp. (The) | 9,602 | 210,764 | ||||||
BlackRock, Inc. | 1,034 | 175,594 | ||||||
Federated Investors, Inc.–Class B | 759 | 16,584 | ||||||
Franklin Resources, Inc. | 1,147 | 127,305 | ||||||
Invesco Ltd.(c) | 3,658 | 82,671 | ||||||
Legg Mason, Inc. | 1,036 | 27,319 | ||||||
Northern Trust Corp. | 1,941 | 89,325 | ||||||
State Street Corp. | 3,942 | 175,971 | ||||||
T. Rowe Price Group Inc. | 2,058 | 129,572 | ||||||
1,127,292 | ||||||||
Auto Parts & Equipment–0.21% | ||||||||
BorgWarner, Inc.(b) | 922 | 60,474 | ||||||
Johnson Controls, Inc. | 5,467 | 151,491 | ||||||
211,965 | ||||||||
Automobile Manufacturers–0.29% | ||||||||
Ford Motor Co. | 30,801 | 295,382 | ||||||
Automotive Retail–0.22% | ||||||||
AutoNation, Inc.(b) | 350 | 12,348 | ||||||
AutoZone, Inc.(b) | 214 | 78,574 | ||||||
CarMax, Inc.(b) | 1,841 | 47,756 | ||||||
O’Reilly Automotive, Inc.(b) | 1,025 | 85,864 | ||||||
224,542 | ||||||||
Biotechnology–1.42% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 1,550 | 153,915 | ||||||
Amgen Inc. | 6,273 | 458,180 | ||||||
Biogen Idec Inc.(b) | 1,933 | 279,086 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Celgene Corp.(b) | 3,554 | $ | 228,025 | |||||
Gilead Sciences, Inc.(b) | 6,098 | 312,705 | ||||||
1,431,911 | ||||||||
Brewers–0.05% | ||||||||
Molson Coors Brewing Co.–Class B | 1,264 | 52,595 | ||||||
Broadcasting–0.32% | ||||||||
CBS Corp.–Class B | 5,226 | 171,308 | ||||||
Discovery Communications, Inc.–Class A(b) | 2,057 | 111,078 | ||||||
Scripps Networks Interactive–Class A | 747 | 42,475 | ||||||
324,861 | ||||||||
Building Products–0.04% | ||||||||
Masco Corp. | 2,872 | 39,835 | ||||||
Cable & Satellite–1.17% | ||||||||
Cablevision Systems Corp.–Class A | 1,738 | 23,098 | ||||||
Comcast Corp.–Class A | 21,714 | 694,196 | ||||||
DIRECTV–Class A(b) | 5,285 | 258,014 | ||||||
Time Warner Cable Inc. | 2,528 | 207,549 | ||||||
1,182,857 | ||||||||
Casinos & Gaming–0.10% | ||||||||
International Game Technology | 2,332 | 36,729 | ||||||
Wynn Resorts Ltd. | 639 | 66,277 | ||||||
103,006 | ||||||||
Coal & Consumable Fuels–0.12% | ||||||||
Alpha Natural Resources, Inc.(b) | 1,761 | 15,338 | ||||||
CONSOL Energy Inc. | 1,828 | 55,279 | ||||||
Peabody Energy Corp. | 2,157 | 52,890 | ||||||
123,507 | ||||||||
Commercial Printing–0.02% | ||||||||
R. R. Donnelley & Sons Co. | 1,460 | 17,184 | ||||||
Communications Equipment–1.80% | ||||||||
Cisco Systems, Inc. | 43,234 | 742,328 | ||||||
F5 Networks, Inc.(b) | 637 | 63,420 | ||||||
Harris Corp. | 916 | 38,335 | ||||||
JDS Uniphase Corp.(b) | 1,879 | 20,669 | ||||||
Juniper Networks, Inc.(b) | 4,237 | 69,105 | ||||||
Motorola Solutions, Inc. | 2,368 | 113,924 | ||||||
QUALCOMM, Inc. | 13,835 | 770,333 | ||||||
1,818,114 | ||||||||
Computer & Electronics Retail–0.07% | ||||||||
Best Buy Co., Inc. | 2,264 | 47,454 | ||||||
GameStop Corp.–Class A | 1,017 | 18,672 | ||||||
66,126 | ||||||||
Computer Hardware–4.83% | ||||||||
Apple Inc.(b) | 7,546 | 4,406,864 | ||||||
Dell Inc.(b) | 11,998 | 150,215 | ||||||
Hewlett-Packard Co. | 15,914 | 320,030 | ||||||
4,877,109 | ||||||||
Computer Storage & Peripherals–0.74% | ||||||||
EMC Corp.(b) | 16,946 | 434,326 | ||||||
Lexmark International, Inc.–Class A | 586 | 15,576 | ||||||
NetApp, Inc.(b) | 2,907 | 92,501 | ||||||
SanDisk Corp.(b) | 1,951 | 71,172 | ||||||
Seagate Technology PLC | 3,052 | 75,476 | ||||||
Western Digital Corp.(b) | 1,883 | 57,394 | ||||||
746,445 | ||||||||
Construction & Engineering–0.15% | ||||||||
Fluor Corp. | 1,360 | 67,103 | ||||||
Jacobs Engineering Group, Inc.(b) | 1,055 | 39,942 | ||||||
Quanta Services, Inc.(b) | 1,713 | 41,232 | ||||||
148,277 | ||||||||
Construction & Farm Machinery & Heavy Trucks–1.01% | ||||||||
Caterpillar Inc. | 5,264 | 446,966 | ||||||
Cummins Inc. | 1,545 | 149,726 | ||||||
Deere & Co. | 3,209 | 259,512 | ||||||
Joy Global Inc. | 852 | 48,334 | ||||||
PACCAR Inc. | 2,857 | 111,966 | ||||||
1,016,504 | ||||||||
Construction Materials–0.04% | ||||||||
Vulcan Materials Co. | 1,040 | 41,298 | ||||||
Consumer Electronics–0.02% | ||||||||
Harman International Industries, Inc. | 580 | 22,968 | ||||||
Consumer Finance–0.93% | ||||||||
American Express Co. | 8,071 | 469,813 | ||||||
Capital One Financial Corp. | 4,683 | 255,973 | ||||||
Discover Financial Services | 4,252 | 147,034 | ||||||
SLM Corp. | 3,935 | 61,819 | ||||||
934,639 | ||||||||
Data Processing & Outsourced Services–1.44% | ||||||||
Automatic Data Processing, Inc. | 3,949 | 219,801 | ||||||
Computer Sciences Corp. | 1,248 | 30,976 | ||||||
Fidelity National Information Services, Inc. | 1,926 | 65,638 | ||||||
Fiserv, Inc.(b) | 1,100 | 79,442 | ||||||
MasterCard, Inc.–Class A | 855 | 367,744 | ||||||
Paychex, Inc. | 2,596 | 81,541 | ||||||
Total System Services, Inc. | 1,288 | 30,822 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Data Processing & Outsourced Services–(continued) | ||||||||
Visa Inc.–Class A | 4,018 | $ | 496,745 | |||||
Western Union Co. (The) | 4,955 | 83,442 | ||||||
1,456,151 | ||||||||
Department Stores–0.31% | ||||||||
JC Penney Co., Inc. | 1,164 | 27,133 | ||||||
Kohl’s Corp. | 1,934 | 87,978 | ||||||
Macy’s, Inc. | 3,334 | 114,523 | ||||||
Nordstrom, Inc. | 1,287 | 63,951 | ||||||
Sears Holdings Corp.(b) | 319 | 19,044 | ||||||
312,629 | ||||||||
Distillers & Vintners–0.19% | ||||||||
Beam Inc. | 1,261 | 78,800 | ||||||
Brown-Forman Corp.–Class B | 799 | 77,383 | ||||||
Constellation Brands, Inc.–Class A(b) | 1,295 | 35,043 | ||||||
191,226 | ||||||||
Distributors–0.08% | ||||||||
Genuine Parts Co. | 1,254 | 75,553 | ||||||
Diversified Banks–1.96% | ||||||||
Comerica Inc. | 1,591 | 48,860 | ||||||
U.S. Bancorp | 15,287 | 491,630 | ||||||
Wells Fargo & Co. | 42,887 | 1,434,141 | ||||||
1,974,631 | ||||||||
Diversified Chemicals–0.92% | ||||||||
Dow Chemical Co. (The) | 9,651 | 304,006 | ||||||
E. I. du Pont de Nemours and Co. | 7,562 | 382,410 | ||||||
Eastman Chemical Co. | 1,102 | 55,508 | ||||||
FMC Corp. | 1,124 | 60,112 | ||||||
PPG Industries, Inc. | 1,223 | 129,785 | ||||||
931,821 | ||||||||
Diversified Metals & Mining–0.27% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 7,632 | 260,022 | ||||||
Titanium Metals Corp. | 705 | 7,974 | ||||||
267,996 | ||||||||
Diversified REIT’s–0.12% | ||||||||
Vornado Realty Trust | 1,490 | 125,130 | ||||||
Diversified Support Services–0.08% | ||||||||
Cintas Corp. | 905 | 34,942 | ||||||
Iron Mountain Inc. | 1,377 | 45,386 | ||||||
80,328 | ||||||||
Drug Retail–0.68% | ||||||||
CVS Caremark Corp. | 10,342 | 483,282 | ||||||
Walgreen Co. | 6,933 | 205,078 | ||||||
688,360 | ||||||||
Education Services–0.05% | ||||||||
Apollo Group, Inc.–Class A(b) | 866 | 31,340 | ||||||
DeVry, Inc. | 480 | 14,866 | ||||||
46,206 | ||||||||
Electric Utilities–2.15% | ||||||||
American Electric Power Co., Inc. | 3,908 | 155,929 | ||||||
Duke Energy Corp.(b) | 10,757 | 248,056 | ||||||
Edison International | 2,623 | 121,183 | ||||||
Entergy Corp. | 1,422 | 96,540 | ||||||
Exelon Corp. | 6,853 | 257,810 | ||||||
FirstEnergy Corp. | 3,367 | 165,623 | ||||||
NextEra Energy, Inc. | 3,351 | 230,582 | ||||||
Northeast Utilities | 2,530 | 98,189 | ||||||
Pepco Holdings, Inc. | 1,862 | 36,439 | ||||||
Pinnacle West Capital Corp. | 897 | 46,411 | ||||||
PPL Corp. | 4,657 | 129,511 | ||||||
Progress Energy, Inc. | 2,376 | 142,964 | ||||||
Southern Co. (The) | 7,010 | 324,563 | ||||||
Xcel Energy, Inc. | 3,897 | 110,714 | ||||||
2,164,514 | ||||||||
Electrical Components & Equipment–0.51% | ||||||||
Cooper Industries PLC | 1,276 | 86,998 | ||||||
Emerson Electric Co. | 5,914 | 275,474 | ||||||
Rockwell Automation, Inc. | 1,146 | 75,705 | ||||||
Roper Industries, Inc. | 780 | 76,892 | ||||||
515,069 | ||||||||
Electronic Components–0.23% | ||||||||
Amphenol Corp.–Class A | 1,315 | 72,220 | ||||||
Corning Inc. | 12,255 | 158,457 | ||||||
230,677 | ||||||||
Electronic Equipment & Instruments–0.02% | ||||||||
FLIR Systems, Inc. | 1,276 | 24,882 | ||||||
Electronic Manufacturing Services–0.16% | ||||||||
Jabil Circuit, Inc. | 1,431 | 29,092 | ||||||
Molex Inc. | 1,109 | 26,550 | ||||||
TE Connectivity Ltd. | 3,431 | 109,483 | ||||||
165,125 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Environmental & Facilities Services–0.25% | ||||||||
Republic Services, Inc. | 2,523 | $ | 66,758 | |||||
Stericycle, Inc.(b) | 682 | 62,519 | ||||||
Waste Management, Inc. | 3,714 | 124,048 | ||||||
253,325 | ||||||||
Fertilizers & Agricultural Chemicals–0.59% | ||||||||
CF Industries Holdings, Inc. | 527 | 102,101 | ||||||
Monsanto Co. | 4,310 | 356,782 | ||||||
Mosaic Co. (The) | 2,397 | 131,259 | ||||||
590,142 | ||||||||
Food Distributors–0.14% | ||||||||
Sysco Corp. | 4,707 | 140,316 | ||||||
Food Retail–0.26% | ||||||||
Kroger Co. (The) | 4,505 | 104,471 | ||||||
Safeway, Inc. | 1,935 | 35,120 | ||||||
Whole Foods Market, Inc. | 1,317 | 125,537 | ||||||
265,128 | ||||||||
Footwear–0.26% | ||||||||
NIKE, Inc.–Class B | 2,955 | 259,390 | ||||||
Gas Utilities–0.11% | ||||||||
AGL Resources Inc. | 961 | 37,239 | ||||||
ONEOK, Inc. | 1,672 | 70,742 | ||||||
107,981 | ||||||||
General Merchandise Stores–0.49% | ||||||||
Big Lots, Inc.(b) | 513 | 20,925 | ||||||
Dollar Tree, Inc.(b) | 1,870 | 100,606 | ||||||
Family Dollar Stores, Inc. | 948 | 63,023 | ||||||
Target Corp. | 5,335 | 310,444 | ||||||
494,998 | ||||||||
Gold–0.19% | ||||||||
Newmont Mining Corp. | 3,985 | 193,312 | ||||||
Health Care Distributors–0.40% | ||||||||
AmerisourceBergen Corp. | 2,023 | 79,605 | ||||||
Cardinal Health, Inc. | 2,783 | 116,886 | ||||||
McKesson Corp. | 1,899 | 178,031 | ||||||
Patterson Cos. Inc. | 704 | 24,267 | ||||||
398,789 | ||||||||
Health Care Equipment–1.73% | ||||||||
Baxter International Inc. | 4,443 | 236,145 | ||||||
Becton, Dickinson and Co. | 1,635 | 122,216 | ||||||
Boston Scientific Corp.(b) | 11,534 | 65,398 | ||||||
C.R. Bard, Inc. | 676 | 72,629 | ||||||
CareFusion Corp.(b) | 1,790 | 45,967 | ||||||
Covidien PLC | 3,891 | 208,168 | ||||||
Edwards Lifesciences Corp.(b) | 925 | 95,553 | ||||||
Intuitive Surgical, Inc.(b) | 320 | 177,213 | ||||||
Medtronic, Inc. | 8,379 | 324,519 | ||||||
St. Jude Medical, Inc. | 2,558 | 102,090 | ||||||
Stryker Corp. | 2,607 | 143,646 | ||||||
Varian Medical Systems, Inc.(b) | 909 | 55,240 | ||||||
Zimmer Holdings, Inc. | 1,434 | 92,292 | ||||||
1,741,076 | ||||||||
Health Care Facilities–0.02% | ||||||||
Tenet Healthcare Corp.(b) | 3,300 | 17,292 | ||||||
Health Care Services–0.58% | ||||||||
DaVita, Inc.(b) | 754 | 74,050 | ||||||
Express Scripts Holding Co.(b) | 6,500 | 362,895 | ||||||
Laboratory Corp. of America Holdings(b) | 782 | 72,421 | ||||||
Quest Diagnostics Inc. | 1,274 | 76,313 | ||||||
585,679 | ||||||||
Health Care Supplies–0.04% | ||||||||
DENTSPLY International Inc. | 1,166 | 44,086 | ||||||
Health Care Technology–0.10% | ||||||||
Cerner Corp.(b) | 1,174 | 97,043 | ||||||
Home Entertainment Software–0.03% | ||||||||
Electronic Arts Inc.(b) | 2,539 | 31,357 | ||||||
Home Furnishings–0.02% | ||||||||
Leggett & Platt, Inc. | 1,165 | 24,616 | ||||||
Home Improvement Retail–0.92% | ||||||||
Home Depot, Inc. (The) | 12,353 | 654,586 | ||||||
Lowe’s Cos., Inc. | 9,496 | 270,066 | ||||||
924,652 | ||||||||
Homebuilding–0.11% | ||||||||
D.R. Horton, Inc. | 2,290 | 42,090 | ||||||
Lennar Corp.–Class A | 1,339 | 41,389 | ||||||
PulteGroup Inc.(b) | 2,710 | 28,997 | ||||||
112,476 | ||||||||
Homefurnishing Retail–0.12% | ||||||||
Bed Bath & Beyond Inc.(b) | 1,876 | 115,937 | ||||||
Hotels, Resorts & Cruise Lines–0.35% | ||||||||
Carnival Corp. | 3,646 | 124,948 | ||||||
Marriott International Inc.–Class A | 2,150 | 84,280 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,578 | $ | 83,697 | |||||
Wyndham Worldwide Corp. | 1,175 | 61,970 | ||||||
354,895 | ||||||||
Household Appliances–0.04% | ||||||||
Whirlpool Corp. | 628 | 38,408 | ||||||
Household Products–2.08% | ||||||||
Clorox Co. (The) | 1,045 | 75,721 | ||||||
Colgate-Palmolive Co. | 3,861 | 401,930 | ||||||
Kimberly-Clark Corp. | 3,169 | 265,467 | ||||||
Procter & Gamble Co. (The) | 22,115 | 1,354,544 | ||||||
2,097,662 | ||||||||
Housewares & Specialties–0.04% | ||||||||
Newell Rubbermaid, Inc. | 2,387 | 43,300 | ||||||
Human Resource & Employment Services–0.03% | ||||||||
Robert Half International, Inc. | 1,144 | 32,684 | ||||||
Hypermarkets & Super Centers–1.29% | ||||||||
Costco Wholesale Corp. | 3,489 | 331,455 | ||||||
Wal-Mart Stores, Inc. | 13,926 | 970,921 | ||||||
1,302,376 | ||||||||
Independent Power Producers & Energy Traders–0.10% | ||||||||
AES Corp. (The)(b) | 5,169 | 66,318 | ||||||
NRG Energy, Inc.(b) | 1,791 | 31,092 | ||||||
97,410 | ||||||||
Industrial Conglomerates–2.70% | ||||||||
3M Co. | 5,592 | 501,043 | ||||||
Danaher Corp. | 4,640 | 241,651 | ||||||
General Electric Co.(d) | 85,513 | 1,782,091 | ||||||
Tyco International Ltd. | 3,735 | 197,395 | ||||||
2,722,180 | ||||||||
Industrial Gases–0.44% | ||||||||
Air Products & Chemicals, Inc. | 1,695 | 136,837 | ||||||
Airgas, Inc. | 563 | 47,298 | ||||||
Praxair, Inc. | 2,402 | 261,169 | ||||||
445,304 | ||||||||
Industrial Machinery–0.83% | ||||||||
Dover Corp. | 1,478 | 79,236 | ||||||
Eaton Corp. | 2,724 | 107,952 | ||||||
Flowserve Corp. | 438 | 50,261 | ||||||
Illinois Tool Works Inc. | 3,852 | 203,732 | ||||||
Ingersoll-Rand PLC | 2,394 | 100,979 | ||||||
Pall Corp. | 929 | 50,918 | ||||||
Parker Hannifin Corp. | 1,214 | 93,332 | ||||||
Snap-on Inc. | 470 | 29,258 | ||||||
Stanley Black & Decker Inc. | 1,365 | 87,851 | ||||||
Xylem, Inc. | 1,487 | 37,428 | ||||||
840,947 | ||||||||
Industrial REIT’s–0.12% | ||||||||
Prologis, Inc. | 3,715 | 123,449 | ||||||
Insurance Brokers–0.26% | ||||||||
Aon PLC | 2,618 | 122,470 | ||||||
Marsh & McLennan Cos., Inc. | 4,403 | 141,909 | ||||||
264,379 | ||||||||
Integrated Oil & Gas–5.60% | ||||||||
Chevron Corp. | 15,930 | 1,680,615 | ||||||
Exxon Mobil Corp. | 37,740 | 3,229,412 | ||||||
Hess Corp. | 2,436 | 105,844 | ||||||
Murphy Oil Corp. | 1,560 | 78,452 | ||||||
Occidental Petroleum Corp. | 6,531 | 560,164 | ||||||
5,654,487 | ||||||||
Integrated Telecommunication Services–2.95% | ||||||||
AT&T Inc. | 47,319 | 1,687,395 | ||||||
CenturyLink Inc. | 4,989 | 197,016 | ||||||
Frontier Communications Corp. | 8,012 | 30,686 | ||||||
Verizon Communications Inc. | 22,949 | 1,019,854 | ||||||
Windstream Corp. | 4,722 | 45,614 | ||||||
2,980,565 | ||||||||
Internet Retail–1.02% | ||||||||
Amazon.com, Inc.(b) | 2,908 | 664,042 | ||||||
Expedia, Inc. | 727 | 34,947 | ||||||
Netflix Inc.(b) | 458 | 31,359 | ||||||
Priceline.com Inc.(b) | 400 | 265,808 | ||||||
TripAdvisor Inc.(b) | 777 | 34,724 | ||||||
1,030,880 | ||||||||
Internet Software & Services–1.82% | ||||||||
Akamai Technologies, Inc.(b) | 1,459 | 46,323 | ||||||
eBay Inc.(b) | 9,274 | 389,601 | ||||||
Google Inc.–Class A(b) | 2,052 | 1,190,304 | ||||||
VeriSign, Inc.(b) | 1,284 | 55,944 | ||||||
Yahoo! Inc.(b) | 9,880 | 156,400 | ||||||
1,838,572 | ||||||||
Investment Banking & Brokerage–0.68% | ||||||||
Charles Schwab Corp. (The) | 8,701 | 112,504 | ||||||
E*TRADE Financial Corp.(b) | 2,088 | 16,788 | ||||||
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 | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Goldman Sachs Group, Inc. (The) | 3,969 | $ | 380,468 | |||||
Morgan Stanley | 12,268 | 178,990 | ||||||
688,750 | ||||||||
IT Consulting & Other Services–2.38% | ||||||||
Accenture PLC–Class A | 5,211 | 313,129 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 2,442 | 146,520 | ||||||
International Business Machines Corp. | 9,309 | 1,820,654 | ||||||
SAIC, Inc. | 2,264 | 27,440 | ||||||
Teradata Corp.(b) | 1,347 | 96,997 | ||||||
2,404,740 | ||||||||
Leisure Products–0.12% | ||||||||
Hasbro, Inc. | 950 | 32,176 | ||||||
Mattel, Inc. | 2,729 | 88,529 | ||||||
120,705 | ||||||||
Life & Health Insurance–0.80% | ||||||||
Aflac, Inc. | 3,760 | 160,138 | ||||||
Lincoln National Corp. | 2,325 | 50,848 | ||||||
MetLife, Inc. | 8,538 | 263,397 | ||||||
Principal Financial Group, Inc. | 2,397 | 62,873 | ||||||
Prudential Financial, Inc. | 3,784 | 183,259 | ||||||
Torchmark Corp. | 794 | 40,137 | ||||||
Unum Group | 2,307 | 44,133 | ||||||
804,785 | ||||||||
Life Sciences Tools & Services–0.40% | ||||||||
Agilent Technologies, Inc. | 2,798 | 109,793 | ||||||
Life Technologies Corp.(b) | 1,435 | 64,561 | ||||||
PerkinElmer, Inc. | 913 | 23,555 | ||||||
Thermo Fisher Scientific, Inc. | 2,945 | 152,875 | ||||||
Waters Corp.(b) | 717 | 56,980 | ||||||
407,764 | ||||||||
Managed Health Care–1.00% | ||||||||
Aetna Inc. | 2,821 | 109,370 | ||||||
Cigna Corp. | 2,306 | 101,464 | ||||||
Coventry Health Care, Inc. | 1,136 | 36,113 | ||||||
Humana Inc. | 1,320 | 102,221 | ||||||
UnitedHealth Group Inc. | 8,372 | 489,762 | ||||||
WellPoint, Inc. | 2,669 | 170,256 | ||||||
1,009,186 | ||||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp. | 1,256 | 51,559 | ||||||
Owens-Illinois, Inc.(b) | 1,368 | 26,224 | ||||||
77,783 | ||||||||
Motorcycle Manufacturers–0.08% | ||||||||
Harley-Davidson, Inc. | 1,868 | 85,424 | ||||||
Movies & Entertainment–1.56% | ||||||||
News Corp.–Class A | 17,003 | 378,997 | ||||||
Time Warner Inc. | 7,747 | 298,260 | ||||||
Viacom Inc.��Class B | 4,236 | 199,177 | ||||||
Walt Disney Co. (The) | 14,433 | 700,000 | ||||||
1,576,434 | ||||||||
Multi-Line Insurance–0.37% | ||||||||
American International Group, Inc.(b) | 5,161 | 165,616 | ||||||
Assurant, Inc. | 691 | 24,074 | ||||||
Genworth Financial Inc.–Class A(b) | 3,956 | 22,391 | ||||||
Hartford Financial Services Group, Inc. | 3,544 | 62,481 | ||||||
Loews Corp. | 2,459 | 100,598 | ||||||
375,160 | ||||||||
Multi-Sector Holdings–0.03% | ||||||||
Leucadia National Corp. | 1,560 | 33,181 | ||||||
Multi-Utilities–1.32% | ||||||||
Ameren Corp. | 1,957 | 65,638 | ||||||
CenterPoint Energy, Inc. | 3,488 | 72,097 | ||||||
CMS Energy Corp. | 2,142 | 50,337 | ||||||
Consolidated Edison, Inc. | 2,358 | 146,644 | ||||||
Dominion Resources, Inc. | 4,612 | 249,048 | ||||||
DTE Energy Co. | 1,363 | 80,867 | ||||||
Integrys Energy Group, Inc. | 630 | 35,828 | ||||||
NiSource Inc. | 2,299 | 56,900 | ||||||
PG&E Corp. | 3,419 | 154,778 | ||||||
Public Service Enterprise Group Inc. | 4,055 | 131,787 | ||||||
SCANA Corp. | 952 | 45,544 | ||||||
Sempra Energy | 1,937 | 133,421 | ||||||
TECO Energy, Inc. | 1,747 | 31,551 | ||||||
Wisconsin Energy Corp. | 1,855 | 73,402 | ||||||
1,327,842 | ||||||||
Office Electronics–0.09% | ||||||||
Xerox Corp. | 10,877 | 85,602 | ||||||
Office REIT’s–0.13% | ||||||||
Boston Properties, Inc. | 1,208 | 130,911 | ||||||
Office Services & Supplies–0.05% | ||||||||
Avery Dennison Corp. | 856 | 23,403 | ||||||
Pitney Bowes Inc. | 1,575 | 23,578 | ||||||
46,981 | ||||||||
Oil & Gas Drilling–0.20% | ||||||||
Diamond Offshore Drilling, Inc. | 570 | 33,704 | ||||||
Helmerich & Payne, Inc. | 881 | 38,306 | ||||||
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) | ||||||||
Nabors Industries Ltd.(b) | 2,332 | $ | 33,581 | |||||
Noble Corp.(b) | 2,030 | 66,036 | ||||||
Rowan Cos. PLC–Class A(b) | 994 | 32,136 | ||||||
203,763 | ||||||||
Oil & Gas Equipment & Services–1.42% | ||||||||
Baker Hughes Inc. | 3,523 | 144,795 | ||||||
Cameron International Corp.(b) | 1,982 | 84,651 | ||||||
FMC Technologies, Inc.(b) | 1,924 | 75,479 | ||||||
Halliburton Co. | 7,432 | 210,995 | ||||||
National Oilwell Varco Inc. | 3,439 | 221,609 | ||||||
Schlumberger Ltd. | 10,762 | 698,561 | ||||||
1,436,090 | ||||||||
Oil & Gas Exploration & Production–2.38% | ||||||||
Anadarko Petroleum Corp. | 4,031 | 266,852 | ||||||
Apache Corp. | 3,154 | 277,205 | ||||||
Cabot Oil & Gas Corp. | 1,689 | 66,547 | ||||||
Chesapeake Energy Corp. | 5,334 | 99,212 | ||||||
ConocoPhillips | 10,205 | 570,256 | ||||||
Denbury Resources Inc.(b) | 3,171 | 47,914 | ||||||
Devon Energy Corp. | 3,253 | 188,642 | ||||||
EOG Resources, Inc. | 2,166 | 195,178 | ||||||
EQT Corp. | 1,203 | 64,517 | ||||||
Marathon Oil Corp. | 5,661 | 144,752 | ||||||
Newfield Exploration Co.(b) | 1,088 | 31,889 | ||||||
Noble Energy, Inc. | 1,424 | 120,784 | ||||||
Pioneer Natural Resources Co. | 992 | 87,504 | ||||||
QEP Resources Inc. | 1,457 | 43,666 | ||||||
Range Resources Corp. | 1,308 | 80,926 | ||||||
Southwestern Energy Co.(b) | 2,795 | 89,244 | ||||||
WPX Energy Inc.(b) | 1,639 | 26,519 | ||||||
2,401,607 | ||||||||
Oil & Gas Refining & Marketing–0.46% | ||||||||
Marathon Petroleum Corp. | 2,749 | 123,485 | ||||||
Phillips 66(b) | 5,046 | 167,729 | ||||||
Sunoco, Inc. | 860 | 40,850 | ||||||
Tesoro Corp.(b) | 1,131 | 28,230 | ||||||
Valero Energy Corp. | 4,428 | 106,936 | ||||||
467,230 | ||||||||
Oil & Gas Storage & Transportation–0.43% | ||||||||
Kinder Morgan Inc. | 4,062 | 130,878 | ||||||
Spectra Energy Corp. | 5,267 | 153,059 | ||||||
Williams Cos., Inc. (The) | 5,038 | 145,195 | ||||||
429,132 | ||||||||
Other Diversified Financial Services–2.44% | ||||||||
Bank of America Corp. | 86,977 | 711,472 | ||||||
Citigroup Inc. | 23,700 | 649,617 | ||||||
JPMorgan Chase & Co. | 30,740 | 1,098,340 | ||||||
2,459,429 | ||||||||
Packaged Foods & Meats–1.57% | ||||||||
Campbell Soup Co. | 1,437 | 47,967 | ||||||
ConAgra Foods, Inc. | 3,389 | 87,877 | ||||||
Dean Foods Co.(b) | 1,467 | 24,983 | ||||||
General Mills, Inc. | 5,223 | 201,294 | ||||||
H.J. Heinz Co. | 2,575 | 140,029 | ||||||
Hershey Co. (The) | 1,234 | 88,885 | ||||||
Hormel Foods Corp. | 1,127 | 34,283 | ||||||
JM Smucker Co. (The) | 912 | 68,874 | ||||||
Kellogg Co. | 1,984 | 97,871 | ||||||
Kraft Foods Inc.–Class A | 14,308 | 552,575 | ||||||
McCormick & Co., Inc. | 1,071 | 64,956 | ||||||
Mead Johnson Nutrition Co. | 1,639 | 131,956 | ||||||
Tyson Foods, Inc.–Class A | 2,283 | 42,989 | ||||||
1,584,539 | ||||||||
Paper Packaging–0.05% | ||||||||
Bemis Co., Inc. | 853 | 26,733 | ||||||
Sealed Air Corp. | 1,561 | 24,102 | ||||||
50,835 | ||||||||
Paper Products–0.14% | ||||||||
International Paper Co. | 3,527 | 101,966 | ||||||
MeadWestvaco Corp. | 1,376 | 39,560 | ||||||
141,526 | ||||||||
Personal Products–0.15% | ||||||||
Avon Products, Inc. | 3,530 | 57,221 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,810 | 97,957 | ||||||
155,178 | ||||||||
Pharmaceuticals–6.11% | ||||||||
Abbott Laboratories | 12,698 | 818,640 | ||||||
Allergan, Inc. | 2,481 | 229,666 | ||||||
Bristol-Myers Squibb Co. | 13,632 | 490,070 | ||||||
Eli Lilly & Co. | 8,222 | 352,806 | ||||||
Forest Laboratories, Inc.(b) | 2,137 | 74,774 | ||||||
Hospira, Inc.(b) | 1,326 | 46,384 | ||||||
Johnson & Johnson | 22,165 | 1,497,467 | ||||||
Merck & Co., Inc. | 24,513 | 1,023,418 | ||||||
Mylan Inc.(b) | 3,437 | 73,449 | ||||||
Perrigo Co. | 751 | 88,565 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer Inc. | 60,435 | $ | 1,390,005 | |||||
Watson Pharmaceuticals, Inc.(b) | 1,023 | 75,692 | ||||||
6,160,936 | ||||||||
Property & Casualty Insurance–2.07% | ||||||||
ACE Ltd. | 2,732 | 202,523 | ||||||
Allstate Corp. (The) | 3,992 | 140,079 | ||||||
Berkshire Hathaway Inc.–Class B(b) | 14,192 | 1,182,619 | ||||||
Chubb Corp. (The) | 2,182 | 158,893 | ||||||
Cincinnati Financial Corp. | 1,306 | 49,720 | ||||||
Progressive Corp. (The) | 4,924 | 102,567 | ||||||
Travelers Cos., Inc. (The) | 3,139 | 200,394 | ||||||
XL Group PLC | 2,505 | 52,705 | ||||||
2,089,500 | ||||||||
Publishing–0.14% | ||||||||
Gannett Co., Inc. | 1,937 | 28,532 | ||||||
McGraw-Hill Cos., Inc. (The) | 2,238 | 100,710 | ||||||
Washington Post Co. (The)–Class B | 40 | 14,953 | ||||||
144,195 | ||||||||
Railroads–0.83% | ||||||||
CSX Corp. | 8,373 | 187,220 | ||||||
Norfolk Southern Corp. | 2,628 | 188,612 | ||||||
Union Pacific Corp. | 3,842 | 458,389 | ||||||
834,221 | ||||||||
Real Estate Services–0.04% | ||||||||
CBRE Group, Inc.–Class A(b) | 2,676 | 43,779 | ||||||
Regional Banks–0.94% | ||||||||
BB&T Corp. | 5,606 | 172,945 | ||||||
Fifth Third Bancorp | 7,407 | 99,254 | ||||||
First Horizon National Corp. | 2,026 | 17,525 | ||||||
Huntington Bancshares Inc. | 6,960 | 44,544 | ||||||
KeyCorp | 7,673 | 59,389 | ||||||
M&T Bank Corp. | 1,017 | 83,974 | ||||||
PNC Financial Services Group, Inc. | 4,266 | 260,695 | ||||||
Regions Financial Corp. | 11,378 | 76,801 | ||||||
SunTrust Banks, Inc. | 4,386 | 106,273 | ||||||
Zions Bancorp. | 1,462 | 28,392 | ||||||
949,792 | ||||||||
Research & Consulting Services–0.07% | ||||||||
Dun & Bradstreet Corp. (The) | 384 | 27,329 | ||||||
Equifax Inc. | 984 | 45,855 | ||||||
73,184 | ||||||||
Residential REIT’s–0.29% | ||||||||
Apartment Investment & Management Co.–Class A | 1,094 | 29,571 | ||||||
AvalonBay Communities, Inc. | 766 | 108,374 | ||||||
Equity Residential | 2,417 | 150,724 | ||||||
288,669 | ||||||||
Restaurants–1.43% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 255 | 96,887 | ||||||
Darden Restaurants, Inc. | 1,034 | 52,351 | ||||||
McDonald’s Corp. | 8,201 | 726,035 | ||||||
Starbucks Corp. | 6,121 | 326,372 | ||||||
Yum! Brands, Inc. | 3,706 | 238,740 | ||||||
1,440,385 | ||||||||
Retail REIT’s–0.44% | ||||||||
Kimco Realty Corp. | 3,276 | 62,342 | ||||||
Simon Property Group, Inc. | 2,445 | 380,589 | ||||||
442,931 | ||||||||
Semiconductor Equipment–0.26% | ||||||||
Applied Materials, Inc. | 10,297 | 118,004 | ||||||
KLA-Tencor Corp. | 1,342 | 66,093 | ||||||
Lam Research Corp.(b) | 1,605 | 60,573 | ||||||
Teradyne, Inc.(b) | 1,548 | 21,765 | ||||||
266,435 | ||||||||
Semiconductors–2.01% | ||||||||
Advanced Micro Devices, Inc.(b) | 4,724 | 27,068 | ||||||
Altera Corp. | 2,574 | 87,104 | ||||||
Analog Devices, Inc. | 2,397 | 90,295 | ||||||
Broadcom Corp.–Class A(b) | 4,030 | 136,214 | ||||||
First Solar, Inc.(b) | 499 | 7,515 | ||||||
Intel Corp. | 40,604 | 1,082,097 | ||||||
Linear Technology Corp. | 1,843 | 57,741 | ||||||
LSI Corp.(b) | 4,639 | 29,550 | ||||||
Microchip Technology Inc. | 1,546 | 51,142 | ||||||
Micron Technology, Inc.(b) | 7,954 | 50,190 | ||||||
NVIDIA Corp.(b) | 4,993 | 69,003 | ||||||
Texas Instruments Inc. | 9,220 | 264,522 | ||||||
Xilinx, Inc. | 2,108 | 70,766 | ||||||
2,023,207 | ||||||||
Soft Drinks–2.52% | ||||||||
Coca-Cola Co. (The) | 18,207 | 1,423,605 | ||||||
Coca-Cola Enterprises, Inc. | 2,400 | 67,296 | ||||||
Dr. Pepper Snapple Group, Inc. | 1,707 | 74,681 | ||||||
Monster Beverage Corp.(b) | 1,236 | 88,003 | ||||||
PepsiCo, Inc. | 12,622 | 891,871 | ||||||
2,545,456 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Specialized Consumer Services–0.04% | ||||||||
H&R Block, Inc. | 2,390 | $ | 38,192 | |||||
Specialized Finance–0.35% | ||||||||
CME Group Inc. | 534 | 143,171 | ||||||
IntercontinentalExchange Inc.(b) | 584 | 79,412 | ||||||
Moody’s Corp. | 1,579 | 57,712 | ||||||
NASDAQ OMX Group, Inc. (The) | 962 | 21,809 | ||||||
NYSE Euronext | 2,079 | 53,181 | ||||||
355,285 | ||||||||
Specialized REIT’s–1.01% | ||||||||
American Tower Corp. | 3,169 | 221,545 | ||||||
HCP, Inc. | 3,399 | 150,066 | ||||||
Health Care REIT, Inc. | 1,725 | 100,567 | ||||||
Host Hotels & Resorts Inc. | 5,797 | 91,709 | ||||||
Plum Creek Timber Co., Inc. | 1,299 | 51,570 | ||||||
Public Storage | 1,144 | 165,205 | ||||||
Ventas, Inc. | 2,326 | 146,817 | ||||||
Weyerhaeuser Co. | 4,319 | 96,573 | ||||||
1,024,052 | ||||||||
Specialty Chemicals–0.36% | ||||||||
Ecolab Inc. | 2,345 | 160,703 | ||||||
International Flavors & Fragrances Inc. | 664 | 36,387 | ||||||
Sherwin-Williams Co. (The) | 696 | 92,116 | ||||||
Sigma-Aldrich Corp. | 972 | 71,860 | ||||||
361,066 | ||||||||
Specialty Stores–0.13% | ||||||||
Staples, Inc. | 5,589 | 72,936 | ||||||
Tiffany & Co. | 1,022 | 54,115 | ||||||
127,051 | ||||||||
Steel–0.20% | ||||||||
Allegheny Technologies, Inc. | 876 | 27,936 | ||||||
Cliffs Natural Resources Inc. | 1,143 | 56,338 | ||||||
Nucor Corp. | 2,551 | 96,683 | ||||||
United States Steel Corp. | 1,182 | 24,349 | ||||||
205,306 | ||||||||
Systems Software–3.05% | ||||||||
BMC Software, Inc.(b) | 1,322 | 56,423 | ||||||
CA, Inc. | 2,832 | 76,719 | ||||||
Microsoft Corp. | 60,344 | 1,845,923 | ||||||
Oracle Corp. | 31,319 | 930,174 | ||||||
Red Hat, Inc.(b) | 1,555 | 87,826 | ||||||
Symantec Corp.(b) | 5,773 | 84,344 | ||||||
3,081,409 | ||||||||
Thrifts & Mortgage Finance–0.06% | ||||||||
Hudson City Bancorp, Inc. | 4,230 | 26,945 | ||||||
People’s United Financial Inc. | 2,891 | 33,565 | ||||||
60,510 | ||||||||
Tires & Rubber–0.02% | ||||||||
Goodyear Tire & Rubber Co. (The)(b) | 1,993 | 23,537 | ||||||
Tobacco–2.01% | ||||||||
Altria Group, Inc. | 16,422 | 567,380 | ||||||
Lorillard, Inc. | 1,052 | 138,812 | ||||||
Philip Morris International Inc. | 13,765 | 1,201,134 | ||||||
Reynolds American Inc. | 2,668 | 119,713 | ||||||
2,027,039 | ||||||||
Trading Companies & Distributors–0.19% | ||||||||
Fastenal Co. | 2,377 | 95,817 | ||||||
W.W. Grainger, Inc. | 491 | 93,899 | ||||||
189,716 | ||||||||
Trucking–0.01% | ||||||||
Ryder System, Inc. | 411 | 14,800 | ||||||
Wireless Telecommunication Services–0.21% | ||||||||
Crown Castle International Corp.(b) | 2,080 | 122,013 | ||||||
MetroPCS Communications, Inc.(b) | 2,382 | 14,411 | ||||||
Sprint Nextel Corp.(b) | 24,137 | 78,686 | ||||||
215,110 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $57,314,621) | 99,305,539 | |||||||
Money Market Funds–1.63% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 823,808 | 823,808 | ||||||
Premier Portfolio–Institutional Class(e) | 823,808 | 823,808 | ||||||
Total Money Market Funds (Cost $1,647,616) | 1,647,616 | |||||||
TOTAL INVESTMENTS–100.03% (Cost $58,962,237) | 100,953,155 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.03)% | (33,919 | ) | ||||||
NET ASSETS–100.00% | $ | 100,919,236 | ||||||
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Affiliated company during the period. The Investment Company Act of 1940 defines affiliates as those issuances in which a fund holds 5% or more of the outstanding voting securities. The Fund has not owned enough of the outstanding voting securities of the issuer to have control (as defined in the Investment Company Act of 1940) of that issuer. The value of this security as of June 30, 2012 represented less than 1% of the Fund’s Net Assets. See Note 4. | |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 5. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Information Technology | 19.5 | % | ||
Financials | 14.1 | |||
Health Care | 11.8 | |||
Consumer Staples | 11.1 | |||
Consumer Discretionary | 10.8 | |||
Energy | 10.6 | |||
Industrials | 10.2 | |||
Utilities | 3.7 | |||
Materials | 3.4 | |||
Telecommunication Services | 3.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.6 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $57,223,317) | $ | 99,222,868 | ||
Investments in affiliates, at value (Cost $1,738,920) | 1,730,287 | |||
Total investments, at value (Cost $58,962,237) | 100,953,155 | |||
Receivable for: | ||||
Investments sold | 88,156 | |||
Variation margin | 49,890 | |||
Dividends | 129,398 | |||
Fund expenses absorbed | 6,520 | |||
Investment for trustee deferred compensation and retirement plans | 6,067 | |||
Other assets | 8,370 | |||
Total assets | 101,241,556 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 160,263 | |||
Fund shares reacquired | 32,689 | |||
Amount due custodian | 14,293 | |||
Accrued fees to affiliates | 68,412 | |||
Accrued other operating expenses | 30,625 | |||
Trustee deferred compensation and retirement plans | 16,038 | |||
Total liabilities | 322,320 | |||
Net assets applicable to shares outstanding | $ | 100,919,236 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 73,206,268 | ||
Undistributed net investment income | 2,746,895 | |||
Undistributed net realized gain (loss) | (17,118,665 | ) | ||
Unrealized appreciation | 42,084,738 | |||
$ | 100,919,236 | |||
Net Assets: | ||||
Series I | $ | 34,192,918 | ||
Series II | $ | 66,726,318 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 2,750,132 | |||
Series II | 5,402,632 | |||
Series I: | ||||
Net asset value per share | $ | 12.43 | ||
Series II: | ||||
Net asset value per share | $ | 12.35 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 1,097,477 | ||
Dividends from affiliates | 1,847 | |||
Total investment income | 1,099,324 | |||
Expenses: | ||||
Advisory fees | 61,572 | |||
Administrative services fees | 78,029 | |||
Custodian fees | 16,737 | |||
Distribution fees — Series II | 85,293 | |||
Transfer agent fees | 1,548 | |||
Trustees’ and officers’ fees and benefits | 12,914 | |||
Professional services fees | 15,563 | |||
Other | 17,499 | |||
Total expenses | 289,155 | |||
Less: Fees waived | (60,402 | ) | ||
Net expenses | 228,753 | |||
Net investment income | 870,571 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 2,993,615 | |||
Futures contracts | 40,725 | |||
3,034,340 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 5,213,489 | |||
Futures contracts | 93,374 | |||
5,306,863 | ||||
Net realized and unrealized gain | 8,341,203 | |||
Net increase in net assets resulting from operations | $ | 9,211,774 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 870,571 | $ | 1,886,550 | ||||
Net realized gain | 3,034,340 | 5,411,297 | ||||||
Change in net unrealized appreciation (depreciation) | 5,306,863 | (5,214,410 | ) | |||||
Net increase in net assets resulting from operations | 9,211,774 | 2,083,437 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (682,191 | ) | |||||
Series II | — | (1,324,615 | ) | |||||
Total distributions from net investment income | — | (2,006,806 | ) | |||||
Share transactions–net: | ||||||||
Series I | (1,762,284 | ) | (4,815,112 | ) | ||||
Series II | (6,796,712 | ) | (21,052,946 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (8,558,996 | ) | (25,868,058 | ) | ||||
Net increase (decrease) in net assets | 652,778 | (25,791,427 | ) | |||||
Net assets: | ||||||||
Beginning of period | 100,266,458 | 126,057,885 | ||||||
End of period (includes undistributed net investment income of $2,746,895 and $1,876,324, respectively) | $ | 100,919,236 | $ | 100,266,458 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s 500® Composite Stock Price Index.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco V.I. S&P 500 Index Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. |
Invesco V.I. S&P 500 Index Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
J. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $2 billion | 0 | .12% | ||
Over $2 billion | 0 | .10% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.28% and Series II shares to 0.53% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $60,402.
Invesco V.I. S&P 500 Index Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2012, Invesco was paid $24,864 for accounting and fund administrative services and reimbursed $53,165 for services provided by insurance companies.
Also, Invesco has entered into service agreements whereby State Street Bank and Trust Company (“SSB”) serves as the custodian, fund accountant and provides certain administrative services to the Fund.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 100,953,155 | $ | — | $ | — | $ | 100,953,155 | ||||||||
Futures* | 93,820 | — | — | 93,820 | ||||||||||||
Total Investments | $ | 101,046,975 | $ | — | $ | — | $ | 101,046,975 | ||||||||
* | Unrealized appreciation. |
NOTE 4—Investments in Affiliates
The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. The following is a summary of the transactions in and earnings from investments in Invesco Ltd. for the six months ended June 30, 2012.
Change in | ||||||||||||||||||||||||||||
Value | Purchases | Proceeds | Unrealized | Realized | Value | Dividend | ||||||||||||||||||||||
12/31/11 | at Cost | from Sales | Appreciation | Gain (Loss) | 06/30/12 | Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 81,023 | $ | 2,247 | $ | (10,822 | ) | $ | 11,680 | $ | (1,457 | ) | $ | 82,671 | $ | 1,097 | ||||||||||||
Invesco V.I. S&P 500 Index Fund
NOTE 5—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 93,820 | $ | — | ||||
(a) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on | ||||
Statement of Operations | ||||
Futures* | ||||
Realized Gain | ||||
Interest rate risk | $ | 40,725 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | 93,374 | |||
Total | $ | 134,099 | ||
* | The average notional value of futures outstanding during the period was $1,395,860. |
Open Futures Contracts | ||||||||||||||||
Number of | Expiration | Notional | Unrealized | |||||||||||||
Long Contracts | Contracts | Month | Value | Appreciation | ||||||||||||
E-Mini S&P 500 Index | 25 | September-2012 | $ | 1,695,500 | $ | 93,820 | ||||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. S&P 500 Index Fund
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2013 | $ | 7,984,682 | $ | — | $ | 7,984,682 | ||||||
December 31, 2014 | 5,449,556 | — | 5,449,556 | |||||||||
December 31, 2017 | 1,381,293 | — | 1,381,293 | |||||||||
$ | 14,815,531 | $ | — | $ | 14,815,531 | |||||||
* | 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, 2012 was $1,570,012 and $11,224,176, 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 | $ | 41,385,314 | ||
Aggregate unrealized (depreciation) of investment securities | (4,705,349 | ) | ||
Net unrealized appreciation of investment securities | $ | 36,679,965 | ||
Cost of investments for tax purposes is $64,273,190. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 73,777 | $ | 899,086 | 95,570 | $ | 1,079,344 | ||||||||||
Series II | 66,012 | 789,980 | 170,970 | 1,951,516 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 66,816 | 682,191 | ||||||||||||
Series II | — | — | 130,376 | 1,324,615 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (217,529 | ) | (2,661,370 | ) | (566,020 | ) | (6,576,647 | ) | ||||||||
Series II | (624,437 | ) | (7,586,692 | ) | (2,129,902 | ) | (24,329,077 | ) | ||||||||
Net increase (decrease) in share activity | (702,177 | ) | $ | (8,558,996 | ) | (2,232,190 | ) | $ | (25,868,058 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 91% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 11.36 | $ | 0.11 | $ | 0.96 | $ | 1.07 | $ | — | $ | 12.43 | 9.42 | % | $ | 34,193 | 0.28 | %(d) | 0.40 | %(d) | 1.86 | %(d) | 2 | % | ||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.02 | 0.23 | 0.45 | 0.68 | (0.24 | ) | 13.46 | 5.23 | 66,275 | 0.27 | 0.27 | 1.71 | 3 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 11.30 | 0.10 | 0.95 | 1.05 | — | 12.35 | 9.29 | 66,726 | 0.53 | (d) | 0.65 | (d) | 1.61 | (d) | 2 | |||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||
Year ended 12/31/07 | 12.92 | 0.20 | 0.45 | 0.65 | (0.21 | ) | 13.36 | 5.00 | 152,984 | 0.52 | 0.52 | 1.46 | 3 | |||||||||||||||||||||||||||||||||||
(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 $34,574 and $68,609 for Series I and Series II shares, respectively. | |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in an affiliate during the period. The effect of the rebate on the ratios is less than 0.005%. |
Invesco V.I. S&P 500 Index Fund
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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,4 | (06/30/12) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,093.20 | $ | 1.46 | $ | 1,023.47 | $ | 1.41 | 0.28 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,092.90 | 2.76 | 1,022.23 | 2.66 | 0.53 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
3 | Effective July 1, 2012, 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 2.00% and 2.25% 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 0.40% and 0.65% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $2.08 and $3.38 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $2.01 and $3.27 for Series I and Series II shares, respectively. |
Invesco V.I. S&P 500 Index Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. S&P 500 Index Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and
Invesco V.I. S&P 500 Index Fund
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 – S&P 500 Objective Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was the same as the rate of the other mutual Fund managed by Invesco Advisers in a manner comparable to the Fund.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Small Cap Equity Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund's semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund's Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies ("variable products") that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VISCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.57 | % | ||
Series II Shares | 4.47 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 2000 Index▼ (Style-Specific Index) | 8.53 | |||
Lipper VUF Small-Cap Core Funds Index▼ (Peer Group Index) | 7.00 | |||
Source(s): ▼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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (8/29/03) | 7.21 | % | ||||||
5 | Years | 1.42 | ||||||
1 | Year | -6.02 | ||||||
Series II Shares | ||||||||
Inception (8/29/03) | 6.97 | % | ||||||
5 | Years | 1.18 | ||||||
1 | Year | -6.24 |
The performance of the Fund's Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.06% and 1.31%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Small Cap Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.57% | ||||||||
Advertising–1.08% | ||||||||
Interpublic Group of Cos., Inc. (The) | 273,297 | $ | 2,965,272 | |||||
Aerospace & Defense–1.82% | ||||||||
Aerovironment Inc.(b) | 90,731 | 2,387,133 | ||||||
Triumph Group, Inc. | 46,533 | 2,618,412 | ||||||
5,005,545 | ||||||||
Agricultural Products–0.95% | ||||||||
Ingredion Inc. | 52,633 | 2,606,386 | ||||||
Air Freight & Logistics–0.69% | ||||||||
UTi Worldwide, Inc. | 130,949 | 1,913,165 | ||||||
Apparel Retail–2.43% | ||||||||
bebe stores, inc. | 305,032 | 1,790,538 | ||||||
Finish Line, Inc. (The)–Class A | 131,591 | 2,751,568 | ||||||
Genesco Inc.(b) | 35,975 | 2,163,896 | ||||||
6,706,002 | ||||||||
Apparel, Accessories & Luxury Goods–0.84% | ||||||||
PVH Corp. | 29,618 | 2,303,984 | ||||||
Application Software–4.33% | ||||||||
Actuate Corp.(b) | 203,749 | 1,411,981 | ||||||
Cadence Design Systems, Inc.(b) | 175,688 | 1,930,811 | ||||||
MicroStrategy Inc.–Class A(b) | 21,693 | 2,817,053 | ||||||
Parametric Technology Corp.(b) | 111,580 | 2,338,717 | ||||||
Quest Software, Inc.(b) | 10,544 | 293,650 | ||||||
TIBCO Software Inc.(b) | 104,643 | 3,130,918 | ||||||
11,923,130 | ||||||||
Asset Management & Custody Banks–0.86% | ||||||||
Affiliated Managers Group, Inc.(b) | 21,613 | 2,365,543 | ||||||
Auto Parts & Equipment–1.50% | ||||||||
Dana Holding Corp. | 166,161 | 2,128,523 | ||||||
TRW Automotive Holdings Corp.(b) | 54,340 | 1,997,538 | ||||||
4,126,061 | ||||||||
Automotive Retail–0.94% | ||||||||
Penske Automotive Group, Inc. | 121,670 | 2,584,271 | ||||||
Biotechnology–1.02% | ||||||||
Cubist Pharmaceuticals, Inc.(b) | 74,252 | 2,814,893 | ||||||
Casinos & Gaming–0.82% | ||||||||
Bally Technologies Inc.(b) | 48,533 | 2,264,550 | ||||||
Communications Equipment–1.78% | ||||||||
ADTRAN, Inc. | 83,049 | 2,507,249 | ||||||
JDS Uniphase Corp.(b) | 218,468 | 2,403,148 | ||||||
4,910,397 | ||||||||
Computer Storage & Peripherals–0.19% | ||||||||
Synaptics Inc.(b)(c) | 17,909 | 512,735 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.97% | ||||||||
Titan International, Inc.(c) | 130,702 | 3,206,120 | ||||||
Trinity Industries, Inc. | 88,906 | 2,220,872 | ||||||
5,426,992 | ||||||||
Construction Materials–1.56% | ||||||||
Eagle Materials Inc. | 115,338 | 4,306,721 | ||||||
Data Processing & Outsourced Services–2.33% | ||||||||
Heartland Payment Systems, Inc. | 117,452 | 3,532,956 | ||||||
Jack Henry & Associates, Inc. | 83,662 | 2,888,012 | ||||||
6,420,968 | ||||||||
Diversified Chemicals–1.06% | ||||||||
FMC Corp. | 54,544 | 2,917,013 | ||||||
Diversified Metals & Mining–0.78% | ||||||||
Compass Minerals International, Inc. | 28,299 | 2,158,648 | ||||||
Electrical Components & Equipment–0.97% | ||||||||
Belden Inc. | 80,104 | 2,671,468 | ||||||
Electronic Equipment & Instruments–2.22% | ||||||||
Electro Scientific Industries, Inc. | 177,604 | 2,099,280 | ||||||
OSI Systems, Inc.(b) | 63,330 | 4,011,322 | ||||||
6,110,602 | ||||||||
Electronic Manufacturing Services–0.77% | ||||||||
Sanmina-SCI Corp.(b) | 260,707 | 2,135,190 | ||||||
Environmental & Facilities Services–2.73% | ||||||||
ABM Industries Inc. | 111,338 | 2,177,771 | ||||||
Team, Inc.(b) | 98,526 | 3,072,041 | ||||||
Waste Connections, Inc. | 75,595 | 2,261,802 | ||||||
7,511,614 | ||||||||
Food Distributors–1.14% | ||||||||
United Natural Foods, Inc.(b) | 57,486 | 3,153,682 | ||||||
Gas Utilities–1.07% | ||||||||
UGI Corp. | 99,947 | 2,941,440 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Gold–0.39% | ||||||||
Allied Nevada Gold Corp.(b) | 21,191 | $ | 601,400 | |||||
Detour Gold Corp. (Canada)(b) | 23,606 | 475,552 | ||||||
1,076,952 | ||||||||
Health Care Equipment–0.83% | ||||||||
Teleflex Inc. | 37,620 | 2,291,434 | ||||||
Health Care Facilities–2.31% | ||||||||
Amsurg Corp.(b) | 113,750 | 3,410,225 | ||||||
Universal Health Services, Inc.–Class B | 68,401 | 2,952,187 | ||||||
6,362,412 | ||||||||
Health Care Services–1.15% | ||||||||
Gentiva Health Services, Inc.(b) | 67,010 | 464,379 | ||||||
IPC The Hospitalist Co.(b) | 59,524 | 2,697,628 | ||||||
3,162,007 | ||||||||
Home Furnishings–0.90% | ||||||||
La-Z-Boy Inc.(b) | 202,705 | 2,491,244 | ||||||
Homebuilding–1.40% | ||||||||
Meritage Homes Corp.(b) | 113,384 | 3,848,253 | ||||||
Homefurnishing Retail–1.11% | ||||||||
Pier 1 Imports, Inc. | 186,668 | 3,066,955 | ||||||
Industrial Machinery–4.67% | ||||||||
Gardner Denver Inc. | 32,327 | 1,710,422 | ||||||
IDEX Corp. | 63,666 | 2,481,701 | ||||||
TriMas Corp.(b) | 135,003 | 2,713,560 | ||||||
Valmont Industries, Inc. | 28,622 | 3,462,403 | ||||||
Watts Water Technologies, Inc.–Class A | 74,834 | 2,494,966 | ||||||
12,863,052 | ||||||||
Industrial REIT’s–1.19% | ||||||||
DCT Industrial Trust Inc. | 518,500 | 3,266,550 | ||||||
Insurance Brokers–1.13% | ||||||||
Arthur J. Gallagher & Co. | 88,547 | 3,105,343 | ||||||
Internet Software & Services–1.08% | ||||||||
ValueClick, Inc.(b) | 181,531 | 2,975,293 | ||||||
Investment Banking & Brokerage–0.69% | ||||||||
Evercore Partners Inc.–Class A | 81,741 | 1,911,922 | ||||||
IT Consulting & Other Services–1.18% | ||||||||
MAXIMUS, Inc. | 62,870 | 3,253,523 | ||||||
Leisure Products–0.94% | ||||||||
Brunswick Corp. | 117,198 | 2,604,140 | ||||||
Life Sciences Tools & Services–1.70% | ||||||||
Bio-Rad Laboratories, Inc.–Class A(b) | 24,345 | 2,434,743 | ||||||
Charles River Laboratories International, Inc.(b) | 68,947 | 2,258,704 | ||||||
4,693,447 | ||||||||
Managed Health Care–1.08% | ||||||||
AMERIGROUP Corp.(b) | 45,315 | 2,986,712 | ||||||
Multi-Line Insurance–1.06% | ||||||||
American Financial Group, Inc. | 74,278 | 2,913,926 | ||||||
Office REIT’s–1.03% | ||||||||
Douglas Emmett, Inc. | 123,000 | 2,841,300 | ||||||
Office Services & Supplies–1.13% | ||||||||
Interface, Inc. | 228,122 | 3,109,303 | ||||||
Oil & Gas Equipment & Services–3.34% | ||||||||
Dresser-Rand Group, Inc.(b) | 51,274 | 2,283,744 | ||||||
Lufkin Industries, Inc. | 31,349 | 1,702,878 | ||||||
Oceaneering International, Inc. | 57,288 | 2,741,803 | ||||||
Oil States International, Inc.(b) | 37,509 | 2,483,096 | ||||||
9,211,521 | ||||||||
Oil & Gas Exploration & Production–1.61% | ||||||||
Energen Corp. | 50,934 | 2,298,651 | ||||||
Rosetta Resources, Inc.(b) | 58,239 | 2,133,877 | ||||||
4,432,528 | ||||||||
Packaged Foods & Meats–0.96% | ||||||||
TreeHouse Foods, Inc.(b) | 42,314 | 2,635,739 | ||||||
Paper Packaging–1.12% | ||||||||
Graphic Packaging Holding Co.(b) | 560,651 | 3,083,581 | ||||||
Paper Products–1.02% | ||||||||
Schweitzer-Mauduit International, Inc. | 41,095 | 2,800,213 | ||||||
Pharmaceuticals–2.30% | ||||||||
Endo Health Solutions Inc.(b) | 76,240 | 2,361,915 | ||||||
Questcor Pharmaceuticals, Inc.(b)(c) | 74,498 | 3,966,274 | ||||||
6,328,189 | ||||||||
Property & Casualty Insurance–2.06% | ||||||||
Markel Corp.(b) | 6,076 | 2,683,769 | ||||||
W. R. Berkley Corp. | 77,160 | 3,003,067 | ||||||
5,686,836 | ||||||||
Real Estate Services–0.78% | ||||||||
Jones Lang LaSalle Inc. | 30,689 | 2,159,585 | ||||||
Regional Banks–7.66% | ||||||||
Commerce Bancshares, Inc. | 48,161 | 1,825,302 | ||||||
CVB Financial Corp.(c) | 266,573 | 3,105,575 | ||||||
East West Bancorp, Inc. | 122,341 | 2,870,120 | ||||||
F.N.B. Corp. | 229,475 | 2,494,393 | ||||||
Susquehanna Bancshares, Inc. | 304,989 | 3,141,387 | ||||||
Texas Capital Bancshares, Inc.(b) | 70,038 | 2,828,835 | ||||||
Wintrust Financial Corp.(c) | 84,000 | 2,982,000 | ||||||
Zions Bancorp. | 96,466 | 1,873,370 | ||||||
21,120,982 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Residential REIT’s–1.01% | ||||||||
Education Realty Trust, Inc. | 251,500 | $ | 2,786,620 | |||||
Restaurants–1.70% | ||||||||
DineEquity, Inc.(b) | 49,703 | 2,218,742 | ||||||
Papa John’s International, Inc.(b) | 51,796 | 2,463,936 | ||||||
4,682,678 | ||||||||
Semiconductor Equipment–2.16% | ||||||||
Cymer, Inc.(b) | 53,368 | 3,146,043 | ||||||
Lam Research Corp.(b) | 74,055 | 2,794,836 | ||||||
5,940,879 | ||||||||
Semiconductors–2.47% | ||||||||
Diodes Inc.(b) | 119,011 | 2,233,837 | ||||||
Lattice Semiconductor Corp.(b) | 449,642 | 1,695,150 | ||||||
Semtech Corp.(b) | 118,871 | 2,890,943 | ||||||
6,819,930 | ||||||||
Specialized REIT’s–1.06% | ||||||||
LaSalle Hotel Properties | 100,288 | 2,922,392 | ||||||
Specialty Chemicals–2.16% | ||||||||
Innophos Holdings, Inc. | 58,525 | 3,304,322 | ||||||
PolyOne Corp. | 194,396 | 2,659,337 | ||||||
5,963,659 | ||||||||
Specialty Stores–1.35% | ||||||||
GNC Holdings, Inc.–Class A | 94,799 | 3,716,121 | ||||||
Steel–0.90% | ||||||||
Haynes International, Inc. | 48,529 | 2,472,067 | ||||||
Trading Companies & Distributors–1.19% | ||||||||
Beacon Roofing Supply, Inc.(b) | 129,850 | 3,274,817 | ||||||
Trucking–1.90% | ||||||||
Landstar System, Inc. | 47,077 | 2,434,823 | ||||||
Old Dominion Freight Line, Inc.(b) | 64,515 | 2,792,854 | ||||||
5,227,677 | ||||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–97.57% (Cost $219,644,419) | 268,846,054 | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.69% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $7,418,884)(d)(e) | 7,418,884 | 7,418,884 | ||||||
TOTAL INVESTMENTS–100.26% (Cost $227,063,303) | 276,264,938 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.26)% | (715,161 | ) | ||||||
NET ASSETS–100.00% | $ | 275,549,777 | ||||||
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, 2012. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1K. |
By sector, based on Net Assets
as of June 30, 2012
Financials | 18.5 | % | ||
Information Technology | 18.5 | |||
Industrials | 17.1 | |||
Consumer Discretionary | 15.0 | |||
Health Care | 10.4 | |||
Materials | 9.0 | |||
Energy | 4.1 | |||
Consumer Staples | 3.1 | |||
Utilities | 1.9 | |||
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. Small Cap Equity Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $219,644,419)* | $ | 268,846,054 | ||
Investments in affiliated money market funds, at value and cost | 7,418,884 | |||
Total investments, at value (Cost $227,063,303) | 276,264,938 | |||
Cash | 9,423,383 | |||
Receivable for: | ||||
Fund shares sold | 87,674 | |||
Dividends | 158,188 | |||
Investment for trustee deferred compensation and retirement plans | 27,244 | |||
Other assets | 441 | |||
Total assets | 285,961,868 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,899,369 | |||
Fund shares reacquired | 809,203 | |||
Collateral upon return of securities loaned | 7,418,884 | |||
Accrued fees to affiliates | 211,903 | |||
Accrued other operating expenses | 23,805 | |||
Trustee deferred compensation and retirement plans | 48,927 | |||
Total liabilities | 10,412,091 | |||
Net assets applicable to shares outstanding | $ | 275,549,777 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 237,734,283 | ||
Undistributed net investment income (loss) | (451,852 | ) | ||
Undistributed net realized gain (loss) | (10,934,289 | ) | ||
Unrealized appreciation | 49,201,635 | |||
$ | 275,549,777 | |||
Net Assets: | ||||
Series I | $ | 207,650,374 | ||
Series II | $ | 67,899,403 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 12,099,097 | |||
Series II | 4,034,360 | |||
Series I: | ||||
Net asset value per share | $ | 17.16 | ||
Series II: | ||||
Net asset value per share | $ | 16.83 | ||
* | At June 30, 2012, securities with an aggregate value of $7,470,720 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 1,118,337 | ||
Dividends from affiliated money market funds (includes securities lending income of $45,071) | 47,810 | |||
Total investment income | 1,166,147 | |||
Expenses: | ||||
Advisory fees | 1,056,029 | |||
Administrative services fees | 378,168 | |||
Custodian fees | 8,438 | |||
Distribution fees — Series II | 79,497 | |||
Transfer agent fees | 12,706 | |||
Trustees’ and officers’ fees and benefits | 16,305 | |||
Other | 28,571 | |||
Total expenses | 1,579,714 | |||
Less: Fees waived | (3,921 | ) | ||
Net expenses | 1,575,793 | |||
Net investment income (loss) | (409,646 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(1,991,263)) | 10,586,928 | |||
Foreign currencies | 33 | |||
10,586,961 | ||||
Change in net unrealized appreciation of investment securities | 1,884,788 | |||
Net realized and unrealized gain | 12,471,749 | |||
Net increase in net assets resulting from operations | $ | 12,062,103 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (409,646 | ) | $ | (924,084 | ) | ||
Net realized gain | 10,586,961 | 16,595,731 | ||||||
Change in net unrealized appreciation (depreciation) | 1,884,788 | (20,800,587 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 12,062,103 | (5,128,940 | ) | |||||
Share transactions–net: | ||||||||
Series I | (19,519,180 | ) | 225,192 | |||||
Series II | 11,028,903 | 22,286,320 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (8,490,277 | ) | 22,511,512 | |||||
Net increase in net assets | 3,571,826 | 17,382,572 | ||||||
Net assets: | ||||||||
Beginning of period | 271,977,951 | 254,595,379 | ||||||
End of period (includes undistributed net investment income (loss) of $(451,852) and $(42,206), respectively) | $ | 275,549,777 | $ | 271,977,951 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco V.I. Small Cap Equity Fund
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
Invesco V.I. Small Cap 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. | |
K. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Upon the failure of the borrower to return the securities, collateral may be liquidated and the securities may be purchased on the open market to replace the loaned securities. The Fund could experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the collateral available for return to the borrower due to any loss on the collateral invested. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliated money market funds on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities, if any. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .745% | ||
Next $250 million | 0 | .73% | ||
Next $500 million | 0 | .715% | ||
Next $1.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .685% | ||
Next $2.5 billion | 0 | .67% | ||
Next $2.5 billion | 0 | .655% | ||
Over $10 billion | 0 | .64% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such
Invesco V.I. Small Cap Equity Fund
Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.15% and Series II shares to 1.40% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $3,921.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2012, Invesco was paid $37,657 for accounting and fund administrative services and reimbursed $340,511 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 276,264,938 | $ | — | $ | — | $ | 276,264,938 | ||||||||
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
Invesco V.I. Small Cap Equity Fund
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2012, the Fund engaged in securities purchases of $3,825 and securities sales of $1,243,411, which resulted in net realized gains (losses) of $(1,991,263).
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 18,687,986 | $ | — | $ | 18,687,986 | ||||||
December 31, 2018 | 1,046,977 | — | 1,046,977 | |||||||||
$ | 19,734,463 | $ | — | $ | 19,734,463 | |||||||
* | 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, 2012 was $59,871,114 and $68,510,988, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 59,420,803 | ||
Aggregate unrealized (depreciation) of investment securities | (12,005,454 | ) | ||
Net unrealized appreciation of investment securities | $ | 47,415,349 | ||
Cost of investments for tax purposes is $228,849,589. |
Invesco V.I. Small Cap Equity Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 930,563 | $ | 16,412,434 | 5,397,940 | $ | 93,914,705 | ||||||||||
Series II | 1,006,119 | 17,252,501 | 2,436,175 | 41,035,453 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,071,961 | ) | (35,931,614 | ) | (5,523,283 | ) | (93,689,513 | ) | ||||||||
Series II | (365,872 | ) | (6,223,598 | ) | (1,111,430 | ) | (18,749,133 | ) | ||||||||
Net increase (decrease) in share activity | (501,151 | ) | $ | (8,490,277 | ) | 1,199,402 | $ | 22,511,512 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 69% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | securities | Dividends | Distributions | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 16.41 | $ | (0.02 | ) | $ | 0.77 | $ | 0.75 | $ | — | $ | — | $ | — | $ | 17.16 | 4.57 | % | $ | 207,650 | 1.06 | %(d) | 1.06 | %(d) | (0.24 | )%(d) | 21 | % | |||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.19 | (0.01 | ) | 0.81 | 0.80 | (0.01 | ) | (0.45 | ) | (0.46 | ) | 15.53 | 5.19 | 168,286 | 1.12 | 1.15 | (0.07 | ) | 45 | |||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 16.11 | (0.04 | ) | 0.76 | 0.72 | — | — | — | 16.83 | 4.47 | 67,899 | 1.31 | (d) | 1.31 | (d) | (0.49 | )(d) | 21 | ||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 15.10 | (0.05 | ) | 0.79 | 0.74 | — | (0.45 | ) | (0.45 | ) | 15.39 | 4.84 | 32 | 1.37 | 1.40 | (0.32 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
(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, 2007, the portfolio turnover calculation excludes the value of securities purchased of $17,709,035 and sold of $19,432,514 in the effort to realign the Fund’s portfolio holdings after the reorganization of AIM V.I. Small Cap Growth Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s) of $221,828 and $63,947 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
�� | (5% annual return before | |||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,045.70 | $ | 5.39 | $ | 1,019.59 | $ | 5.32 | 1.06 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,044.70 | 6.66 | 1,018.35 | 6.57 | 1.31 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Small Cap Equity Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 second quintile of the performance universe for the one year period, the third 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
Invesco V.I. Small Cap Equity Fund
Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one and five year periods and below the performance of the Index for the three year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund advised by Invesco Advisers. The Board also noted that Invesco Advisers sub-advises mutual funds and that the effective fee sub-advisory rate is below the effective fee advisory rate of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and 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
Invesco V.I. Technology Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund's Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund's most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VITEC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.04 | % | ||
Series II Shares | 8.95 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Bank of America Merrill Lynch 100 Technology Index (price only)▼ (Style-Specific Index) | 2.98 | |||
Lipper VUF Science & Technology Funds Category Average▼ (Peer Group) | 9.75 | |||
Source(s): ▼Lipper 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 a price-only equal-dollar-weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and American Depositary Receipts.
The Lipper VUF Science & Technology Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Science & Technology Funds category.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (5/20/97) | 3.45 | % | ||||||
10 | Years | 5.05 | ||||||
5 | Years | 2.04 | ||||||
1 Year | -1.81 | |||||||
Series II Shares | ||||||||
10 | Years | 4.77 | % | |||||
5 | Years | 1.78 | ||||||
1 | Year | -2.02 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund's Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.12% and 1.37%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Technology Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Technology Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.29% | ||||||||
Application Software–6.16% | ||||||||
Autodesk, Inc.(b) | 32,152 | $ | 1,124,999 | |||||
Citrix Systems, Inc.(b) | 19,989 | 1,677,877 | ||||||
Informatica Corp.(b) | 10,354 | 438,595 | ||||||
Nuance Communications, Inc.(b) | 19,416 | 462,489 | ||||||
Quest Software, Inc.(b) | 27,444 | 764,315 | ||||||
Salesforce.com, Inc.(b) | 9,984 | 1,380,388 | ||||||
TIBCO Software Inc.(b) | 19,063 | 570,365 | ||||||
6,419,028 | ||||||||
Communications Equipment–10.67% | ||||||||
ADTRAN, Inc. | 23,714 | 715,925 | ||||||
Brocade Communications Systems, Inc.(b) | 106,933 | 527,180 | ||||||
Ciena Corp.(b) | 35,659 | 583,738 | ||||||
Cisco Systems, Inc. | 106,155 | 1,822,681 | ||||||
F5 Networks, Inc.(b) | 9,006 | 896,637 | ||||||
Finisar Corp.(b) | 34,681 | 518,828 | ||||||
JDS Uniphase Corp.(b) | 85,810 | 943,910 | ||||||
Juniper Networks, Inc.(b) | 25,225 | 411,420 | ||||||
QUALCOMM, Inc. | 75,604 | 4,209,631 | ||||||
Sonus Networks, Inc.(b) | 170,547 | 366,676 | ||||||
Ubiquiti Networks Inc.(b) | 8,291 | 118,147 | ||||||
11,114,773 | ||||||||
Computer Hardware–12.57% | ||||||||
Apple Inc.(b) | 22,422 | 13,094,448 | ||||||
Computer Storage & Peripherals–4.29% | ||||||||
EMC Corp.(b) | 147,065 | 3,769,276 | ||||||
Synaptics Inc.(b) | 24,251 | 694,306 | ||||||
4,463,582 | ||||||||
Data Processing & Outsourced Services–7.77% | ||||||||
Alliance Data Systems Corp.(b) | 12,462 | 1,682,370 | ||||||
Genpact Ltd. (Bermuda)(b) | 83,942 | 1,395,955 | ||||||
MasterCard, Inc.–Class A | 4,531 | 1,948,828 | ||||||
VeriFone Systems, Inc.(b) | 26,721 | 884,198 | ||||||
Visa Inc.–Class A | 17,642 | 2,181,081 | ||||||
8,092,432 | ||||||||
Electronic Components–0.43% | ||||||||
Dolby Laboratories Inc.–Class A(b) | 10,824 | 447,031 | ||||||
Electronic Manufacturing Services–1.74% | ||||||||
Jabil Circuit, Inc. | 65,306 | 1,327,671 | ||||||
Sanmina-SCI Corp.(b) | 59,298 | 485,651 | ||||||
1,813,322 | ||||||||
Internet Retail–2.14% | ||||||||
Amazon.com, Inc.(b) | 6,054 | 1,382,431 | ||||||
Priceline.com Inc.(b) | 1,282 | 851,915 | ||||||
2,234,346 | ||||||||
Internet Software & Services–7.96% | ||||||||
eBay Inc.(b) | 12,650 | 531,426 | ||||||
Facebook Inc.–Class A(b) | 11,480 | 357,258 | ||||||
Facebook Inc.–Class B (Acquired 04/04/12-04/05/12; Cost $1,110,471)(b)(c) | 33,390 | 883,232 | ||||||
Google Inc.–Class A(b) | 5,081 | 2,947,336 | ||||||
LogMeIn, Inc.(b) | 17,933 | 547,315 | ||||||
Responsys, Inc.(b) | 30,217 | 366,230 | ||||||
ValueClick, Inc.(b) | 63,201 | 1,035,864 | ||||||
Velti PLC (Ireland)(b) | 44,473 | 289,075 | ||||||
VeriSign, Inc.(b) | 30,493 | 1,328,580 | ||||||
8,286,316 | ||||||||
IT Consulting & Other Services–6.87% | ||||||||
Accenture PLC–Class A | 28,004 | 1,682,760 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 58,621 | 3,517,260 | ||||||
International Business Machines Corp. | 9,984 | 1,952,671 | ||||||
7,152,691 | ||||||||
Life Sciences Tools & Services–1.04% | ||||||||
Agilent Technologies, Inc. | 27,543 | 1,080,787 | ||||||
Other Diversified Financial Services–0.32% | ||||||||
BlueStream Ventures L.P. (Acquired 08/03/00-06/13/08 Acquisition Cost $3,149,655)(c)(d) | — | 334,476 | ||||||
Research & Consulting Services–0.65% | ||||||||
Acacia Research(b) | 18,257 | 679,891 | ||||||
Semiconductor Equipment–1.76% | ||||||||
Cymer, Inc.(b) | 19,119 | 1,127,065 | ||||||
Teradyne, Inc.(b) | 50,228 | 706,206 | ||||||
1,833,271 | ||||||||
Semiconductors–19.06% | ||||||||
ARM Holdings PLC–ADR (United Kingdom) | 8,918 | 212,159 | ||||||
Atmel Corp.(b) | 90,140 | 603,938 | ||||||
Avago Technologies Ltd. | 26,492 | 951,063 | ||||||
Broadcom Corp.–Class A(b) | 57,082 | 1,929,372 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Cirrus Logic, Inc.(b) | 19,577 | $ | 584,961 | |||||
Cypress Semiconductor Corp.(b) | 70,135 | 927,185 | ||||||
Diodes Inc.(b) | 37,726 | 708,117 | ||||||
Fairchild Semiconductor International, Inc.(b) | 54,827 | 773,061 | ||||||
Intel Corp. | 99,542 | 2,652,794 | ||||||
Intermolecular Inc.(b) | 67,306 | 521,621 | ||||||
Lattice Semiconductor Corp.(b) | 202,995 | 765,291 | ||||||
MA-COM Technology Solutions Holdings Inc.(b) | 28,412 | 525,622 | ||||||
Marvell Technology Group Ltd. | 73,572 | 829,892 | ||||||
Micron Technology, Inc.(b) | 120,428 | 759,901 | ||||||
Microsemi Corp.(b) | 133,462 | 2,467,712 | ||||||
ON Semiconductor Corp.(b) | 111,087 | 788,718 | ||||||
Semtech Corp.(b) | 54,789 | 1,332,468 | ||||||
Skyworks Solutions, Inc.(b) | 30,383 | 831,583 | ||||||
Texas Instruments Inc. | 19,653 | 563,845 | ||||||
Volterra Semiconductor Corp.(b) | 27,530 | 645,578 | ||||||
Xilinx, Inc. | 14,206 | 476,895 | ||||||
19,851,776 | ||||||||
Systems Software–12.86% | ||||||||
Ariba Inc.(b) | 17,310 | 774,796 | ||||||
Check Point Software Technologies Ltd. (Israel)(b) | 50,937 | 2,525,966 | ||||||
CommVault Systems, Inc.(b) | 13,535 | 670,930 | ||||||
Fortinet Inc.(b) | 50,588 | 1,174,653 | ||||||
Infoblox, Inc.(b) | 9,783 | 224,324 | ||||||
Microsoft Corp. | 104,990 | 3,211,644 | ||||||
Oracle Corp. | 88,151 | 2,618,085 | ||||||
Red Hat, Inc.(b) | 18,309 | 1,034,092 | ||||||
Rovi Corp.(b) | 19,606 | 384,670 | ||||||
Symantec Corp.(b) | 52,955 | 773,672 | ||||||
13,392,832 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $82,734,030) | 100,291,002 | |||||||
Money Market Funds–3.59% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 1,871,632 | 1,871,632 | ||||||
Premier Portfolio–Institutional Class(e) | 1,871,632 | 1,871,632 | ||||||
Total Money Market Funds (Cost $3,743,264) | 3,743,264 | |||||||
TOTAL INVESTMENTS–99.88% (Cost $86,477,294) | 104,034,266 | |||||||
OTHER ASSETS LESS LIABILITIES–0.12% | 127,364 | |||||||
NET ASSETS–100.00% | $ | 104,161,630 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $1,217,708, which represented 1.17% of the Fund’s Net Assets. | |
(d) | The Fund has a remaining commitment of $101,250 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Information Technology | 92.1 | % | ||
Consumer Discretionary | 2.2 | |||
Health Care | 1.0 | |||
Industrials | 0.7 | |||
Financials | 0.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $82,734,030) | $ | 100,291,002 | ||
Investments in affiliated money market funds, at value and cost | 3,743,264 | |||
Total investments, at value (Cost $86,477,294) | 104,034,266 | |||
Receivable for: | ||||
Investments sold | 1,160,718 | |||
Fund shares sold | 33,377 | |||
Dividends | 15,366 | |||
Investment for trustee deferred compensation and retirement plans | 33,635 | |||
Total assets | 105,277,362 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 906,591 | |||
Fund shares reacquired | 70,444 | |||
Accrued fees to affiliates | 67,765 | |||
Accrued other operating expenses | 17,018 | |||
Trustee deferred compensation and retirement plans | 53,914 | |||
Total liabilities | 1,115,732 | |||
Net assets applicable to shares outstanding | $ | 104,161,630 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 80,267,831 | ||
Undistributed net investment income | 1,506,337 | |||
Undistributed net realized gain | 4,830,490 | |||
Unrealized appreciation | 17,556,972 | |||
$ | 104,161,630 | |||
Net Assets: | ||||
Series I | $ | 102,106,455 | ||
Series II | $ | 2,055,175 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 6,177,069 | |||
Series II | 126,983 | |||
Series I: | ||||
Net asset value per share | $ | 16.53 | ||
Series II: | ||||
Net asset value per share | $ | 16.18 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 255,212 | ||
Dividends from affiliated money market funds | 1,843 | |||
Total investment income | 257,055 | |||
Expenses: | ||||
Advisory fees | 414,001 | |||
Administrative services fees | 159,486 | |||
Custodian fees | 4,229 | |||
Distribution fees — Series II | 2,461 | |||
Transfer agent fees | 12,132 | |||
Trustees’ and officers’ fees and benefits | 12,791 | |||
Other | 28,777 | |||
Total expenses | 633,877 | |||
Less: Fees waived | (1,794 | ) | ||
Net expenses | 632,083 | |||
Net investment income (loss) | (375,028 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from investment securities | 6,430,131 | |||
Change in net unrealized appreciation of investment securities | 3,214,926 | |||
Net realized and unrealized gain | 9,645,057 | |||
Net increase in net assets resulting from operations | $ | 9,270,029 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (375,028 | ) | $ | (756,527 | ) | ||
Net realized gain | 6,430,131 | 11,675,866 | ||||||
Change in net unrealized appreciation (depreciation) | 3,214,926 | (16,912,981 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 9,270,029 | (5,993,642 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (209,892 | ) | |||||
Series II | — | (1,326 | ) | |||||
Total distributions from net investment income | — | (211,218 | ) | |||||
Share transactions–net: | ||||||||
Series I | (7,626,289 | ) | (21,625,874 | ) | ||||
Series II | 325,535 | 520,728 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (7,300,754 | ) | (21,105,146 | ) | ||||
Net increase (decrease) in net assets | 1,969,275 | (27,310,006 | ) | |||||
Net assets: | ||||||||
Beginning of period | 102,192,355 | 129,502,361 | ||||||
End of period (includes undistributed net investment income of $1,506,337 and $1,881,365, respectively) | $ | 104,161,630 | $ | 102,192,355 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Technology Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Technology 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. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile. | |
Many products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the issuers in this sector. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0 | .75% | ||
Next $250 million | 0 | .74% | ||
Next $500 million | 0 | .73% | ||
Next $1.5 billion | 0 | .72% | ||
Next $2.5 billion | 0 | .71% | ||
Next $2.5 billion | 0 | .70% | ||
Next $2.5 billion | 0 | .69% | ||
Over $10 billion | 0 | .68% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $1,794.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $134,623 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI
Invesco V.I. Technology Fund
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, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 102,816,558 | $ | 883,232 | $ | 334,476 | $ | 104,034,266 | ||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. Technology Fund
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 1,524,170 | $ | — | $ | 1,524,170 | ||||||
* | 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, 2012 was $21,051,113 and $29,725,840, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 28,111,785 | ||
Aggregate unrealized (depreciation) of investment securities | (8,699,603 | ) | ||
Net unrealized appreciation of investment securities | $ | 19,412,182 | ||
Cost of investments for tax purposes is $84,622,084. |
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 432,458 | $ | 7,512,207 | 1,327,553 | $ | 22,172,590 | ||||||||||
Series II | 38,678 | 662,175 | 56,016 | 891,686 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 14,376 | 209,892 | ||||||||||||
Series II | — | — | 93 | 1,326 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (890,503 | ) | (15,138,496 | ) | (2,725,269 | ) | (44,008,356 | ) | ||||||||
Series II | (20,249 | ) | (336,640 | ) | (23,813 | ) | (372,284 | ) | ||||||||
Net increase (decrease) in share activity | (439,616 | ) | $ | (7,300,754 | ) | (1,351,044 | ) | $ | (21,105,146 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Technology Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | income (loss) | unrealized) | operations | income | of period | return(a) | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 15.16 | $ | (0.06 | )(c) | $ | 1.43 | $ | 1.37 | $ | — | $ | 16.53 | 9.04 | % | $ | 102,106 | 1.14 | %(d) | 1.14 | %(d) | (0.67 | )%(d) | 20 | % | |||||||||||||||||||||||
Year ended 12/31/11 | 16.00 | (0.10 | )(c) | (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 | (c) | 2.79 | 2.81 | — | 16.00 | 21.30 | 128,304 | 1.14 | 1.14 | 0.18 | 43 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.38 | (0.03 | )(c) | 4.84 | 4.81 | — | 13.19 | 57.40 | 119,369 | 1.18 | 1.19 | (0.27 | ) | 42 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 15.10 | 0.01 | (c) | (6.73 | ) | (6.72 | ) | — | 8.38 | (44.50 | ) | 71,546 | 1.15 | 1.16 | 0.05 | 81 | ||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.02 | (0.06 | ) | 1.14 | 1.08 | — | 15.10 | 7.70 | 158,739 | 1.10 | 1.10 | (0.38 | ) | 59 | ||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 14.86 | (0.08 | )(c) | 1.40 | 1.32 | — | 16.18 | 8.88 | 2,055 | 1.39 | (d) | 1.39 | (d) | (0.92 | )(d) | 20 | ||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 15.71 | (0.14 | )(c) | (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 | )(c) | 2.74 | 2.73 | — | 15.71 | 21.03 | 1,198 | 1.39 | 1.39 | (0.07 | ) | 43 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.26 | (0.06 | )(c) | 4.78 | 4.72 | — | 12.98 | 57.14 | 417 | 1.43 | 1.44 | (0.52 | ) | 42 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.95 | (0.02 | )(c) | (6.67 | ) | (6.69 | ) | — | 8.26 | (44.75 | ) | 115 | 1.40 | 1.41 | (0.20 | ) | 81 | |||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.91 | (0.10 | ) | 1.14 | 1.04 | — | 14.95 | 7.48 | 130 | 1.35 | 1.35 | (0.63 | ) | 59 | ||||||||||||||||||||||||||||||||||
(a) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(c) | Calculated using average shares outstanding. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $109,027, and $1,980 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,090.40 | $ | 5.93 | $ | 1,019.19 | $ | 5.72 | 1.14 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,089.50 | 7.22 | 1,017.95 | 6.97 | 1.39 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Technology Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco V.I. Technology Fund
to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Science & Technology Funds Index. The Board noted that performance of Series I shares of the Fund was in the second 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 above the performance of the Index for the one and three year periods and below 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective fee rate of 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 fee rate higher than the Fund’s.
Other than the funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Technology Fund
Invesco V.I. Utilities Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
I-VIUTI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 3.82 | % | ||
Series II Shares | 3.73 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
S&P 500 Utilities Index▼ (Style-Specific Index) | 4.82 | |||
Lipper VUF Utility Funds Category Average▼ (Peer Group) | 4.89 | |||
Source(s): ▼Lipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500 Utilities Index is an unmanaged index considered representative of the utilities market.
The Lipper VUF Utility Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Utility Funds category.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||
Inception (12/30/94) | 7.06 | % | ||
10 Years | 9.20 | |||
5 Years | 1.34 | |||
1 Year | 9.29 | |||
Series II Shares | ||||
10 Years | 8.93 | % | ||
5 Years | 1.10 | |||
1 Year | 9.05 |
Series II shares incepted on April 30, 2004. Performance shown prior to that date is that of Series I shares, restated to reflect the higher 12b-1 fees applicable to Series II. Series I performance reflects any applicable fee waivers or expense reimbursements. The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.04% and 1.29%, respectively. The expense ratios presented above may vary from the expense
ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Utilities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Utilities Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks–95.66% | ||||||||
Electric Utilities–54.39% | ||||||||
American Electric Power Co., Inc. | 86,745 | $ | 3,461,125 | |||||
Duke Energy Corp.(b) | 99,961 | 2,305,101 | ||||||
E.ON AG (Germany) | 53,357 | 1,148,517 | ||||||
Edison International | 60,834 | 2,810,531 | ||||||
Entergy Corp. | 38,823 | 2,635,693 | ||||||
Exelon Corp. | 108,475 | 4,080,829 | ||||||
FirstEnergy Corp. | 35,863 | 1,764,101 | ||||||
NextEra Energy, Inc. | 11,927 | 820,697 | ||||||
Northeast Utilities | 56,909 | 2,208,638 | ||||||
Pepco Holdings, Inc. | 171,322 | 3,352,772 | ||||||
Pinnacle West Capital Corp. | 23,157 | 1,198,143 | ||||||
Portland General Electric Co. | 129,466 | 3,451,564 | ||||||
PPL Corp. | 60,234 | 1,675,108 | ||||||
Progress Energy, Inc. | 14,637 | 880,708 | ||||||
Southern Co. (The) | 79,108 | 3,662,700 | ||||||
Xcel Energy, Inc. | 123,158 | 3,498,919 | ||||||
38,955,146 | ||||||||
Gas Utilities–6.28% | ||||||||
AGL Resources Inc. | 47,535 | 1,841,981 | ||||||
Atmos Energy Corp. | 22,316 | 782,622 | ||||||
ONEOK, Inc. | 10,984 | 464,733 | ||||||
UGI Corp. | 47,738 | 1,404,930 | ||||||
4,494,266 | ||||||||
Independent Power Producers & Energy Traders–4.63% | ||||||||
Calpine Corp.(b) | 106,319 | 1,755,327 | ||||||
NRG Energy, Inc.(b) | 90,028 | 1,562,886 | ||||||
3,318,213 | ||||||||
Integrated Telecommunication Services–4.88% | ||||||||
AT&T Inc. | 26,370 | 940,354 | ||||||
CenturyLink Inc. | 25,623 | 1,011,852 | ||||||
Verizon Communications Inc. | 34,799 | 1,546,468 | ||||||
3,498,674 | ||||||||
Multi-Utilities–25.48% | ||||||||
CMS Energy Corp. | 31,778 | 746,783 | ||||||
Consolidated Edison, Inc. | 9,005 | 560,021 | ||||||
Dominion Resources, Inc. | 58,159 | 3,140,586 | ||||||
DTE Energy Co. | 24,967 | 1,481,292 | ||||||
National Grid PLC (United Kingdom) | 320,668 | 3,392,348 | ||||||
NiSource Inc. | 27,525 | 681,244 | ||||||
PG&E Corp. | 42,228 | 1,911,662 | ||||||
Public Service Enterprise Group Inc. | 43,704 | 1,420,380 | ||||||
Sempra Energy | 37,558 | 2,586,995 | ||||||
TECO Energy, Inc. | 128,807 | 2,326,254 | ||||||
18,247,565 | ||||||||
Total Common Stocks (Cost $54,312,260) | 68,513,864 | |||||||
Money Market Funds–3.93% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 1,408,393 | 1,408,393 | ||||||
Premier Portfolio–Institutional Class(c) | 1,408,393 | 1,408,393 | ||||||
Total Money Market Funds (Cost $2,816,786) | 2,816,786 | |||||||
TOTAL INVESTMENTS–99.59% (Cost $57,129,046) | 71,330,650 | |||||||
OTHER ASSETS LESS LIABILITIES–0.41% | 292,890 | |||||||
NET ASSETS–100.00% | $ | 71,623,540 | ||||||
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Utilities | 90.8 | % | ||
Telecommunication Services | 4.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.3 | |||
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, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $54,312,260) | $ | 68,513,864 | ||
Investments in affiliated money market funds, at value and cost | 2,816,786 | |||
Total investments, at value (Cost $57,129,046) | 71,330,650 | |||
Receivable for: | ||||
Fund shares sold | 149,038 | |||
Dividends | 377,440 | |||
Investment for trustee deferred compensation and retirement plans | 45,691 | |||
Other assets | 988 | |||
Total assets | 71,903,807 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 160,427 | |||
Accrued fees to affiliates | 40,464 | |||
Accrued other operating expenses | 18,385 | |||
Trustee deferred compensation and retirement plans | 60,991 | |||
Total liabilities | 280,267 | |||
Net assets applicable to shares outstanding | $ | 71,623,540 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 51,208,812 | ||
Undistributed net investment income | 3,235,072 | |||
Undistributed net realized gain | 2,979,527 | |||
Unrealized appreciation | 14,200,129 | |||
$ | 71,623,540 | |||
Net Assets: | ||||
Series I | $ | 69,782,305 | ||
Series II | $ | 1,841,235 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 4,015,268 | |||
Series II | 106,767 | |||
Series I: | ||||
Net asset value per share | $ | 17.38 | ||
Series II: | ||||
Net asset value per share | $ | 17.25 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $10,525) | $ | 1,473,490 | ||
Dividends from affiliated money market funds | 2,781 | |||
Total investment income | 1,476,271 | |||
Expenses: | ||||
Advisory fees | 208,072 | |||
Administrative services fees | 101,139 | |||
Custodian fees | 2,639 | |||
Distribution fees — Series II | 2,222 | |||
Transfer agent fees | 9,228 | |||
Trustees’ and officers’ fees and benefits | 11,927 | |||
Other | 20,584 | |||
Total expenses | 355,811 | |||
Less: Fees waived | (22,672 | ) | ||
Net expenses | 333,139 | |||
Net investment income | 1,143,132 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 780,168 | |||
Foreign currencies | (578 | ) | ||
779,590 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 648,660 | |||
Foreign currencies | (1,255 | ) | ||
647,405 | ||||
Net realized and unrealized gain | 1,426,995 | |||
Net increase in net assets resulting from operations | $ | 2,570,127 | ||
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, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,143,132 | $ | 2,155,650 | ||||
Net realized gain | 779,590 | 3,889,415 | ||||||
Change in net unrealized appreciation | 647,405 | 4,252,499 | ||||||
Net increase in net assets resulting from operations | 2,570,127 | 10,297,564 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,123,528 | ) | |||||
Series II | — | (57,674 | ) | |||||
Total distributions from net investment income | — | (2,181,202 | ) | |||||
Share transactions–net: | ||||||||
Series I | (3,679,692 | ) | (898,765 | ) | ||||
Series II | (100,408 | ) | (34,322 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (3,780,100 | ) | (933,087 | ) | ||||
Net increase (decrease) in net assets | (1,209,973 | ) | 7,183,275 | |||||
Net assets: | ||||||||
Beginning of period | 72,833,513 | 65,650,238 | ||||||
End of period (includes undistributed net investment income of $3,235,072 and $2,091,940, respectively) | $ | 71,623,540 | $ | 72,833,513 | ||||
Notes to Financial Statements
June 30, 2012
(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-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital and, secondarily, current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco V.I. Utilities Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco V.I. Utilities Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile. | |
The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund. | ||
The following factors may affect the Fund’s investments in the utilities sector: governmental regulation, economic factors, ability of the issuer to obtain financing, prices of natural resources and risks associated with nuclear power. | ||
J. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. | |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. | ||
K. | Foreign Currency Contracts — The Fund may enter into foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into foreign currency contracts for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the U.S. dollar price of that security. A foreign currency contract is an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The use of foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Statement of Operations. The primary risks associated with foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.60% of the Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses 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. The Adviser had contractually agreed, through April 30, 2012, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.93% and Series II shares to 1.18% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
Invesco V.I. Utilities Fund
For the six months ended June 30, 2012, the Adviser waived advisory fees of $22,672.
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, 2012, Invesco was paid $24,863 for accounting and fund administrative services and reimbursed $76,276 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 70,182,133 | $ | 1,148,517 | $ | — | $ | 71,330,650 | ||||||||
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryforward as of December 31, 2011.
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, 2012 was $1,528,570 and $2,120,310, 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 | $ | 15,107,454 | ||
Aggregate unrealized (depreciation) of investment securities | (1,161,241 | ) | ||
Net unrealized appreciation of investment securities | $ | 13,946,213 | ||
Cost of investments for tax purposes is $57,384,437. |
NOTE 8—Share Information
�� | ||||||||||||||||
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 347,183 | $ | 5,741,193 | 951,541 | $ | 15,210,526 | ||||||||||
Series II | 3,077 | 50,415 | 16,357 | 261,142 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 136,473 | 2,123,528 | ||||||||||||
Series II | — | — | 3,727 | 57,674 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (571,527 | ) | (9,420,885 | ) | (1,149,620 | ) | (18,232,819 | ) | ||||||||
Series II | (9,241 | ) | (150,823 | ) | (22,568 | ) | (353,138 | ) | ||||||||
Net increase (decrease) in share activity | (230,508 | ) | $ | (3,780,100 | ) | (64,090 | ) | $ | (933,087 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 47% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | Investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 16.74 | $ | 0.27 | $ | 0.37 | $ | 0.64 | $ | — | $ | — | $ | — | $ | 17.38 | 3.82 | % | $ | 69,782 | 0.95 | %(d) | 1.02 | %(d) | 3.31 | %(d) | 2 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.23 | 0.47 | 3.94 | 4.41 | (0.47 | ) | (1.20 | ) | (1.67 | ) | 23.97 | 20.64 | 155,748 | 0.93 | 0.94 | 1.97 | 30 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 16.63 | 0.25 | 0.37 | 0.62 | — | — | — | 17.25 | 3.73 | 1,841 | 1.20 | (d) | 1.27 | (d) | 3.06 | (d) | 2 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.12 | 0.41 | 3.91 | 4.32 | (0.44 | ) | (1.20 | ) | (1.64 | ) | 23.80 | 20.32 | 3,293 | 1.18 | 1.19 | 1.72 | 30 | |||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. | |
(d) | Ratios are annualized and based on average daily net assets (000’s) of $67,951 and $1,788 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, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,038.20 | $ | 4.84 | $ | 1,020.12 | $ | 4.79 | 0.95 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,037.30 | 6.10 | 1,018.88 | 6.04 | 1.20 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 2.00% and 2.25% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.01% and 1.26% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.12 and $6.38 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.07 and $6.32 for Series I and Series II shares, respectively. |
Invesco V.I. Utilities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco V.I. Utilities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
Invesco V.I. Utilities Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Utility Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the Lipper performance universe for the one year period and the fourth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was 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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective rate of the other mutual fund with comparable investment strategies.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Utilities Fund
Invesco Van Kampen V.I. American Franchise Fund
Effective April 30, 2012, Invesco Van Kampen V.I. Capital Growth Fund was renamed Invesco Van Kampen V.I. American Franchise Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIAMFR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.56 | % | ||
Series II Shares | 8.39 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 1000 Growth Index▼ (Style-Specific Index) | 10.08 | |||
Lipper VUF Large-Cap Growth Funds Index▼ (Peer Group Index) | 10.02 | |||
Source(s): ▼Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/ service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (7/3/95) | 7.68 | % | ||||||
10 | Years | 4.23 | ||||||
5 | Years | 2.26 | ||||||
1 | Year | -3.96 | ||||||
Series II Shares | ||||||||
Inception (9/18/00) | -3.74 | % | ||||||
10 | Years | 3.97 | ||||||
5 | Years | 2.01 | ||||||
1 | Year | -4.23 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Capital Growth Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Capital Growth Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Capital Growth Fund (renamed Invesco Van Kampen V.I. American Franchise Fund on April 30, 2012). Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.90% and 1.15%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.95% and 1.20%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. American Franchise Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2014. See current prospectus for more information. |
Invesco Van Kampen V.I. American Franchise Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.17% | ||||||||
Aerospace & Defense–2.12% | ||||||||
Boeing Co. (The) | 115,623 | $ | 8,590,789 | |||||
Precision Castparts Corp. | 44,197 | 7,269,964 | ||||||
15,860,753 | ||||||||
Air Freight & Logistics–0.70% | ||||||||
Expeditors International of Washington, Inc. | 135,677 | 5,257,484 | ||||||
Apparel Retail–1.15% | ||||||||
Gap, Inc. (The) | 316,398 | 8,656,649 | ||||||
Apparel, Accessories & Luxury Goods–1.01% | ||||||||
Prada S.p.A. (Italy)(b) | 77,400 | 526,010 | ||||||
Prada S.p.A. (Italy) | 1,037,200 | 7,048,799 | ||||||
7,574,809 | ||||||||
Application Software–1.16% | ||||||||
Autodesk, Inc.(c) | 60,914 | 2,131,381 | ||||||
Citrix Systems, Inc.(c) | 46,945 | 3,940,563 | ||||||
Salesforce.com, Inc.(c) | 18,954 | 2,620,580 | ||||||
8,692,524 | ||||||||
Biotechnology–2.35% | ||||||||
Celgene Corp.(c) | 82,162 | 5,271,514 | ||||||
Gilead Sciences, Inc.(c) | 240,741 | 12,345,198 | ||||||
17,616,712 | ||||||||
Broadcasting–1.13% | ||||||||
CBS Corp.–Class B | 258,090 | 8,460,190 | ||||||
Cable & Satellite–3.66% | ||||||||
Comcast Corp.–Class A | 242,332 | 7,747,354 | ||||||
DIRECTV–Class A(c) | 310,065 | 15,137,373 | ||||||
DISH Network Corp.–Class A | 159,874 | 4,564,403 | ||||||
27,449,130 | ||||||||
Casinos & Gaming–1.86% | ||||||||
Las Vegas Sands Corp. | 321,002 | 13,960,377 | ||||||
Communications Equipment–3.39% | ||||||||
Cisco Systems, Inc. | 410,042 | 7,040,421 | ||||||
QUALCOMM, Inc. | 329,910 | 18,369,389 | ||||||
25,409,810 | ||||||||
Computer Hardware–10.24% | ||||||||
Apple Inc. | 131,468 | 76,777,312 | ||||||
Computer Storage & Peripherals–4.16% | ||||||||
EMC Corp.(c) | 1,218,067 | 31,219,057 | ||||||
Construction & Engineering–0.96% | ||||||||
Foster Wheeler AG (Switzerland)(c) | 413,250 | 7,161,623 | ||||||
Construction & Farm Machinery & Heavy Trucks–1.58% | ||||||||
Cummins Inc. | 122,531 | 11,874,479 | ||||||
Data Processing & Outsourced Services–1.91% | ||||||||
Visa Inc.–Class A | 115,933 | 14,332,797 | ||||||
Department Stores–1.32% | ||||||||
Macy’s, Inc. | 288,200 | 9,899,670 | ||||||
Diversified Banks–2.37% | ||||||||
Wells Fargo & Co. | 531,771 | 17,782,422 | ||||||
Diversified Chemicals–1.25% | ||||||||
Dow Chemical Co. (The) | 297,515 | 9,371,723 | ||||||
Diversified Metals & Mining–0.11% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 23,108 | 787,290 | ||||||
Drug Retail–1.27% | ||||||||
CVS Caremark Corp. | 203,714 | 9,519,555 | ||||||
Fertilizers & Agricultural Chemicals–1.20% | ||||||||
Monsanto Co. | 109,059 | 9,027,904 | ||||||
General Merchandise Stores–1.08% | ||||||||
Dollar General Corp.(c) | 148,475 | 8,075,555 | ||||||
Health Care Equipment–0.73% | ||||||||
Intuitive Surgical, Inc.(c) | 9,854 | 5,457,047 | ||||||
Health Care Services–1.15% | ||||||||
Express Scripts Holding Co.(c) | 154,351 | 8,617,416 | �� | |||||
Health Care Technology–0.80% | ||||||||
Cerner Corp.(c) | 72,271 | 5,973,921 | ||||||
Heavy Electrical Equipment–0.51% | ||||||||
ABB Ltd.–ADR (Switzerland)(c) | 235,782 | 3,847,962 | ||||||
Home Improvement Retail–0.74% | ||||||||
Home Depot, Inc. (The) | 105,265 | 5,577,992 | ||||||
Hotels, Resorts & Cruise Lines–0.89% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 125,841 | 6,674,607 | ||||||
Industrial Conglomerates–3.81% | ||||||||
Danaher Corp. | 252,660 | 13,158,533 | ||||||
General Electric Co. | 737,831 | 15,376,398 | ||||||
28,534,931 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
Shares | Value | |||||||
Industrial Machinery–1.03% | ||||||||
Ingersoll-Rand PLC | 183,625 | $ | 7,745,303 | |||||
Integrated Oil & Gas–2.48% | ||||||||
Occidental Petroleum Corp. | 216,669 | 18,583,700 | ||||||
Internet Retail–3.32% | ||||||||
Amazon.com, Inc.(c) | 55,742 | 12,728,686 | ||||||
Priceline.com Inc.(c) | 18,321 | 12,174,671 | ||||||
24,903,357 | ||||||||
Internet Software & Services–5.76% | ||||||||
Baidu, Inc.–ADR (China)(c) | 76,723 | 8,821,611 | ||||||
eBay Inc.(c) | 167,391 | 7,032,096 | ||||||
Facebook Inc.–Class A(c) | 85,126 | 2,649,121 | ||||||
Facebook Inc.–Class B (Acquired 04/04/12-04/05/12; Cost $6,622,183)(b)(c) | 199,118 | 5,267,069 | ||||||
Google Inc.–Class A(c) | 33,536 | 19,453,227 | ||||||
43,223,124 | ||||||||
Investment Banking & Brokerage–1.05% | ||||||||
Goldman Sachs Group, Inc. (The) | 81,912 | 7,852,084 | ||||||
IT Consulting & Other Services–2.46% | ||||||||
Cognizant Technology Solutions Corp.–Class A(c) | 306,962 | 18,417,720 | ||||||
Life Sciences Tools & Services–1.66% | ||||||||
Agilent Technologies, Inc. | 318,113 | 12,482,754 | ||||||
Managed Health Care–1.15% | ||||||||
UnitedHealth Group Inc. | 147,618 | 8,635,653 | ||||||
Movies & Entertainment–0.72% | ||||||||
Walt Disney Co. (The) | 111,765 | 5,420,603 | ||||||
Oil & Gas Equipment & Services–3.27% | ||||||||
Cameron International Corp.(c) | 134,465 | 5,743,000 | ||||||
Halliburton Co. | 65,848 | 1,869,425 | ||||||
Weatherford International Ltd.(c) | 1,341,307 | 16,940,707 | ||||||
24,553,132 | ||||||||
Other Diversified Financial Services–1.25% | ||||||||
JPMorgan Chase & Co. | 262,126 | 9,365,762 | ||||||
Packaged Foods & Meats–0.34% | ||||||||
Mead Johnson Nutrition Co. | 31,760 | 2,556,998 | ||||||
Pharmaceuticals–4.03% | ||||||||
Abbott Laboratories | 175,705 | 11,327,701 | ||||||
Allergan, Inc. | 204,084 | 18,892,056 | ||||||
30,219,757 | ||||||||
Property & Casualty Insurance–0.55% | ||||||||
ACE Ltd. (Switzerland) | 55,482 | 4,112,881 | ||||||
Railroads–1.27% | ||||||||
Union Pacific Corp. | 79,839 | 9,525,591 | ||||||
Restaurants–1.79% | ||||||||
Starbucks Corp. | 252,429 | 13,459,514 | ||||||
Semiconductors–1.81% | ||||||||
Broadcom Corp.–Class��A(c) | 229,133 | 7,744,695 | ||||||
Texas Instruments Inc. | 114,275 | 3,278,550 | ||||||
Xilinx, Inc. | 76,181 | 2,557,396 | ||||||
13,580,641 | ||||||||
Soft Drinks–3.36% | ||||||||
Coca-Cola Co. (The) | 115,124 | 9,001,546 | ||||||
Monster Beverage Corp.(c) | 86,112 | 6,131,174 | ||||||
PepsiCo, Inc. | 142,340 | 10,057,744 | ||||||
25,190,464 | ||||||||
Specialized REIT’s–1.27% | ||||||||
American Tower Corp. | 136,131 | 9,516,918 | ||||||
Systems Software–3.89% | ||||||||
Check Point Software Technologies Ltd. (Israel)(c) | 220,946 | 10,956,712 | ||||||
Microsoft Corp. | 495,366 | 15,153,246 | ||||||
Rovi Corp.(c) | 157,701 | 3,094,094 | ||||||
29,204,052 | ||||||||
Trucking–1.08% | ||||||||
J.B. Hunt Transport Services, Inc. | 135,278 | 8,062,569 | ||||||
Wireless Telecommunication Services–1.02% | ||||||||
Sprint Nextel Corp.(c) | 2,357,121 | 7,684,215 | ||||||
Total Common Stocks & Other Equity Interests (Cost $616,465,440) | 743,748,493 | |||||||
Money Market Funds–1.09% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 4,107,834 | 4,107,834 | ||||||
Premier Portfolio–Institutional Class(d) | 4,107,835 | 4,107,835 | ||||||
Total Money Market Funds (Cost $8,215,669) | 8,215,669 | |||||||
TOTAL INVESTMENTS–100.26% (Cost $624,681,109) | 751,964,162 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.26)% | (1,972,061 | ) | ||||||
NET ASSETS–100.00% | $ | 749,992,101 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
REIT | – Real Estate Investment Trust |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $5,793,079, which represented less than 1% of the Fund’s Net Assets. | |
(c) | Non-income producing security. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Information Technology | 34.8 | % | ||
Consumer Discretionary | 18.7 | |||
Industrials | 13.0 | |||
Health Care | 11.9 | |||
Financials | 6.5 | |||
Energy | 5.7 | |||
Consumer Staples | 5.0 | |||
Materials | 2.6 | |||
Telecommunication Services | 1.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.8 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $616,465,440) | $ | 743,748,493 | ||
Investments in affiliated money market funds, at value and cost | 8,215,669 | |||
Total investments, at value (Cost $624,681,109) | 751,964,162 | |||
Receivable for: | ||||
Investments sold | 18,808,199 | |||
Fund shares sold | 469,424 | |||
Dividends | 783,682 | |||
Investment for trustee deferred compensation and retirement plans | 208,236 | |||
Other assets | 386 | |||
Total assets | 772,234,089 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 19,906,457 | |||
Fund shares reacquired | 1,236,542 | |||
Accrued fees to affiliates | 537,277 | |||
Accrued other operating expenses | 163,069 | |||
Trustee deferred compensation and retirement plans | 398,643 | |||
Total liabilities | 22,241,988 | |||
Net assets applicable to shares outstanding | $ | 749,992,101 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 647,369,098 | ||
Undistributed net investment income | 669,017 | |||
Undistributed net realized gain (loss) | (25,330,541 | ) | ||
Unrealized appreciation | 127,284,527 | |||
$ | 749,992,101 | |||
Net Assets: | ||||
Series I | $ | 517,996,235 | ||
Series II | $ | 231,995,866 | ||
Shares outstanding, $0.01 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 14,957,921 | |||
Series II | 6,828,016 | |||
Series I: | ||||
Net asset value per share | $ | 34.63 | ||
Series II: | ||||
Net asset value per share | $ | 33.98 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $1,772) | $ | 2,576,648 | ||
Dividends from affiliated money market funds (includes securities lending income of $624) | 5,376 | |||
Total investment income | 2,582,024 | |||
Expenses: | ||||
Advisory fees | 1,376,592 | |||
Administrative services fees | 505,285 | |||
Custodian fees | 10,291 | |||
Distribution fees — Series II | 174,735 | |||
Transfer agent fees | 26,189 | |||
Trustees’ and officers’ fees and benefits | 19,154 | |||
Other | 45,546 | |||
Total expenses | 2,157,792 | |||
Less: Fees waived | (300,085 | ) | ||
Net expenses | 1,857,707 | |||
Net investment income | 724,317 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $76,374) | 2,914,143 | |||
Foreign currencies | 999 | |||
2,915,142 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (28,622,570 | ) | ||
Foreign currencies | (431 | ) | ||
(28,623,001 | ) | |||
Net realized and unrealized gain (loss) | (25,707,859 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (24,983,542 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Franchise Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | 724,317 | $ | (583,465 | ) | |||
Net realized gain | 2,915,142 | 13,210,743 | ||||||
Change in net unrealized appreciation (depreciation) | (28,623,001 | ) | (34,132,830 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (24,983,542 | ) | (21,505,552 | ) | ||||
Share transactions–net: | ||||||||
Series I | 416,248,880 | 64,098,694 | ||||||
Series II | 150,016,739 | (18,673,081 | ) | |||||
Net increase in net assets resulting from share transactions | 566,265,619 | 45,425,613 | ||||||
Net increase in net assets | 541,282,077 | 23,920,061 | ||||||
Net assets: | ||||||||
Beginning of period | 208,710,024 | 184,789,963 | ||||||
End of period (includes undistributed net investment income (loss) of $669,017 and $(55,300), respectively) | $ | 749,992,101 | $ | 208,710,024 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. American Franchise Fund, formerly Invesco Van Kampen V.I. Capital Growth Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. |
Invesco Van Kampen V.I. American Franchise Fund
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
Invesco Van Kampen V.I. American Franchise 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 $500 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% | ||
Invesco Van Kampen V.I. American Franchise Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through 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 0.90% and Series II shares to 1.15% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating fund expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 0.84% and Series II shares to 1.09% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 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, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $300,085.
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, 2012, Invesco was paid $51,162 for accounting and fund administrative services and reimbursed $454,123 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco Van Kampen V.I. American Franchise Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 739,122,284 | $ | 12,841,878 | $ | — | $ | 751,964,162 | ||||||||
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, 2012, the Fund engaged in securities purchases of $534,154 and securities sales of $626,133, which resulted in net realized gains of $76,374.
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 7,871,502 | $ | — | $ | 7,871,502 | ||||||
December 31, 2017 | 5,236,281 | — | 5,236,281 | |||||||||
December 31, 2018 | 13,944,388 | — | 13,944,388 | |||||||||
$ | 27,052,171 | $ | — | $ | 27,052,171 | |||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, 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. |
Invesco Van Kampen V.I. American Franchise 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, 2012 was $687,499,448 and $253,413,956, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 153,533,754 | ||
Aggregate unrealized (depreciation) of investment securities | (27,444,213 | ) | ||
Net unrealized appreciation of investment securities | $ | 126,089,541 | ||
Cost of investments for tax purposes is $625,874,621. |
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 649,629 | $ | 23,743,115 | 148,444 | $ | 4,995,733 | ||||||||||
Series II | 182,874 | 6,350,357 | 311,666 | 10,470,974 | ||||||||||||
Issued in connection with acquisitions:(b)(c) | ||||||||||||||||
Series I | 11,970,981 | 445,461,917 | 2,764,202 | 102,182,035 | ||||||||||||
Series II | 4,415,803 | 161,335,668 | 17,638 | 641,933 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,518,088 | ) | (52,956,152 | ) | (1,259,447 | ) | (43,079,074 | ) | ||||||||
Series II | (505,466 | ) | (17,669,286 | ) | (876,910 | ) | (29,785,988 | ) | ||||||||
Net increase in share activity | 15,195,733 | $ | 566,265,619 | 1,105,593 | $ | 45,425,613 | ||||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 21% 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 Fund 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 six months ended June 30, 2012 assuming the reorganization had been completed on January 1, 2012, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 430,496 | ||
Net realized/unrealized gains | 59,663,116 | |||
Change in net assets resulting from operations | $ | 60,093,612 | ||
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. | ||
(c) | As of the open of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Large Cap Growth Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 2,781,840 shares of the Fund for 6,596,443 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 29, 2011. The Target Fund’s net assets at that date of $102,823,968, including $19,535,310 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $188,601,217. The net assets of the Fund immediately after the acquisition were $291,425,185. | |
The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
Net investment income (loss) | $ | (731,640 | ) | |
Net realized/unrealized gains (losses) | (13,447,533 | ) | ||
Change in net assets resulting from operations | $ | (14,179,173 | ) | |
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. American Franchise Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | net assets | assets without | investment | |||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | Return of capital | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income (loss)(a) | unrealized) | operations | income | distributions | distributions | of period | return | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 31.90 | $ | 0.08 | $ | 2.65 | $ | 2.73 | $ | — | $ | — | $ | — | $ | 34.63 | 8.56 | %(d) | $ | 517,996 | 0.84 | %(e) | 0.99 | %(e) | 0.45 | %(e) | 104 | % | ||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.81 | 0.11 | 4.77 | 4.88 | (0.01 | ) | — | (0.01 | ) | 33.68 | 16.96 | 143,558 | 0.80 | 0.80 | 0.35 | 177 | ||||||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 31.35 | 0.03 | 2.60 | 2.63 | — | — | — | 33.98 | 8.39 | (d) | 231,996 | 1.09 | (e) | 1.24 | (e) | 0.20 | (e) | 104 | ||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 28.54 | 0.03 | 4.72 | 4.75 | — | — | — | 33.29 | 16.64 | (g) | 261,198 | 1.05 | 1.05 | 0.11 | 177 | |||||||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended June 30, 2012, the portfolio turnover calculation excludes the value of securities purchased of $14,357,093 and sold of $12,843,484 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) of $263,297 and $140,556 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 Van Kampen V.I. American Franchise Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,4 | (06/30/12) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,085.60 | $ | 4.36 | $ | 1,020.69 | $ | 4.22 | 0.84 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,083.90 | 5.65 | 1,019.44 | 5.47 | 1.09 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
3 | Effective July 1, 2012, the Adviser had contractually agreed through June 30, 2014 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 0.90% and 1.15% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had not been in effect throughout the entire most recent fiscal half year are 0.90% and 1.15% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.67 and $5.96 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.52 and $5.77 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. American Franchise Fund
Approval of Investment Advisory and Sub-Advisory Contracts
(Formerly Known as Invesco Van Kampen V.I. Capital Growth Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. American Franchise Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees also considered information provided in connection with fund reorganizations approved by the Trustees. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco Van Kampen V.I. American Franchise Fund
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 fifth quintile of the performance universe for the one year period and the first quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above 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 universe and index, including differences between the Fund’s investment strategies and those of peers. The Board discussed actions that Invesco Advisers had taken or was taking to address performance issues and Invesco Adviser’s resources and responsiveness to performance concerns. These explanations provided a sound basis for understanding comparative performance and monitoring and addressing it going forward, and were part of the Board’s overall conclusion about the nature, extent and quality of the services provided by Invesco Advisers. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of the other mutual fund advised by Invesco Advisers with comparable investment strategies. The Board also noted that Invesco Advisers sub-advises two other mutual funds with investment strategies comparable to those of the Fund and that the sub-advisory rate was below the effective fee fate of the Fund.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 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 provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. American Franchise Fund
Invesco Van Kampen V.I. American Value Fund
Effective July 15, 2012, Invesco Van Kampen V.I. Mid Cap Value Fund was renamed
Invesco Van Kampen V.I. American Value Fund.
Invesco Van Kampen V.I. American Value Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIAMVA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.53 | % | ||
Series II Shares | 9.51 | |||
S&P 500 Index▼(Broad Market Index) | 9.49 | |||
Russell Midcap Value Index▼(Style-Specific Index) | 7.78 | |||
Lipper VUF Mid-Cap Value Funds Index▼(Peer Group Index) | 7.51 | |||
Source(s): ▼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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (1/2/97) | 9.30 | % | ||||||
10 | Years | 8.50 | ||||||
5 | Years | 1.35 | ||||||
1 | Year | 2.97 | ||||||
Series II Shares | ||||||||
Inception (5/5/03) | 10.19 | % | ||||||
5 | Years | 1.25 | ||||||
1 | Year | 2.96 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Universal Institutional Funds Mid Cap Value Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Mid Cap Value Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Mid Cap Value Fund (renamed Invesco Van Kampen V.I. American Value Fund on July 15, 2012). Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.97% and 1.22%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. American Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. American Value Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–88.17% | ||||||||
Alternative Carriers–4.04% | ||||||||
tw Telecom, Inc.(b) | 505,751 | $ | 12,977,571 | |||||
Asset Management & Custody Banks–2.35% | ||||||||
Northern Trust Corp. | 163,587 | 7,528,274 | ||||||
Communications Equipment–1.44% | ||||||||
Juniper Networks, Inc.(b) | 284,264 | 4,636,346 | ||||||
Computer Hardware–2.15% | ||||||||
Diebold, Inc. | 187,377 | 6,916,085 | ||||||
Data Processing & Outsourced Services–3.50% | ||||||||
Fidelity National Information Services, Inc. | 329,242 | 11,220,567 | ||||||
Diversified Banks–2.01% | ||||||||
Comerica, Inc. | 209,973 | 6,448,271 | ||||||
Electric Utilities–3.66% | ||||||||
Edison International | 254,276 | 11,747,551 | ||||||
Electronic Manufacturing Services–1.77% | ||||||||
Flextronics International Ltd. (Singapore)(b) | 917,125 | 5,686,175 | ||||||
Food Distributors–1.22% | ||||||||
Sysco Corp. | 131,807 | 3,929,167 | ||||||
Food Retail–0.83% | ||||||||
Safeway, Inc. | 146,731 | 2,663,168 | ||||||
Health Care Facilities–4.89% | ||||||||
Brookdale Senior Living Inc.(b) | 395,463 | 7,015,514 | ||||||
HealthSouth Corp.(b) | 373,452 | 8,686,493 | ||||||
15,702,007 | ||||||||
Heavy Electrical Equipment–2.40% | ||||||||
Babcock & Wilcox Co. (The)(b) | 314,391 | 7,702,579 | ||||||
Home Furnishings–3.04% | ||||||||
Mohawk Industries, Inc.(b) | 139,919 | 9,770,544 | ||||||
Housewares & Specialties–3.51% | ||||||||
Newell Rubbermaid, Inc. | 621,347 | 11,271,235 | ||||||
Industrial Machinery–4.32% | ||||||||
Ingersoll-Rand PLC (Ireland) | 94,255 | 3,975,676 | ||||||
Snap-on Inc. | 158,805 | 9,885,611 | ||||||
13,861,287 | ||||||||
Insurance Brokers–4.88% | ||||||||
Marsh & McLennan Cos., Inc. | 278,023 | 8,960,681 | ||||||
�� | ||||||||
Willis Group Holdings PLC (Ireland) | 183,821 | 6,707,628 | ||||||
15,668,309 | ||||||||
Integrated Oil & Gas–1.94% | ||||||||
Murphy Oil Corp. | 123,554 | 6,213,531 | ||||||
Investment Banking & Brokerage–0.46% | ||||||||
Charles Schwab Corp. (The) | 114,863 | 1,485,179 | ||||||
Life Sciences Tools & Services–0.94% | ||||||||
PerkinElmer, Inc. | 116,709 | 3,011,092 | ||||||
Motorcycle Manufacturers–1.23% | ||||||||
Harley-Davidson, Inc. | 86,054 | 3,935,249 | ||||||
Multi-Utilities–2.58% | ||||||||
CenterPoint Energy, Inc. | 286,936 | 5,930,967 | ||||||
Wisconsin Energy Corp. | 59,798 | 2,366,207 | ||||||
8,297,174 | ||||||||
Office Electronics–2.53% | ||||||||
Zebra Technologies Corp.–Class A(b) | 236,012 | 8,109,372 | ||||||
Oil & Gas Exploration & Production–2.75% | ||||||||
Newfield Exploration Co.(b) | 56,511 | 1,656,337 | ||||||
Pioneer Natural Resources Co. | 51,231 | 4,519,087 | ||||||
WPX Energy Inc.(b) | 163,184 | 2,640,317 | ||||||
8,815,741 | ||||||||
Oil & Gas Storage & Transportation–1.94% | ||||||||
Williams Cos., Inc. (The) | 216,360 | 6,235,495 | ||||||
Packaged Foods & Meats–2.81% | ||||||||
ConAgra Foods, Inc. | 347,403 | 9,008,160 | ||||||
Paper Packaging–4.39% | ||||||||
Sealed Air Corp. | 505,845 | 7,810,247 | ||||||
Sonoco Products Co. | 208,800 | 6,295,320 | ||||||
14,105,567 | ||||||||
Personal Products–1.02% | ||||||||
Avon Products, Inc. | 201,941 | 3,273,464 | ||||||
Property & Casualty Insurance–2.75% | ||||||||
ACE Ltd. (Switzerland) | 119,301 | 8,843,783 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Value Fund
Shares | Value | |||||||
Regional Banks–4.78% | ||||||||
BB&T Corp. | 253,123 | $ | 7,808,844 | |||||
Wintrust Financial Corp. | 212,760 | 7,552,980 | ||||||
15,361,824 | ||||||||
Restaurants–2.28% | ||||||||
Darden Restaurants, Inc. | 144,483 | 7,315,174 | ||||||
Retail REIT’s–1.76% | ||||||||
Weingarten Realty Investors | 215,000 | 5,663,100 | ||||||
Specialty Chemicals–2.66% | ||||||||
W.R. Grace & Co.(b) | 169,529 | 8,552,738 | ||||||
Specialty Stores–2.31% | ||||||||
Staples, Inc. | 567,477 | 7,405,575 | ||||||
Systems Software–2.16% | ||||||||
BMC Software, Inc.(b) | 162,458 | 6,933,707 | ||||||
Trucking–0.87% | ||||||||
Swift Transportation Co.(b) | 297,000 | 2,806,650 | ||||||
Total Common Stocks & Other Equity Interests (Cost $251,184,168) | 283,101,711 | |||||||
Principal | ||||||||
Bonds and Notes–1.03% | ||||||||
Health Care Facilities–1.03% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes 2.75% 06/15/18 (Cost $3,236,246) | $ | 3,530,000 | 3,291,725 | |||||
Shares | ||||||||
Preferred Stocks–0.94% | ||||||||
Health Care Facilities–0.94% | ||||||||
HealthSouth Corp. Series A, $65.00 Conv. Pfd. (Cost $2,375,148) | 2,851 | 3,022,773 | ||||||
Money Market Funds–9.98% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 16,028,238 | 16,028,238 | ||||||
Premier Portfolio–Institutional Class(c) | 16,028,237 | 16,028,237 | ||||||
Total Money Market Funds (Cost $32,056,475) | 32,056,475 | |||||||
TOTAL INVESTMENTS–100.12% (Cost $288,852,037) | 321,472,684 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.12)% | (399,052 | ) | ||||||
NET ASSETS–100.00% | $ | 321,073,632 | ||||||
Investment Abbreviations:
Conv. | – Convertible | |
Pfd. | – Preferred | |
REIT | – Real Estate Investment Trust | |
Sr. | – Senior | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Financials | 19.0 | % | ||
Information Technology | 13.5 | |||
Consumer Discretionary | 12.4 | |||
Health Care | 7.8 | |||
Industrials | 7.6 | |||
Materials | 7.1 | |||
Energy | 6.6 | |||
Utilities | 6.2 | |||
Consumer Staples | 5.9 | |||
Telecommunication Services | 4.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 9.9 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Value Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $256,795,562) | $ | 289,416,209 | ||
Investments in affiliated money market funds, at value and cost | 32,056,475 | |||
Total investments, at value (Cost $288,852,037) | 321,472,684 | |||
Receivable for: | ||||
Investments sold | 487,659 | |||
Fund shares sold | 331,011 | |||
Dividends and interest | 354,812 | |||
Investment for trustee deferred compensation and retirement plans | 7,042 | |||
Total assets | 322,653,208 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 667,810 | |||
Fund shares reacquired | 656,817 | |||
Accrued fees to affiliates | 215,823 | |||
Accrued other operating expenses | 19,354 | |||
Trustee deferred compensation and retirement plans | 19,772 | |||
Total liabilities | 1,579,576 | |||
Net assets applicable to shares outstanding | $ | 321,073,632 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 305,033,711 | ||
Undistributed net investment income | 3,391,400 | |||
Undistributed net realized gain (loss) | (19,972,126 | ) | ||
Unrealized appreciation | 32,620,647 | |||
$ | 321,073,632 | |||
Net Assets: | ||||
Series I | $ | 131,465,318 | ||
Series II | $ | 189,608,314 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 9,375,487 | |||
Series II | 13,606,339 | |||
Series I: | ||||
Net asset value per share | $ | 14.02 | ||
Series II: | ||||
Net asset value per share | $ | 13.94 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends | $ | 2,774,223 | ||
Dividends from affiliated money market funds | 23,246 | |||
Interest | 16,910 | |||
Total investment income | 2,814,379 | |||
Expenses: | ||||
Advisory fees | 1,143,174 | |||
Administrative services fees | 378,273 | |||
Custodian fees | 5,092 | |||
Distribution fees — Series II | 228,081 | |||
Transfer agent fees | 8,390 | |||
Trustees’ and officers’ fees and benefits | 16,844 | |||
Other | 26,599 | |||
Total expenses | 1,806,453 | |||
Less: Fees waived | (161,488 | ) | ||
Net expenses | 1,644,965 | |||
Net investment income | 1,169,414 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 15,263,638 | |||
Option contracts written | 238,643 | |||
15,502,281 | ||||
Change in net unrealized appreciation of investment securities | 11,236,893 | |||
Net realized and unrealized gain | 26,739,174 | |||
Net increase in net assets resulting from operations | $ | 27,908,588 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. American Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,169,414 | $ | 2,270,246 | ||||
Net realized gain | 15,502,281 | 18,664,787 | ||||||
Change in net unrealized appreciation (depreciation) | 11,236,893 | (17,420,751 | ) | |||||
Net increase in net assets resulting from operations | 27,908,588 | 3,514,282 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (979,194 | ) | |||||
Series ll | — | (992,806 | ) | |||||
Total distributions from net investment income | — | (1,972,000 | ) | |||||
Share transactions–net: | ||||||||
Series l | (10,494,064 | ) | (33,633,456 | ) | ||||
Series ll | 10,807,715 | 10,486,103 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 313,651 | (23,147,353 | ) | |||||
Net increase (decrease) in net assets | 28,222,239 | (21,605,071 | ) | |||||
Net assets: | ||||||||
Beginning of period | 292,851,393 | 314,456,464 | ||||||
End of period (includes undistributed net investment income of $3,391,400 and $2,221,986, respectively) | $ | 321,073,632 | $ | 292,851,393 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Effective July 15, 2012, Invesco Van Kampen V.I. Mid Cap Value Fund was renamed Invesco Van Kampen V.I. American Value Fund. Invesco Van Kampen V.I. American Value Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is above-average total return over a market cycle of three to five years by investing primarily in a portfolio of common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco Van Kampen V.I. American Value Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco Van Kampen V.I. American Value Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. | |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 and/or buy call options. A call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. | |
When the Fund writes a call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized and unrealized gains and losses on these contracts are included in the Statement of Operation. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. | ||
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. | ||
J. | Put Options Purchased — The Fund may purchase put options including options on securities indexes and/or futures contracts. By purchasing a put option, the Fund obtains the right (but not the obligation) to sell the option’s underlying instrument at a fixed strike price. In return for this right, the Fund pays an option premium. The option’s underlying instrument may be a security, securities index, or a futures contract. Put options may be used by the Fund to hedge securities it owns by locking in a minimum price at which the Fund can sell. If security prices fall, the put option could be exercised to offset all or a portion of the Fund’s resulting losses. At the same time, because the maximum the Fund has at risk is the cost of the option, purchasing put options does not eliminate the potential for the Fund to profit from an increase in the value of the securities hedged. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $1 billion | 0 | .72% | ||
Over $1 billion | 0 | .65% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.18% and Series II shares to 1.28% (after 12b-1 fee waivers) of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend
Invesco Van Kampen V.I. American Value Fund
expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on June 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $24,639.
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, 2012, Invesco was paid $41,491 for accounting and fund administrative services and reimbursed $336,782 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. IDI had contractually agreed to waive 0.15% of Rule 12b-1 plan fees on Series II shares through at least June 30, 2012. 12b-1 fees before fee waivers incurred under the Plan are detailed in the Statement of Operations as Distribution fees. For the six months ended June 30, 2012, 12b-1 fees incurred for Series II shares were $91,232 after fee waivers of $136,849.
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, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 315,158,186 | $ | 3,022,773 | $ | — | $ | 318,180,959 | ||||||||
Corporate Debt Securities | — | 3,291,725 | — | 3,291,725 | ||||||||||||
$ | 315,158,186 | $ | 6,314,498 | — | $ | 321,472,684 | ||||||||||
Invesco Van Kampen V.I. American Value Fund
NOTE 4—Derivative Investments
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||
Statement of Operations | ||||
Options* | ||||
Realized Gain | ||||
Equity risk | $ | 238,643 | ||
* | The average notional value of options written outstanding during the period was $232,527. |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 2,425 | 390,068 | ||||||
Closed | (2,425 | ) | (390,068 | ) | ||||
End of period | — | $ | — | |||||
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2012, the Fund engaged in securities purchases of $46,831.
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco Van Kampen V.I. American Value Fund
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 34,498,644 | $ | — | $ | 34,498,644 | ||||||
* | 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, 2012 was $39,078,886 and $46,409,120, 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 | $ | 46,482,491 | ||
Aggregate unrealized (depreciation) of investment securities | (14,837,607 | ) | ||
Net unrealized appreciation of investment securities | $ | 31,644,884 | ||
Cost of investments for tax purposes is $289,827,800. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 478,411 | $ | 6,595,799 | 487,789 | $ | 6,244,179 | ||||||||||
Series II | 2,253,860 | 31,090,563 | 3,734,030 | 47,368,062 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 89,752 | 979,194 | ||||||||||||
Series II | — | — | 91,503 | 992,806 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,225,427 | ) | (17,089,863 | ) | (3,155,419 | ) | (40,856,829 | ) | ||||||||
Series II | (1,461,083 | ) | (20,282,848 | ) | (2,959,998 | ) | (37,874,765 | ) | ||||||||
Net increase (decrease) in share activity | 45,761 | $ | 313,651 | (1,712,343 | ) | $ | (23,147,353 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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. |
Invesco Van Kampen V.I. American Value Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 12.81 | $ | 0.05 | $ | 1.16 | $ | 1.21 | $ | — | $ | — | $ | — | $ | 14.02 | 9.45 | % | $ | 131,465 | 0.97 | %(d) | 0.99 | %(d) | 0.80 | %(d) | 14 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 19.74 | 0.13 | 1.53 | 1.66 | (0.14 | ) | (2.15 | ) | (2.29 | ) | 19.11 | 7.84 | 302,575 | 1.01 | 1.01 | 0.62 | 68 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 12.74 | 0.05 | 1.15 | 1.20 | — | — | — | 13.94 | 9.42 | 189,608 | 1.07 | (d) | 1.24 | (d) | 0.70 | (d) | 14 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 19.68 | 0.11 | 1.52 | 1.63 | (0.12 | ) | (2.15 | ) | (2.27 | ) | 19.04 | 7.74 | 134,886 | 1.11 | 1.36 | 0.54 | 68 | |||||||||||||||||||||||||||||||||||||||
(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 $135,826 and $183,467 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. American Value Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,095.30 | $ | 5.05 | $ | 1,020.04 | $ | 4.87 | 0.97 | % | ||||||||||||||||||
Series II | 1,000.00 | 1.095.10 | 5.57 | 1,019.54 | 5.37 | 1.07 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 2.00% and 2.25% 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 0.97% and 1.22% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.05 and $6.36 for Series I and Series II shares, respectively. |
4 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.87 and $6.12 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. American Value Fund
Approval of Investment Advisory and Sub-Advisory Contracts
(Formerly Known as Invesco Van Kampen V.I. Mid Cap Value Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. American Value Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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.
Invesco Van Kampen V.I. American Value Fund
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mid-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one and five year periods and the second quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was the same as the rate of two other mutual funds advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers.
Other than the mutual funds described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts in a manner substantially similar to the management of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. American Value Fund
Invesco Van Kampen V.I. Comstock Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VICOM-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.75 | |||
Series II Shares | 8.60 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 8.68 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index) | 7.53 | |||
Source(s): ▼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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception (4/30/99) | 4.64 | % | ||||||
10 | Years | 5.45 | ||||||
5 | Years | -1.11 | ||||||
1 | Year | 0.98 | ||||||
Series II Shares | ||||||||
Inception (9/18/00) | 4.52 | % | ||||||
10 | Years | 5.18 | ||||||
5 | Years | -1.35 | ||||||
1 | Year | 0.74 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Comstock Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Comstock Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Comstock Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.72% and 0.97%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.80% and 1.05%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Comstock Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2013. See current prospectus for more information. |
Invesco Van Kampen V.I. Comstock Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.28% | ||||||||
Aerospace & Defense–1.35% | ||||||||
Honeywell International Inc. | 221,311 | $ | 12,358,006 | |||||
Textron Inc. | 507,205 | 12,614,189 | ||||||
24,972,195 | ||||||||
Aluminum–1.02% | ||||||||
Alcoa Inc. | 2,145,931 | 18,776,896 | ||||||
Asset Management & Custody Banks–2.48% | ||||||||
Bank of New York Mellon Corp. (The) | 1,658,342 | 36,400,607 | ||||||
State Street Corp. | 209,852 | 9,367,793 | ||||||
45,768,400 | ||||||||
Automobile Manufacturers–1.32% | ||||||||
General Motors Co.(b) | 1,236,459 | 24,382,972 | ||||||
Cable & Satellite–6.00% | ||||||||
Comcast Corp.–Class A | 2,196,352 | 70,217,373 | ||||||
Time Warner Cable Inc. | 492,305 | 40,418,241 | ||||||
110,635,614 | ||||||||
Communications Equipment–0.94% | ||||||||
Cisco Systems, Inc. | 1,011,397 | 17,365,687 | ||||||
Computer Hardware–2.07% | ||||||||
Dell Inc.(b) | 492,756 | 6,169,305 | ||||||
Hewlett-Packard Co. | 1,589,215 | 31,959,114 | ||||||
38,128,419 | ||||||||
Department Stores–0.20% | ||||||||
Kohl’s Corp. | 82,056 | 3,732,727 | ||||||
Diversified Banks–2.94% | ||||||||
U.S. Bancorp | 416,231 | 13,385,989 | ||||||
Wells Fargo & Co. | 1,222,236 | 40,871,572 | ||||||
54,257,561 | ||||||||
Drug Retail–1.97% | ||||||||
CVS Caremark Corp. | 775,848 | 36,255,377 | ||||||
Electric Utilities–2.58% | ||||||||
FirstEnergy Corp. | 371,479 | 18,273,052 | ||||||
PPL Corp. | 1,055,735 | 29,359,990 | ||||||
47,633,042 | ||||||||
Electrical Components & Equipment–0.70% | ||||||||
Emerson Electric Co. | 276,777 | 12,892,273 | ||||||
Electronic Components–1.00% | ||||||||
Corning Inc. | 1,430,896 | 18,501,485 | ||||||
General Merchandise Stores–0.79% | ||||||||
Target Corp. | 249,090 | 14,494,547 | ||||||
Health Care Distributors–0.96% | ||||||||
Cardinal Health, Inc. | 423,278 | 17,777,676 | ||||||
Home Improvement Retail–1.06% | ||||||||
Lowe’s Cos., Inc. | 686,444 | 19,522,467 | ||||||
Hotels, Resorts & Cruise Lines–0.78% | ||||||||
Carnival Corp. | 420,209 | 14,400,562 | ||||||
Household Products–0.33% | ||||||||
Procter & Gamble Co. (The) | 100,077 | 6,129,716 | ||||||
Hypermarkets & Super Centers–1.08% | ||||||||
Wal-Mart Stores, Inc. | 285,042 | 19,873,128 | ||||||
Industrial Conglomerates–2.16% | ||||||||
General Electric Co. | 1,909,331 | 39,790,458 | ||||||
Industrial Machinery–2.30% | ||||||||
Ingersoll-Rand PLC (Ireland) | 1,007,630 | 42,501,833 | ||||||
Integrated Oil & Gas–7.50% | ||||||||
BP PLC–ADR (United Kingdom) | 1,029,697 | 41,743,916 | ||||||
Chevron Corp. | 329,645 | 34,777,548 | ||||||
Murphy Oil Corp. | 534,014 | 26,855,564 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 517,354 | 34,885,180 | ||||||
138,262,208 | ||||||||
Integrated Telecommunication Services–2.44% | ||||||||
AT&T Inc. | 491,054 | 17,510,986 | ||||||
Verizon Communications Inc. | 617,981 | 27,463,075 | ||||||
44,974,061 | ||||||||
Internet Software & Services–3.40% | ||||||||
eBay Inc.(b) | 769,010 | 32,306,110 | ||||||
Yahoo! Inc.(b) | 1,925,619 | 30,482,549 | ||||||
62,788,659 | ||||||||
Investment Banking & Brokerage–1.56% | ||||||||
Goldman Sachs Group, Inc. (The) | 155,300 | 14,887,058 | ||||||
Morgan Stanley | 949,805 | 13,857,655 | ||||||
28,744,713 | ||||||||
Life & Health Insurance–1.41% | ||||||||
Aflac, Inc. | 152,674 | 6,502,386 | ||||||
MetLife, Inc. | 631,559 | 19,483,595 | ||||||
25,985,981 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Shares | Value | |||||||
Managed Health Care–3.11% | ||||||||
UnitedHealth Group Inc. | 675,078 | $ | 39,492,063 | |||||
WellPoint, Inc. | 280,136 | 17,869,875 | ||||||
57,361,938 | ||||||||
Movies & Entertainment–5.23% | ||||||||
News Corp.–Class B | 1,562,235 | 35,181,532 | ||||||
Time Warner Inc. | 626,505 | 24,120,443 | ||||||
Viacom Inc.–Class B | 790,865 | 37,186,472 | ||||||
96,488,447 | ||||||||
Oil & Gas Drilling–0.50% | ||||||||
Noble Corp.(b) | 282,501 | 9,189,758 | ||||||
Oil & Gas Equipment & Services–3.32% | ||||||||
Halliburton Co. | 1,099,598 | 31,217,587 | ||||||
Weatherford International Ltd.(b) | 2,371,385 | 29,950,593 | ||||||
61,168,180 | ||||||||
Oil & Gas Exploration & Production–1.06% | ||||||||
QEP Resources Inc. | 655,273 | 19,638,532 | ||||||
Other Diversified Financial Services–6.60% | ||||||||
Bank of America Corp. | 2,716,933 | 22,224,512 | ||||||
Citigroup Inc. | 1,764,944 | 48,377,115 | ||||||
JPMorgan Chase & Co. | 1,433,021 | 51,201,840 | ||||||
121,803,467 | ||||||||
Packaged Foods & Meats–3.48% | ||||||||
Kraft Foods Inc.–Class A | 848,843 | 32,782,317 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 938,932 | 31,313,382 | ||||||
64,095,699 | ||||||||
Paper Products–1.82% | ||||||||
International Paper Co. | 1,160,373 | 33,546,383 | ||||||
Pharmaceuticals–10.49% | ||||||||
Bristol-Myers Squibb Co. | 1,114,394 | 40,062,464 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 454,348 | 20,704,639 | ||||||
Merck & Co., Inc. | 944,427 | 39,429,827 | ||||||
Novartis AG (Switzerland) | 185,605 | 10,347,041 | ||||||
Pfizer Inc. | 2,078,561 | 47,806,903 | ||||||
Roche Holding AG–ADR (Switzerland) | 340,186 | 14,700,050 | ||||||
Sanofi–ADR (France) | 540,582 | 20,423,188 | ||||||
193,474,112 | ||||||||
Property & Casualty Insurance–4.09% | ||||||||
Allstate Corp. (The) | 1,422,253 | 49,906,858 | ||||||
Travelers Cos., Inc. (The) | 400,921 | 25,594,796 | ||||||
75,501,654 | ||||||||
Regional Banks–2.44% | ||||||||
Fifth Third Bancorp | 1,205,177 | 16,149,372 | ||||||
PNC Financial Services Group, Inc. | 472,031 | 28,845,814 | ||||||
44,995,186 | ||||||||
Semiconductor Equipment–0.15% | ||||||||
KLA-Tencor Corp. | 56,270 | 2,771,298 | ||||||
Semiconductors–0.76% | ||||||||
Intel Corp. | 526,746 | 14,037,781 | ||||||
Soft Drinks–0.49% | ||||||||
PepsiCo, Inc. | 129,128 | 9,124,184 | ||||||
Specialty Stores–0.72% | ||||||||
Staples, Inc. | 1,010,573 | 13,187,978 | ||||||
Systems Software–2.70% | ||||||||
Microsoft Corp. | 1,628,706 | 49,822,117 | ||||||
Wireless Telecommunication Services–0.98% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 640,564 | 18,051,094 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,886,424,565) | 1,812,806,465 | |||||||
Money Market Funds–1.70% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 15,686,427 | 15,686,427 | ||||||
Premier Portfolio– Institutional Class(c) | 15,686,427 | 15,686,427 | ||||||
Total Money Market Funds (Cost $31,372,854) | 31,372,854 | |||||||
TOTAL INVESTMENTS–99.98% (Cost $1,917,797,419) | 1,844,179,319 | |||||||
OTHER ASSETS LESS LIABILITIES–0.02% | 320,067 | |||||||
NET ASSETS–100.00% | $ | 1,844,499,386 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
By sector, based on Net Assets
as of June 30, 2012
Financials | 21.5 | % | ||
Consumer Discretionary | 16.1 | |||
Health Care | 14.6 | |||
Energy | 12.4 | |||
Information Technology | 11.0 | |||
Consumer Staples | 7.4 | |||
Industrials | 6.5 | |||
Telecommunication Services | 3.4 | |||
Materials | 2.8 | |||
Utilities | 2.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,886,424,565) | $ | 1,812,806,465 | ||
Investments in affiliated money market funds, at value and cost | 31,372,854 | |||
Total investments, at value (Cost $1,917,797,419) | 1,844,179,319 | |||
Receivable for: | ||||
Investments sold | 1,907,480 | |||
Fund shares sold | 2,314,946 | |||
Dividends | 3,899,070 | |||
Fund expenses absorbed | 102,550 | |||
Investment for trustee deferred compensation and retirement plans | 18,544 | |||
Other assets | 23,212 | |||
Total assets | 1,852,445,121 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 4,267,204 | |||
Fund shares reacquired | 1,449,548 | |||
Accrued fees to affiliates | 2,088,562 | |||
Accrued other operating expenses | 43,546 | |||
Trustee deferred compensation and retirement plans | 96,875 | |||
Total liabilities | 7,945,735 | |||
Net assets applicable to shares outstanding | $ | 1,844,499,386 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 2,335,827,882 | ||
Undistributed net investment income | 44,455,742 | |||
Undistributed net realized gain (loss) | (462,166,138 | ) | ||
Unrealized appreciation (depreciation) | (73,618,100 | ) | ||
$ | 1,844,499,386 | |||
Net Assets: | ||||
Series I | $ | 252,946,451 | ||
Series II | $ | 1,591,552,935 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 20,553,379 | |||
Series II | 129,950,039 | |||
Series I: | ||||
Net asset value per share | $ | 12.31 | ||
Series II: | ||||
Net asset value per share | $ | 12.25 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $575,083) | $ | 23,608,142 | ||
Dividends from affiliated money market funds | 29,020 | |||
Total investment income | 23,637,162 | |||
Expenses: | ||||
Advisory fees | 5,261,753 | |||
Administrative services fees | 2,436,588 | |||
Custodian fees | 34,527 | |||
Distribution fees — Series II | 2,006,185 | |||
Transfer agent fees | 17,098 | |||
Trustees’ and officers’ fees and benefits | 46,546 | |||
Other | 141,528 | |||
Total expenses | 9,944,225 | |||
Less: Fees waived | (2,179,295 | ) | ||
Net expenses | 7,764,930 | |||
Net investment income | 15,872,232 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $125,821) | 26,187,035 | |||
Foreign currencies | 9,774 | |||
26,196,809 | ||||
Change in net unrealized appreciation of investment securities | 111,767,101 | |||
Net realized and unrealized gain | 137,963,910 | |||
Net increase in net assets resulting from operations | $ | 153,836,142 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Comstock Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 15,872,232 | $ | 28,501,215 | ||||
Net realized gain | 26,196,809 | 77,412,661 | ||||||
Change in net unrealized appreciation (depreciation) | 111,767,101 | (142,304,555 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 153,836,142 | (36,390,679 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,436,682 | ) | |||||
Series II | — | (21,508,918 | ) | |||||
Total distributions from net investment income | — | (25,945,600 | ) | |||||
Share transactions–net: | ||||||||
Series I | (32,197,462 | ) | 51,382,742 | |||||
Series II | (67,524,675 | ) | (86,766,882 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (99,722,137 | ) | (35,384,140 | ) | ||||
Net increase (decrease) in net assets | 54,114,005 | (97,720,419 | ) | |||||
Net assets: | ||||||||
Beginning of period | 1,790,385,381 | 1,888,105,800 | ||||||
End of period (includes undistributed net investment income of $44,455,742 and $28,583,510, respectively) | $ | 1,844,499,386 | $ | 1,790,385,381 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Comstock Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco Van Kampen V.I. Comstock Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco Van Kampen V.I. Comstock 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. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $500 million | 0 | .60% | ||
Over $500 million | 0 | .55% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.72% and Series II shares to 0.97% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.62% and Series II shares to 0.87% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause total annual operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, 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 April 30, 2013.
Invesco Van Kampen V.I. Comstock Fund
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June��30, 2012, the Adviser waived advisory fees of $2,179,295.
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, 2012, Invesco was paid $200,993 for accounting and fund administrative services and reimbursed $2,235,595 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,819,132,228 | $ | 25,047,091 | $ | — | $ | 1,844,179,319 | ||||||||
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, 2012, the Fund engaged in securities purchases of $417,255 and securities sales of $1,115,843, which resulted in net realized gains of $125,821.
Invesco Van Kampen V.I. Comstock Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2012, the Fund paid legal fees of $165 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 142,015,578 | $ | — | $ | 142,015,578 | ||||||
December 31, 2017 | 341,097,828 | — | 341,097,828 | |||||||||
$ | 483,113,406 | $ | — | $ | 483,113,406 | |||||||
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. To the extent that unrealized gains as of May 2, 2011, the date of reorganization of Invesco Van Kampen V.I. Value Fund into the Fund are realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization. |
NOTE 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, 2012 was $141,620,544 and $209,814,615, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
�� | ||||
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 201,246,644 | ||
Aggregate (depreciation) of investment securities | (280,114,285 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (78,867,641 | ) | |
Cost of investments for tax purposes is $1,923,046,960. |
Invesco Van Kampen V.I. Comstock Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 164,197 | $ | 1,988,961 | 6,303,011 | $ | 74,837,879 | ||||||||||
Series II | 4,746,682 | 57,753,556 | 10,321,141 | 116,328,044 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 363,662 | 4,436,682 | ||||||||||||
Series II | — | — | 1,767,372 | 21,508,918 | ||||||||||||
Issued in connection with acquisitions.(b) | ||||||||||||||||
Series I | — | — | 2,033,402 | 25,661,404 | ||||||||||||
Series II | — | — | 1,023 | 12,889 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,780,767 | ) | (34,186,423 | ) | (4,604,342 | ) | (53,553,223 | ) | ||||||||
Series II | (10,252,442 | ) | (125,278,231 | ) | (19,330,648 | ) | (224,616,733 | ) | ||||||||
Net increase (decrease) in share activity | (8,122,330 | ) | $ | (99,722,137 | ) | (3,145,379 | ) | $ | (35,384,140 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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. | |
(b) | As of the opening of business on May 2, 2011 the Fund acquired all the net assets of Invesco Van Kampen V.I. Value Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Fund on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 2,034,425 shares of the Fund for 2,471,069 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Class I and Class II shares of the Target Fund were exchanged for Series I and Series II shares of the Fund, respectively, based on the relative net asset value of the Target Fund to the net asset value of the Fund at the close of business on April 29, 2011. The Target Fund’s net assets at that date of $25,674,293, including $4,451,624 of unrealized appreciation, were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $2,060,987,398. The net assets of the Fund immediately following the acquisition were $2,086,661,691. | |
The pro forma results of the operations for the year ended December 31, 2011, assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period, are as follows: |
Net investment income | $ | 28,597,812 | ||
Net realized/unrealized gains (losses) | (62,664,518 | ) | ||
Change in net assets resulting from operations | $ | (34,066,706 | ) | |
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. Comstock Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
�� | Ratio of | Ratio of | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | on securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 11.32 | $ | 0.12 | $ | 0.87 | $ | 0.99 | $ | — | $ | — | $ | — | $ | 12.31 | 8.75 | %(d) | $ | 252,946 | 0.62 | %(e) | 0.85 | %(e) | 1.91 | %(e) | 8 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.75 | 0.30 | (0.60 | ) | (0.30 | ) | (0.26 | ) | (0.33 | ) | (0.59 | ) | 13.86 | (2.04 | ) | 309,646 | 0.59 | 0.59 | 2.03 | 25 | ||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 11.28 | 0.10 | 0.87 | 0.97 | — | — | — | 12.25 | 8.60 | (d) | 1,591,553 | 0.87 | (e) | 1.10 | (e) | 1.66 | (e) | 8 | ||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.70 | 0.26 | (0.59 | ) | (0.33 | ) | (0.24 | ) | (0.33 | ) | (0.57 | ) | 13.80 | (2.33 | )(f) | 3,521,509 | 0.84 | 0.84 | 1.78 | 25 | ||||||||||||||||||||||||||||||||||||
(a) | Calculated using average shares outstanding. | |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $21,084,025 and sold of $6,434,519 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Value Fund into the Fund. | |
(c) | On June 1, 2010, the Class I and Class II shares of the predecessor fund were reorganized into Series I and Series II shares of the Fund, respectively. | |
(d) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $264,657 and $1,613,766 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 Van Kampen V.I. Comstock Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,087.50 | $ | 3.22 | $ | 1,021.78 | $ | 3.12 | 0.62 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,086.00 | 4.51 | 1,020.54 | 4.37 | 0.87 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 0.72% and 0.97% 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 0.72% and 0.97% 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 $3.74 and $5.03 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 $3.62 and $4.87 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Comstock Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. Comstock Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 third quintile of the performance universe for the one year period, the first quintile for the three year period and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The
Invesco Van Kampen V.I. Comstock Fund
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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund with comparable investment strategies and below the total account level fee of eight mutual funds sub-advised by Invesco Advisers with comparable investment strategies. The Board did not consider a comparison of fees to an off-shore fund to be apt as the fee includes more than the advisory fees.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of fee and expense waivers. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. Comstock Fund
Invesco Van Kampen V.I. Equity and Income Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIEQI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.45 | % | ||
Series II Shares | 6.38 | |||
Russell 1000 Value Index▼ (Broad Market Index) | 8.68 | |||
Barclays U.S. Government/Credit Index▼ (Style-Specific Index) | 2.65 | |||
Source(s): ▼Lipper Inc. |
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays 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 to represent the credit interests.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||||||
Inception | 6.77 | % | ||||||
5 | Years | 1.71 | ||||||
1 | Year | 0.93 | ||||||
Series II Shares | ||||||||
Inception (4/30/03) | 6.75 | % | ||||||
5 | Years | 1.67 | ||||||
1 | Year | 0.86 |
Effective June 1, 2010, Class II shares of the predecessor fund, Universal Institutional Funds Equity and Income Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series II shares of Invesco Van Kampen V.I. Equity and Income Fund. Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Equity and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is April 30, 2003.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance
figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.67% and 0.92%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Equity and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco Van Kampen V.I. Equity and Income Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–61.33% | ||||||||
Agricultural Products–0.67% | ||||||||
Archer-Daniels-Midland Co. | 221,582 | $ | 6,541,101 | |||||
Asset Management & Custody Banks–1.15% | ||||||||
Northern Trust Corp. | 115,089 | 5,296,396 | ||||||
State Street Corp. | 131,377 | 5,864,669 | ||||||
11,161,065 | ||||||||
Biotechnology–0.21% | ||||||||
Amgen Inc. | 27,339 | 1,996,841 | ||||||
Cable & Satellite–2.76% | ||||||||
Comcast Corp.–Class A | 514,046 | 16,434,051 | ||||||
Time Warner Cable Inc. | 127,282 | 10,449,852 | ||||||
26,883,903 | ||||||||
Communications Equipment–0.28% | ||||||||
Juniper Networks, Inc.(b) | 167,508 | 2,732,055 | ||||||
Computer Hardware–0.34% | ||||||||
Dell Inc.(b) | 107,590 | 1,347,027 | ||||||
Hewlett-Packard Co. | 99,433 | 1,999,597 | ||||||
3,346,624 | ||||||||
Data Processing & Outsourced Services–0.56% | ||||||||
Western Union Co. (The) | 325,380 | 5,479,399 | ||||||
Department Stores–0.50% | ||||||||
Kohl’s Corp. | 106,495 | 4,844,458 | ||||||
Diversified Banks–1.82% | ||||||||
Comerica Inc. | 149,859 | 4,602,170 | ||||||
U.S. Bancorp | 155,048 | 4,986,344 | ||||||
Wells Fargo & Co. | 242,623 | 8,113,313 | ||||||
17,701,827 | ||||||||
Diversified Chemicals–0.79% | ||||||||
PPG Industries, Inc. | 72,328 | 7,675,447 | ||||||
Diversified Support Services–0.49% | ||||||||
Cintas Corp. | 123,645 | 4,773,933 | ||||||
Drug Retail–0.42% | ||||||||
Walgreen Co. | 136,949 | 4,050,951 | ||||||
Electric Utilities–2.04% | ||||||||
American Electric Power Co., Inc. | 73,841 | 2,946,256 | ||||||
Edison International | 114,118 | 5,272,251 | ||||||
Entergy Corp. | 53,584 | 3,637,818 | ||||||
FirstEnergy Corp. | 119,402 | 5,873,384 | ||||||
Pinnacle West Capital Corp. | 41,613 | 2,153,057 | ||||||
19,882,766 | ||||||||
Food Distributors–0.74% | ||||||||
Sysco Corp. | 240,637 | 7,173,389 | ||||||
Health Care Distributors–0.20% | ||||||||
Cardinal Health, Inc. | 47,320 | 1,987,440 | ||||||
Health Care Equipment–1.21% | ||||||||
Medtronic, Inc. | 302,722 | 11,724,423 | ||||||
Home Improvement Retail–0.91% | ||||||||
Home Depot, Inc. (The) | 166,964 | 8,847,422 | ||||||
Hotels, Resorts & Cruise Lines–0.69% | ||||||||
Carnival Corp. | 195,815 | 6,710,580 | ||||||
Household Products–1.52% | ||||||||
Energizer Holdings, Inc. | 47,224 | 3,553,606 | ||||||
Procter & Gamble Co. (The) | 182,794 | 11,196,133 | ||||||
14,749,739 | ||||||||
Industrial Conglomerates–4.73% | ||||||||
General Electric Co. | 1,477,074 | 30,782,222 | ||||||
Tyco International Ltd. | 288,353 | 15,239,456 | ||||||
46,021,678 | ||||||||
Industrial Machinery–0.95% | ||||||||
Ingersoll-Rand PLC | 219,302 | 9,250,158 | ||||||
Insurance Brokers–2.65% | ||||||||
Aon PLC | 111,500 | 5,215,970 | ||||||
Marsh & McLennan Cos., Inc. | 526,252 | 16,961,102 | ||||||
Willis Group Holdings PLC | 98,187 | 3,582,844 | ||||||
25,759,916 | ||||||||
Integrated Oil & Gas–2.71% | ||||||||
Chevron Corp. | 119,114 | 12,566,527 | ||||||
Exxon Mobil Corp. | 93,455 | 7,996,945 | ||||||
Hess Corp. | 31,618 | 1,373,802 | ||||||
Occidental Petroleum Corp. | 51,355 | 4,404,718 | ||||||
26,341,992 | ||||||||
Integrated Telecommunication Services–0.93% | ||||||||
Verizon Communications Inc. | 202,718 | 9,008,788 | ||||||
Internet Software & Services–1.90% | ||||||||
eBay Inc.(b)(c) | 439,482 | 18,462,639 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–0.66% | ||||||||
Charles Schwab Corp. (The) | 495,623 | $ | 6,408,405 | |||||
Investment Companies–Exchange Traded Funds–0.28% | ||||||||
SPDR S&P Homebuilders ETF | 127,200 | 2,715,720 | ||||||
IT Consulting & Other Services–0.63% | ||||||||
Amdocs Ltd.(b) | 207,808 | 6,176,054 | ||||||
Managed Health Care–2.13% | ||||||||
Cigna Corp. | 110,479 | 4,861,076 | ||||||
UnitedHealth Group Inc. | 212,605 | 12,437,393 | ||||||
WellPoint, Inc. | 52,951 | 3,377,744 | ||||||
20,676,213 | ||||||||
Movies & Entertainment–2.52% | ||||||||
Time Warner Inc. | 301,108 | 11,592,658 | ||||||
Viacom Inc.–Class B | 273,941 | 12,880,706 | ||||||
24,473,364 | ||||||||
Oil & Gas Equipment & Services–0.85% | ||||||||
Baker Hughes Inc. | 105,276 | 4,326,844 | ||||||
Cameron International Corp.(b) | 23,674 | 1,011,117 | ||||||
Halliburton Co. | 102,665 | 2,914,659 | ||||||
8,252,620 | ||||||||
Oil & Gas Exploration & Production–2.22% | ||||||||
Anadarko Petroleum Corp. | 183,537 | 12,150,149 | ||||||
ConocoPhillips | 68,038 | 3,801,964 | ||||||
Devon Energy Corp. | 84,601 | 4,906,012 | ||||||
WPX Energy Inc.(b) | 44,494 | 719,913 | ||||||
21,578,038 | ||||||||
Oil & Gas Refining & Marketing–0.12% | ||||||||
Phillips 66 | 34,019 | 1,130,792 | ||||||
Oil & Gas Storage & Transportation–0.64% | ||||||||
Williams Cos., Inc. (The) | 215,452 | 6,209,327 | ||||||
Other Diversified Financial Services–4.07% | ||||||||
Citigroup Inc. | 407,982 | 11,182,787 | ||||||
JPMorgan Chase & Co. | 795,724 | 28,431,218 | ||||||
39,614,005 | ||||||||
Packaged Foods & Meats–1.57% | ||||||||
Kraft Foods Inc.–Class A | 166,727 | 6,438,997 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 264,130 | 8,808,735 | ||||||
15,247,732 | ||||||||
Personal Products–1.00% | ||||||||
Avon Products, Inc. | 602,379 | 9,764,564 | ||||||
Pharmaceuticals–4.55% | ||||||||
Bristol-Myers Squibb Co. | 334,506 | 12,025,491 | ||||||
Eli Lilly & Co. | 69,444 | 2,979,842 | ||||||
Hospira, Inc.(b) | 55,782 | 1,951,254 | ||||||
Merck & Co., Inc. | 321,435 | 13,419,911 | ||||||
Pfizer Inc. | 603,143 | 13,872,289 | ||||||
44,248,787 | ||||||||
Property & Casualty Insurance–0.53% | ||||||||
Chubb Corp. (The) | 71,111 | 5,178,303 | ||||||
Regional Banks–2.39% | ||||||||
BB&T Corp. | 209,695 | 6,469,091 | ||||||
Fifth Third Bancorp | 360,090 | 4,825,206 | ||||||
PNC Financial Services Group, Inc. | 195,984 | 11,976,582 | ||||||
23,270,879 | ||||||||
Semiconductor Equipment–0.54% | ||||||||
Applied Materials, Inc. | 460,650 | 5,279,049 | ||||||
Semiconductors–0.61% | ||||||||
Intel Corp. | 224,165 | 5,973,997 | ||||||
Soft Drinks–1.89% | ||||||||
Coca-Cola Co. (The) | 63,926 | 4,998,374 | ||||||
PepsiCo, Inc. | 189,625 | 13,398,902 | ||||||
18,397,276 | ||||||||
Systems Software–1.59% | ||||||||
Microsoft Corp. | 504,402 | 15,429,657 | ||||||
Wireless Telecommunication Services–1.37% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 471,687 | 13,292,140 | ||||||
Total Common Stocks & Other Equity Interests (Cost $516,118,975) | 596,425,456 | |||||||
Principal | ||||||||
Amount | ||||||||
Bonds and Notes–18.26% | ||||||||
Advertising–0.01% | ||||||||
WPP Finance (United Kingdom), Sr. Unsec. Gtd. Global Notes, 8.00%, 09/15/14 | $ | 100,000 | 113,413 | |||||
Aerospace & Defense–0.02% | ||||||||
Raytheon Co., Sr. Unsec. Notes, 1.63%, 10/15/15 | 185,000 | 188,713 | ||||||
Agricultural Products–0.03% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 255,000 | 311,738 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Airlines–0.11% | ||||||||
Continental Airlines Pass Through Trust, Series 2012-1, Class A, Sec. Pass Through Ctfs., 4.15%, 04/11/24 | $ | 510,000 | $ | 504,581 | ||||
4.75%, 01/12/21 | 308,933 | 326,310 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sec. Pass Through Ctfs., 6.20%, 07/02/18 | 224,821 | 243,931 | ||||||
1,074,822 | ||||||||
Airport Services–0.05% | ||||||||
BAA Funding Ltd. (United Kingdom), Sr. Sec. Notes, 2.50%, 06/25/15(d) | 535,000 | 534,587 | ||||||
Alternative Carriers–0.16% | ||||||||
TW Telecom Inc., Sr. Unsec. Conv. Deb., 2.38%, 04/01/13(e) | 1,136,000 | 1,598,920 | ||||||
Application Software–0.02% | ||||||||
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | 185,000 | 206,731 | ||||||
Asset Management & Custody Banks–0.28% | ||||||||
Affiliated Managers Group, Inc., Sr. Unsec. Conv. Notes, 3.95%, 08/15/13(e) | 2,511,000 | 2,721,296 | ||||||
Automobile Manufacturers–0.07% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 09/15/14(d) | 700,000 | 706,279 | ||||||
Automotive Retail–0.12% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 585,000 | 662,632 | ||||||
AutoZone, Inc., Sr. Unsec. Global Notes, 6.50%, 01/15/14 | 395,000 | 427,123 | ||||||
Sr. Unsec. Notes, 5.88%, 10/15/12 | 60,000 | 60,909 | ||||||
1,150,664 | ||||||||
Biotechnology–1.05% | ||||||||
Dendreon Corp., Sr. Unsec. Conv. Notes, 2.88%, 01/15/16 | 1,894,000 | 1,325,800 | ||||||
Gilead Sciences Inc., Series D, Sr. Unsec. Conv. Notes, 1.63%, 05/01/16 | 3,793,000 | 4,926,158 | ||||||
Vertex Pharmaceuticals Inc., Sr. Unsec. Sub. Conv. Notes, 3.35%, 10/01/15 | 2,987,000 | 3,916,704 | ||||||
10,168,662 | ||||||||
Brewers–0.09% | ||||||||
Anheuser-Busch InBev Worldwide, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, 3.63%, 04/15/15 | 395,000 | 423,747 | ||||||
5.38%, 01/15/20 | 50,000 | 59,598 | ||||||
FBG Financial Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(d) | 325,000 | 352,585 | ||||||
835,930 | ||||||||
Broadcasting–0.06% | ||||||||
COX Communications Inc., Sr. Unsec. Global Notes, 5.45%, 12/15/14 | 445,000 | 490,687 | ||||||
Sr. Unsec. Notes, 8.38%, 03/01/39(d) | 80,000 | 113,696 | ||||||
604,383 | ||||||||
Cable & Satellite–0.41% | ||||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/18 | 445,000 | 524,274 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 2.40%, 03/15/17 | 225,000 | 226,891 | ||||||
5.15%, 03/15/42 | 370,000 | 372,483 | ||||||
NBC Universal Media LLC, Sr. Unsec. Global Notes, 2.10%, 04/01/14 | 230,000 | 234,350 | ||||||
5.15%, 04/30/20 | 175,000 | 202,555 | ||||||
5.95%, 04/01/41 | 215,000 | 254,835 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/40 | 470,000 | 528,282 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 6.50%, 01/15/18 | 1,470,000 | 1,615,124 | ||||||
3,958,794 | ||||||||
Casinos & Gaming–1.01% | ||||||||
International Game Technology, Sr. Unsec. Conv. Notes, 3.25%, 05/01/14 | 3,480,000 | 3,858,450 | ||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 5,867,000 | 5,962,339 | ||||||
9,820,789 | ||||||||
Communications Equipment–0.37% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 03/15/15(d) | 3,177,000 | 3,566,183 | ||||||
Computer & Electronics Retail–0.04% | ||||||||
Best Buy Co., Inc., Sr. Unsec. Notes, 5.50%, 03/15/21 | 420,000 | 387,188 | ||||||
Computer Hardware–0.04% | ||||||||
Hewlett-Packard Co., Sr. Unsec. Global Notes, 2.63%, 12/09/14 | 420,000 | 430,576 | ||||||
Computer Storage & Peripherals–1.48% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Notes, 1.00%, 05/15/13 | 7,906,000 | 7,826,940 | ||||||
1.50%, 08/15/17 | 6,388,000 | 6,603,595 | ||||||
14,430,535 | ||||||||
Construction & Farm Machinery & Heavy Trucks–0.13% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/22 | 1,275,000 | 1,276,598 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Construction Materials–0.48% | ||||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | $ | 5,300,000 | $ | 4,703,750 | ||||
Consumer Finance–0.01% | ||||||||
American Express Credit Corp., Series C, Sr. Unsec. Medium-Term Global Notes, 7.30%, 08/20/13 | 35,000 | 37,475 | ||||||
Capital One Financial Corp., Sr. Unsec. Notes, 6.75%, 09/15/17 | 50,000 | 59,518 | ||||||
96,993 | ||||||||
Diversified Banks–1.32% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.88%, 04/25/14 | 155,000 | 151,752 | ||||||
4.00%, 04/27/16 | 230,000 | 226,565 | ||||||
Sr. Unsec. Gtd. Medium-Term Euro Notes, 3.88%, 11/10/14(d) | 310,000 | 304,646 | ||||||
Ally Financial, Inc., Gtd. Notes, 2.20%, 12/19/12 | 550,000 | 554,912 | ||||||
Bank of Nova Scotia (Canada), Sr. Unsec. Global Notes, 2.38%, 12/17/13 | 395,000 | 404,395 | ||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 2.75%, 02/23/15 | 200,000 | 200,724 | ||||||
6.75%, 05/22/19 | 510,000 | 596,101 | ||||||
Unsec. Sub. Global Notes, 5.14%, 10/14/20 | 275,000 | 261,811 | ||||||
BPCE S.A. (France), Sr. Unsec. Notes, 2.38%, 10/04/13(d) | 390,000 | 385,788 | ||||||
Citibank N.A., Sr. Unsec. Gtd. Notes, 1.75%, 12/28/12 | 1,500,000 | 1,510,699 | ||||||
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(d) | 565,000 | 547,543 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/18(d) | 325,000 | 303,205 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Unsec. Notes, 4.13%, 08/12/20(d) | 565,000 | 596,834 | ||||||
ING Bank N.V. (Netherlands), Unsec. Notes, 3.75%, 03/07/17(d) | 755,000 | 749,292 | ||||||
Korea Development Bank (The) (South Korea), Sr. Unsec. Global Notes, 4.38%, 08/10/15 | 200,000 | 213,315 | ||||||
Lloyds TSB Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/21/16 | 665,000 | 699,109 | ||||||
Sr. Unsec. Gtd. Medium-Term Notes, 5.80%, 01/13/20(d) | 185,000 | 192,663 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(d) | 190,000 | 199,163 | ||||||
Nordea Bank A.B. (Sweden), Sr. Unsec. Notes, 4.88%, 01/27/20(d) | 245,000 | 265,137 | ||||||
Rabobank Nederland N.V. (Netherlands), Sr. Unsec. Medium-Term Global Notes, 4.75%, 01/15/20(d) | 490,000 | 532,506 | ||||||
Royal Bank of Scotland PLC (The) (United Kingdom), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/16/15 | 445,000 | 458,758 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(d) | 200,000 | 188,957 | ||||||
Societe Generale S.A. (France), Sr. Unsec. Notes, 2.50%, 01/15/14(d) | 705,000 | 698,492 | ||||||
Standard Chartered PLC (United Kingdom), Sr. Unsec. Notes, 3.85%, 04/27/15(d) | 255,000 | 265,963 | ||||||
5.50%, 11/18/14(d) | 100,000 | 106,945 | ||||||
U.S. Bancorp., Sr. Unsec. Notes, 2.00%, 06/14/13 | 530,000 | 538,064 | ||||||
U.S. Bank N.A., Sub. Notes, 3.78%, 04/29/20 | 450,000 | 470,318 | ||||||
Wells Fargo & Co., Sr. Unsec. Global Notes, 3.63%, 04/15/15 | 50,000 | 53,072 | ||||||
Sr. Unsec. Notes, 5.63%, 12/11/17 | 580,000 | 676,719 | ||||||
Westpac Banking Corp. (Australia), Sr. Unsec. Global Notes, 2.10%, 08/02/13 | 440,000 | 445,836 | ||||||
12,799,284 | ||||||||
Diversified Capital Markets–0.05% | ||||||||
UBS AG (Switzerland), Sr. Unsec. Global Notes, 5.88%, 12/20/17 | 250,000 | 280,099 | ||||||
Sr. Unsec. Medium-Term Global Notes, 5.75%, 04/25/18 | 210,000 | 233,355 | ||||||
513,454 | ||||||||
Diversified Metals & Mining–0.16% | ||||||||
Anglo American Capital PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 9.38%, 04/08/19(d) | 200,000 | 266,483 | ||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Global Notes, 1.40%, 02/13/15 | 455,000 | 454,907 | ||||||
Rio Tinto Finance USA Ltd. (Australia), Sr. Unsec. Gtd. Global Notes, 9.00%, 05/01/19 | 295,000 | 404,558 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, 5.38%, 04/16/20 | 5,000 | 5,535 | ||||||
6.75%, 04/16/40 | 10,000 | 10,738 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | 20,000 | 21,058 | ||||||
5.63%, 09/15/19 | 185,000 | 207,659 | ||||||
6.88%, 11/10/39 | 185,000 | 219,742 | ||||||
1,590,680 | ||||||||
Diversified REIT’s–0.12% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(d) | 1,155,000 | 1,194,685 | ||||||
Diversified Support Services–0.04% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | 380,000 | 395,224 | ||||||
Drug Retail–0.04% | ||||||||
CVS Pass-Through Trust, Sec. Global Pass Through Ctfs., 6.04%, 12/10/28 | 372,716 | 418,651 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Electric Utilities–0.15% | ||||||||
Electricite de France S.A. (France), Sr. Unsec. Notes, 4.60%, 01/27/20(d) | $ | 150,000 | $ | 160,648 | ||||
Enel Finance International N.V. (Italy), Sr. Unsec. Gtd. Notes, 5.13%, 10/07/19(d) | 425,000 | 401,833 | ||||||
Iberdola Finance Ireland Ltd. (Spain), Sr. Unsec. Gtd. Notes, 3.80%, 09/11/14(d) | 200,000 | 194,868 | ||||||
Louisville Gas & Electric Co., Sec. First Mortgage Global Bonds, 1.63%, 11/15/15 | 405,000 | 413,588 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 200,000 | 236,898 | ||||||
PPL Electric Utilities Corp., Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 69,719 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 17,873 | ||||||
1,495,427 | ||||||||
Electronic Components–0.00% | ||||||||
Corning, Inc., Sr. Unsec. Notes, 6.63%, 05/15/19 | 35,000 | 42,482 | ||||||
Environmental & Facilities Services–0.04% | ||||||||
Waste Management, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/14 | 395,000 | 420,235 | ||||||
Food Retail–0.02% | ||||||||
Delhaize Group S.A. (Belgium), Sr. Unsec. Gtd. Yankee Bonds, 5.88%, 02/01/14 | 180,000 | 189,230 | ||||||
General Merchandise Stores–0.08% | ||||||||
Target Corp., Sr. Unsec. Global Notes, 2.90%, 01/15/22 | 760,000 | 779,485 | ||||||
Gold–0.26% | ||||||||
Barrick Gold Corp. (Canada), Sr. Unsec. Global Notes, 2.90%, 05/30/16 | 425,000 | 446,584 | ||||||
3.85%, 04/01/22 | 285,000 | 296,408 | ||||||
5.25%, 04/01/42 | 305,000 | 327,205 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(d) | 665,000 | 641,209 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 855,000 | 846,498 | ||||||
2,557,904 | ||||||||
Health Care Equipment–0.48% | ||||||||
CareFusion Corp., Sr. Unsec. Global Notes, 4.13%, 08/01/12 | 330,000 | 330,898 | ||||||
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 | 2,736,000 | 3,204,540 | ||||||
4,629,778 | ||||||||
Health Care Facilities–0.67% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | 2,241,000 | 2,089,732 | ||||||
LifePoint Hospitals Inc., Sr. Unsec. Sub. Conv. Notes, 3.50%, 05/15/14 | 4,141,000 | 4,446,399 | ||||||
6,536,131 | ||||||||
Health Care Services–0.48% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 6.25%, 06/15/14 | 70,000 | 76,667 | ||||||
Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | 300,000 | 312,787 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Notes, 2.75%, 09/15/15 | 220,000 | 226,393 | ||||||
Omnicare Inc., Sr. Unsec. Gtd. Sub. Conv. Notes, 3.75%, 04/01/42 | 2,681,000 | 2,469,871 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(e) | 1,625,000 | 1,553,906 | ||||||
4,639,624 | ||||||||
Hotels, Resorts & Cruise Lines–0.13% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, 4.25%, 03/01/22 | 600,000 | 606,548 | ||||||
5.63%, 03/01/21 | 580,000 | 637,770 | ||||||
7.38%, 03/01/20 | 20,000 | 23,868 | ||||||
1,268,186 | ||||||||
Housewares & Specialties–0.06% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/21 | 605,000 | 626,445 | ||||||
Hypermarkets & Super Centers–0.01% | ||||||||
Wal-Mart Stores, Inc., Sr. Unsec. Global Notes, 6.50%, 08/15/37 | 50,000 | 70,413 | ||||||
Industrial Conglomerates–0.51% | ||||||||
General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes, 4.65%, 10/17/21 | 430,000 | 478,462 | ||||||
Series G, Sr. Unsec. Gtd. Medium-Term Global Notes, 2.63%, 12/28/12 | 3,450,000 | 3,489,933 | ||||||
Sr. Unsec. Medium-Term Notes, 6.00%, 08/07/19 | 300,000 | 350,358 | ||||||
General Electric Co., Sr. Unsec. Global Notes, 5.25%, 12/06/17 | 485,000 | 566,958 | ||||||
Koninklije Philips Electronics N.V. (Netherlands), Sr. Unsec. Global Notes, 5.75%, 03/11/18 | 25,000 | 29,657 | ||||||
4,915,368 | ||||||||
Industrial Machinery–0.10% | ||||||||
Pentair, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 05/15/21 | 840,000 | 927,209 | ||||||
Integrated Oil & Gas–0.13% | ||||||||
Hess Corp., Sr. Unsec. Global Notes, 5.60%, 02/15/41 | 195,000 | 207,566 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Notes, 3.95%, 04/15/22 | 300,000 | 307,740 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Notes, 4.88%, 01/24/22(d) | $ | 570,000 | $ | 619,920 | ||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | 115,000 | 122,684 | ||||||
1,257,910 | ||||||||
Integrated Telecommunication Services–0.44% | ||||||||
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | 4,000 | 5,936 | ||||||
AT&T Inc., Sr. Unsec. Global Notes, 1.60%, 02/15/17 | 455,000 | 457,420 | ||||||
2.50%, 08/15/15 | 20,000 | 20,886 | ||||||
3.00%, 02/15/22 | 555,000 | 565,964 | ||||||
5.35%, 09/01/40 | 101,000 | 116,858 | ||||||
6.15%, 09/15/34 | 140,000 | 168,423 | ||||||
CenturyLink Inc., Sr. Unsec. Global Notes, 5.80%, 03/15/22 | 245,000 | 246,639 | ||||||
7.65%, 03/15/42 | 330,000 | 321,735 | ||||||
Deutsche Telekom International Finance B.V. (Germany), Sr. Unsec. Gtd. Global Bonds, 8.75%, 06/15/30 | 155,000 | 215,895 | ||||||
France Telecom S.A. (France), Sr. Unsec. Global Notes, 5.38%, 01/13/42 | 260,000 | 278,008 | ||||||
Telecom Italia Capital S.A. (Italy), Sr. Unsec. Gtd. Global Notes, 7.00%, 06/04/18 | 520,000 | 524,090 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, 3.00%, 04/01/16 | 230,000 | 245,415 | ||||||
4.75%, 11/01/41 | 210,000 | 231,069 | ||||||
6.35%, 04/01/19 | 260,000 | 325,050 | ||||||
8.95%, 03/01/39 | 300,000 | 498,585 | ||||||
Windstream Georgia Communications Corp., Sr. Unsec. Notes, 6.50%, 11/15/13 | 39,000 | 39,929 | ||||||
4,261,902 | ||||||||
Investment Banking & Brokerage–0.77% | ||||||||
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | 510,000 | 568,401 | ||||||
Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 3.70%, 08/01/15 | 65,000 | 65,647 | ||||||
5.25%, 07/27/21 | 400,000 | 406,415 | ||||||
6.15%, 04/01/18 | 550,000 | 595,956 | ||||||
Unsec. Sub. Global Notes, 6.75%, 10/01/37 | 385,000 | 379,645 | ||||||
Series C, Exchangeable Basket-Linked Medium-Term Notes, 1.00%, 03/15/17(d)(f) | 3,328,000 | 3,192,684 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(d) | 50,000 | 49,800 | ||||||
Morgan Stanley, Sr. Unsec. Global Notes, 3.80%, 04/29/16 | 700,000 | 676,470 | ||||||
4.00%, 07/24/15 | 610,000 | 599,620 | ||||||
Sr. Unsec. Notes, 3.45%, 11/02/15 | 715,000 | 695,093 | ||||||
5.75%, 01/25/21 | 220,000 | 217,059 | ||||||
7,446,790 | ||||||||
Life & Health Insurance–0.16% | ||||||||
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | 275,000 | 295,703 | ||||||
MetLife, Inc., Sr. Unsec. Global Notes, 4.75%, 02/08/21 | 410,000 | 455,798 | ||||||
Pacific LifeCorp., Sr. Unsec. Notes, 6.00%, 02/10/20(d) | 215,000 | 236,685 | ||||||
Prudential Financial, Inc., Series D, Sr. Unsec. Disc. Medium-Term Notes, 4.75%, 09/17/15 | 255,000 | 274,894 | ||||||
Sr. Unsec. Medium-Term Notes, 3.88%, 01/14/15 | 50,000 | 52,351 | ||||||
7.38%, 06/15/19 | 105,000 | 128,031 | ||||||
6.63%, 12/01/37 | 110,000 | 125,758 | ||||||
1,569,220 | ||||||||
Managed Health Care–0.07% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 3.95%, 09/01/20 | 605,000 | 656,894 | ||||||
Movies & Entertainment–0.35% | ||||||||
Liberty Interractive LLC, Sr. Unsec. Conv. Notes, 3.13%, 03/30/13(e) | 2,627,200 | 3,221,604 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | 130,000 | 152,232 | ||||||
3,373,836 | ||||||||
Multi-Line Insurance–0.04% | ||||||||
CNA Financial Corp., Sr. Unsec. Global Bonds, 5.88%, 08/15/20 | 325,000 | 357,043 | ||||||
Office Electronics–0.00% | ||||||||
Xerox Corp., Sr. Unsec. Notes, 4.25%, 02/15/15 | 40,000 | 42,478 | ||||||
Office REIT’s–0.04% | ||||||||
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | 335,000 | 351,555 | ||||||
Oil & Gas Drilling–0.02% | ||||||||
Noble Holding International Ltd., Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/17 | 150,000 | 152,393 | ||||||
Oil & Gas Equipment & Services–0.24% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 12/15/12(e) | 2,331,000 | 2,342,655 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Oil & Gas Exploration & Production–0.42% | ||||||||
Petrobras International Finance Co. (Brazil), Sr. Unsec. Gtd. Global Notes, 6.88%, 01/20/40 | $ | 15,000 | $ | 17,802 | ||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 5.50%, 01/21/21 | 395,000 | 447,288 | ||||||
Southwestern Energy Co., Sr. Unsec. Gtd. Notes, 4.10%, 03/15/22(d) | 755,000 | 764,495 | ||||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17(d) | 3,053,000 | 2,824,025 | ||||||
4,053,610 | ||||||||
Oil & Gas Refining & Marketing–0.04% | ||||||||
Phillips 66, Sr. Unsec. Gtd. Notes, 1.95%, 03/05/15(d) | 385,000 | 389,517 | ||||||
Oil & Gas Storage & Transportation–0.13% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Global Notes, 5.25%, 01/31/20 | 155,000 | 176,930 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 25,000 | 29,682 | ||||||
Series N, Sr. Unsec. Gtd. Notes, 6.50%, 01/31/19 | 245,000 | 295,340 | ||||||
Plains All American Pipeline L.P./PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 355,000 | 366,455 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/38 | 120,000 | 157,369 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/32 | 185,000 | 244,841 | ||||||
1,270,617 | ||||||||
Other Diversified Financial Services–0.91% | ||||||||
Bank of America Corp., Sr. Unsec. Global Notes, 5.75%, 12/01/17 | 975,000 | 1,045,117 | ||||||
Series L, Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | 350,000 | 378,218 | ||||||
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | 340,000 | 406,140 | ||||||
Citigroup Funding, Inc., Unsec. Gtd. Unsub. Global Notes, 2.25%, 12/10/12 | 3,450,000 | 3,479,508 | ||||||
Citigroup Inc., Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 65,000 | 69,766 | ||||||
6.13%, 11/21/17 | 495,000 | 548,448 | ||||||
8.50%, 05/22/19 | 455,000 | 564,497 | ||||||
Sr. Unsec. Notes, 4.75%, 05/19/15 | 75,000 | 78,663 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.75%, 07/01/13(d) | 340,000 | 344,988 | ||||||
General Electric Capital Corp., Sr. Unsec. Global Notes, 5.90%, 05/13/14 | 75,000 | 81,501 | ||||||
JPMorgan Chase & Co., Sr. Unsec. Global Notes, 4.40%, 07/22/20 | 400,000 | 418,070 | ||||||
4.50%, 01/24/22 | 80,000 | 86,621 | ||||||
4.75%, 05/01/13 | 65,000 | 66,984 | ||||||
Sr. Unsec. Notes, 6.00%, 01/15/18 | 615,000 | 705,363 | ||||||
Unsec. Sub. Global Notes, 5.13%, 09/15/14 | 70,000 | 74,471 | ||||||
Merrill Lynch & Co., Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18 | 410,000 | 456,191 | ||||||
Twin Reefs Pass-Through Trust, Sec. Floating Rate Pass Through Ctfs., 1.39% (Acquired 12/07/04; Cost $90,000)(d)(g)(h)(i) | 90,000 | 0 | ||||||
8,804,546 | ||||||||
Packaged Foods & Meats–0.10% | ||||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, 4.88%, 06/30/20(d) | 270,000 | 300,585 | ||||||
Kraft Foods Inc., Sr. Unsec. Global Notes, 7.00%, 08/11/37 | 305,000 | 402,043 | ||||||
Sr. Unsec. Notes, 6.88%, 01/26/39 | 200,000 | 259,230 | ||||||
961,858 | ||||||||
Paper Products–0.03% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/41 | 245,000 | 275,624 | ||||||
Pharmaceuticals–0.65% | ||||||||
Endo Pharmaceuticals Holdings Inc., Sr. Unsec. Sub. Conv. Notes, 1.75%, 04/15/15 | 2,398,000 | 2,895,585 | ||||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, 5.65%, 05/15/18 | 75,000 | 90,797 | ||||||
6.38%, 05/15/38 | 70,000 | 96,170 | ||||||
Merck & Co. Inc., Sr. Unsec. Global Notes, 5.00%, 06/30/19 | 280,000 | 336,251 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19(d) | 1,135,000 | 1,220,125 | ||||||
2.75%, 05/15/15 | 1,203,000 | 1,636,080 | ||||||
6,275,008 | ||||||||
Property & Casualty Insurance–0.05% | ||||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 29,554 | ||||||
WR Berkley Corp., Sr. Unsec. Notes, 4.63%, 03/15/22 | 420,000 | 425,355 | ||||||
454,909 | ||||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
Railroads–0.07% | ||||||||
CSX Corp., Sr. Unsec. Global Notes, 6.15%, 05/01/37 | $ | 80,000 | $ | 98,386 | ||||
Sr. Unsec. Notes, 5.50%, 04/15/41 | 380,000 | 432,297 | ||||||
Union Pacific Corp., Sr. Unsec. Notes, 6.13%, 02/15/20 | 110,000 | 136,047 | ||||||
666,730 | ||||||||
Regional Banks–0.12% | ||||||||
Nationwide Building Society (United Kingdom), Sr. Unsec. Notes, 6.25%, 02/25/20(d) | 485,000 | 526,562 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 02/08/20 | 360,000 | 417,281 | ||||||
Sr. Unsec. Gtd. Notes, 6.70%, 06/10/19 | 185,000 | 230,583 | ||||||
1,174,426 | ||||||||
Restaurants–0.01% | ||||||||
Yum! Brands, Inc., Sr. Unsec. Global Bonds, 6.25%, 03/15/18 | 110,000 | 130,990 | ||||||
Retail REIT’s–0.06% | ||||||||
Simon Property Group L.P., Sr. Unsec. Notes, 4.75%, 03/15/42 | 230,000 | 231,409 | ||||||
WEA Finance LLC (Australia), Sr. Unsec. Gtd. Notes, 7.13%, 04/15/18(d) | 270,000 | 319,392 | ||||||
550,801 | ||||||||
Semiconductor Equipment–0.49% | ||||||||
Lam Research Corp., Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | 3,026,000 | 2,999,523 | ||||||
Novellus Systems Inc., Sr. Unsec. Conv. Notes, 2.63%, 05/15/41 | 1,399,000 | 1,726,016 | ||||||
4,725,539 | ||||||||
Semiconductors–1.06% | ||||||||
Linear Technology Corp., Sr. Unsec. Conv. Notes, 3.00%, 05/01/14(d)(e) | 1,193,000 | 1,237,737 | ||||||
Series A, Sr. Unsec. Conv. Global Notes, 3.00%, 05/01/14(e) | 4,600,000 | 4,772,500 | ||||||
Micron Technology Inc.; Series A, Sr. Unsec. Conv. Notes, 1.50%, 08/01/18(d)(e) | 2,200,000 | 1,958,000 | ||||||
Xilinx Inc., Jr. Unsec. Sub. Conv. Notes, 3.13%, 03/15/37 | 635,000 | 760,413 | ||||||
3.13%, 03/15/37(d) | 1,302,000 | 1,559,145 | ||||||
10,287,795 | ||||||||
Sovereign Debt–0.01% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | 100,000 | 118,250 | ||||||
Peruvian Government International Bond (Peru), Sr. Unsec. Global Notes, 7.13%, 03/30/19 | 10,000 | 12,988 | ||||||
131,238 | ||||||||
Specialized Finance–0.02% | ||||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Notes, 3.05%, 02/15/22 | 195,000 | 202,498 | ||||||
Specialized REIT’s–0.19% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 170,000 | 180,515 | ||||||
Sr. Unsec. Notes, 4.50%, 01/15/18 | 950,000 | 1,002,940 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 495,000 | 499,455 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 4.25%, 03/01/22 | 200,000 | 202,337 | ||||||
1,885,247 | ||||||||
Steel–0.14% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Bonds, 9.85%, 06/01/19 | 446,000 | 528,764 | ||||||
Sr. Unsec. Global Notes, 3.75%, 08/05/15 | 585,000 | 595,983 | ||||||
5.50%, 03/01/21 | 85,000 | 80,727 | ||||||
6.13%, 06/01/18 | 15,000 | 15,502 | ||||||
6.75%, 03/01/41 | 115,000 | 105,980 | ||||||
1,326,956 | ||||||||
Thrifts & Mortgage Finance–0.21% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, 5.00%, 05/01/17 | 2,943,000 | 2,012,276 | ||||||
Tobacco–0.00% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 35,000 | 38,106 | ||||||
Trading Companies & Distributors–0.00% | ||||||||
GATX Corp., Sr. Unsec. Notes, 4.75%, 10/01/12 | 20,000 | 20,205 | ||||||
Trucking–0.03% | ||||||||
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | 280,000 | 289,472 | ||||||
Wireless Telecommunication Services–0.50% | ||||||||
Alltel Corp., Sr. Unsec. Notes, 7.00%, 03/15/16 | 1,000,000 | 1,198,727 | ||||||
America Movil S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Global Notes, 2.38%, 09/08/16 | 255,000 | 262,792 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 3.21%, 08/15/15(d) | 370,000 | 376,937 | ||||||
SBA Communications Corp., Sr. Unsec. Conv. Notes, 1.88%, 05/01/13 | 2,185,000 | 3,037,150 | ||||||
4,875,606 | ||||||||
Total Bonds and Notes (Cost $168,333,992) | 177,513,689 | |||||||
U.S. Treasury Securities–10.92% | ||||||||
U.S. Treasury Bills–0.03% | ||||||||
0.09%, 11/15/12(j)(k) | 340,000 | 339,856 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
U.S. Treasury Notes–7.94% | ||||||||
1.38%, 09/15/12 | $ | 1,700,000 | $ | 1,704,250 | ||||
1.50%, 12/31/13 | 1,085,000 | 1,104,242 | ||||||
0.25%, 02/28/14 | 7,500,000 | 7,492,383 | ||||||
1.75%, 03/31/14 | 2,300,000 | 2,356,961 | ||||||
2.63%, 07/31/14 | 1,100,000 | 1,151,906 | ||||||
2.38%, 10/31/14 | 15,720,000 | 16,454,419 | ||||||
2.13%, 11/30/14 | 5,250,000 | 5,470,664 | ||||||
2.25%, 01/31/15 | 6,000,000 | 6,287,813 | ||||||
2.50%, 03/31/15 | 275,000 | 290,813 | ||||||
2.13%, 05/31/15 | 680,000 | 713,469 | ||||||
2.25%, 03/31/16 | 2,000,000 | 2,127,188 | ||||||
2.63%, 04/30/16 | 14,000,000 | 15,095,937 | ||||||
0.63%, 05/31/17 | 380,000 | 378,278 | ||||||
4.00%, 08/15/18 | 3,055,000 | 3,614,924 | ||||||
1.25%, 01/31/19 | 9,000,000 | 9,123,750 | ||||||
3.63%, 08/15/19 | 1,525,000 | 1,788,777 | ||||||
3.38%, 11/15/19 | 300,000 | 347,109 | ||||||
3.63%, 02/15/20 | 46,000 | 54,122 | ||||||
2.63%, 11/15/20 | 600,000 | 659,531 | ||||||
2.13%, 08/15/21 | 175,000 | 183,914 | ||||||
2.00%, 11/15/21 | 240,000 | 248,850 | ||||||
1.75%, 05/15/22 | 485,000 | 489,092 | ||||||
3.88%, 08/15/40 | 20,000 | 24,622 | ||||||
77,163,014 | ||||||||
U.S. Treasury Bonds–2.95% | ||||||||
8.13%, 08/15/21 | 2,700,000 | 4,240,687 | ||||||
6.63%, 02/15/27 | 2,500,000 | 3,906,641 | ||||||
5.38%, 02/15/31 | 8,995,000 | 13,108,807 | ||||||
4.25%, 05/15/39 | 805,000 | 1,051,280 | ||||||
4.50%, 08/15/39 | 40,000 | 54,263 | ||||||
4.63%, 02/15/40 | 250,000 | 345,859 | ||||||
4.38%, 05/15/40 | 80,000 | 106,613 | ||||||
4.25%, 11/15/40 | 2,000,000 | 2,615,937 | ||||||
3.13%, 11/15/41 | 3,000,000 | 3,224,531 | ||||||
28,654,618 | ||||||||
Total U.S. Treasury Securities (Cost $97,754,818) | 106,157,488 | |||||||
Shares | ||||||||
Preferred Stocks–1.73% | ||||||||
Health Care Facilities–0.30% | ||||||||
HealthSouth Corp., Series A, $65.00 Conv. Pfd. | 2,785 | 2,952,796 | ||||||
Health Care Services–0.12% | ||||||||
Omnicare Capital Trust II, Series B, $2.00 Conv. Pfd. | 26,407 | 1,125,466 | ||||||
Multi-Utilities–0.23% | ||||||||
CenterPoint Energy, Inc., $1.97 Conv. Pfd.(b) | 62,215 | 2,274,736 | ||||||
Oil & Gas Storage & Transportation–0.50% | ||||||||
El Paso Energy Capital Trust I, $2.38 Conv. Pfd. | 95,499 | 4,837,024 | ||||||
Regional Banks–0.35% | ||||||||
KeyCorp, Series A, $7.75 Conv. Pfd. | 30,290 | 3,377,335 | ||||||
Research & Consulting Services–0.04% | ||||||||
Nielsen Holdings N.V., $3.13 Conv. Pfd. | 7,510 | 386,296 | ||||||
Trucking–0.19% | ||||||||
2010 Swift Mandatory Common Exchange Security Trust, $0.66 Conv. Pfd.(d) | 199,220 | 1,893,347 | ||||||
Total Preferred Stocks (Cost $13,630,400) | 16,847,000 | |||||||
Principal | ||||||||
Amount | ||||||||
U.S. Government Sponsored Agency Securities–0.77% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.56% | ||||||||
Sr. Unsec. Global Bonds, 6.75%, 03/15/31 | $ | 750,000 | 1,156,131 | |||||
Sr. Unsec. Global Notes, 3.00%, 07/28/14 | 1,020,000 | 1,075,884 | ||||||
5.00%, 04/18/17 | 1,500,000 | 1,787,571 | ||||||
5.50%, 08/23/17 | 140,000 | 171,594 | ||||||
Unsec. Global Notes, 4.88%, 06/13/18 | 1,000,000 | 1,212,149 | ||||||
5,403,329 | ||||||||
Federal National Mortgage Association (FNMA)–0.21% | ||||||||
Sr. Unsec. Global Notes, 4.38%, 10/15/15 | 1,700,000 | 1,910,378 | ||||||
Unsec. Global Notes, 2.63%, 11/20/14 | 130,000 | 136,767 | ||||||
2,047,145 | ||||||||
Total U.S. Government Sponsored Agency Securities (Cost $6,694,505) | 7,450,474 | |||||||
Municipal Obligation–0.03% | ||||||||
Texas (State of) Transportation Commission; Series 2010 B, Taxable First Tier Build America RB, 5.03%, 04/01/26 (Cost $240,000) | 240,000 | 292,997 | ||||||
Asset-Backed Securities–0.00% | ||||||||
Countrywide Asset-Backed Ctfs., Series 2007-4, Class A1B, Pass Through Ctfs., 5.81%, 09/25/37 (Cost $11,405) | 11,638 | 11,608 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Principal | ||||||||
Amount | Value | |||||||
U.S. Government Sponsored Mortgage-Backed Securities–0.00% | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., 6.50%, 02/01/26 | $ | 6,038 | $ | 6,834 | ||||
5.50%, 02/01/37 | 507 | 552 | ||||||
7,386 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., 6.00%, 01/01/17 | 1,272 | 1,370 | ||||||
5.50%, 03/01/21 | 476 | 520 | ||||||
8.00%, 08/01/21 | 3,346 | 3,792 | ||||||
9.50%, 04/01/30 | 10,073 | 12,179 | ||||||
17,861 | ||||||||
Total U.S. Government Sponsored Mortgage-Backed Securities (Cost $23,121) | 25,247 | |||||||
Shares | ||||||||
Money Market Funds–6.59% | ||||||||
Liquid Assets Portfolio–Institutional Class(l) | 32,040,419 | $ | 32,040,419 | |||||
Premier Portfolio–Institutional Class(l) | 32,040,418 | 32,040,418 | ||||||
Total Money Market Funds (Cost $64,080,837) | 64,080,837 | |||||||
TOTAL INVESTMENTS–99.63% (Cost $866,888,053) | 968,804,796 | |||||||
OTHER ASSETS LESS LIABILITIES–0.37% | 3,624,779 | |||||||
NET ASSETS–100.00% | $ | 972,429,575 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
ETF | – Exchange-Traded Fund | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
SPDR | – Standard & Poor’s Depositary Receipt | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Unsub. | – Unsubordinated |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | 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 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, 2012 was $31,284,134, which represented 3.22% of the Trust’s Net Assets. | |
(e) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. | |
(f) | Exchangeable for a basket of four common stocks and one ordinary share. | |
(g) | Perpetual bond with no specified maturity date. | |
(h) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The value of this security at June 30, 2012 represented 0.00% of the Trust’s Net Assets. | |
(i) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2012. | |
(j) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. | |
(k) | 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. | |
(l) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By security type, based on Net Assets
as of June 30, 2012
Common Stocks & Other Equity Interests | 61.3 | % | ||
Bonds and Notes | 18.3 | |||
U.S. Treasury Securities | 10.9 | |||
Preferred Stocks | 1.7 | |||
Securities types each less than 1.0% of portfolio | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.0 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $802,807,216) | $ | 904,723,959 | ||
Investments in affiliated money market funds, at value and cost | 64,080,837 | |||
Total investments, at value (Cost $866,888,053) | 968,804,796 | |||
Receivable for: | ||||
Investments sold | 3,864,732 | |||
Variation margin | 87,563 | |||
Fund shares sold | 231,743 | |||
Dividends and interest | 3,764,570 | |||
Investment for trustee deferred compensation and retirement plans | 48,523 | |||
Other assets | 26 | |||
Total assets | 976,801,953 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,750,934 | |||
Fund shares reacquired | 405,564 | |||
Options written, at value (premiums received $84,703) | 282,960 | |||
Foreign currency contracts outstanding | 104,103 | |||
Accrued fees to affiliates | 709,916 | |||
Accrued other operating expenses | 23,765 | |||
Trustee deferred compensation and retirement plans | 95,136 | |||
Total liabilities | 4,372,378 | |||
Net assets applicable to shares outstanding | $ | 972,429,575 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 896,656,771 | ||
Undistributed net investment income | 23,150,738 | |||
Undistributed net realized gain (loss) | (48,952,121 | ) | ||
Unrealized appreciation | 101,574,187 | |||
$ | 972,429,575 | |||
Net Assets: | ||||
Series I | $ | 55,297,823 | ||
Series II | $ | 917,131,752 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 3,808,684 | |||
Series II | 63,245,225 | |||
Series I: | ||||
Net asset value per share | $ | 14.52 | ||
Series II: | ||||
Net asset value per share | $ | 14.50 | ||
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $63,938) | $ | 8,418,351 | ||
Dividends from affiliated money market funds | 51,668 | |||
Interest | 3,856,034 | |||
Total investment income | 12,326,053 | |||
Expenses: | ||||
Advisory fees | 1,866,963 | |||
Administrative services fees | 1,282,998 | |||
Custodian fees | 14,983 | |||
Distribution fees — Series II | 1,129,903 | |||
Transfer agent fees | 11,283 | |||
Trustees’ and officers’ fees and benefits | 29,081 | |||
Other | 45,823 | |||
Total expenses | 4,381,034 | |||
Less: Fees waived | (959,808 | ) | ||
Net expenses | 3,421,226 | |||
Net investment income | 8,904,827 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $15,803) | 8,964,888 | |||
Foreign currencies | (23,812 | ) | ||
Foreign currency contracts | 1,075,499 | |||
Futures contracts | (610,801 | ) | ||
9,405,774 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 40,960,908 | |||
Foreign currency contracts | (908,384 | ) | ||
Futures contracts | 277,494 | |||
Option contracts written | (198,257 | ) | ||
40,131,761 | ||||
Net realized and unrealized gain | 49,537,535 | |||
Net increase in net assets resulting from operations | $ | 58,442,362 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Equity and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 8,904,827 | $ | 15,844,404 | ||||
Net realized gain | 9,405,774 | 6,058,577 | ||||||
Change in net unrealized appreciation (depreciation) | 40,131,761 | (42,001,839 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 58,442,362 | (20,098,858 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (166,703 | ) | |||||
Series II | — | (14,481,929 | ) | |||||
Total distributions from net investment income | — | (14,648,632 | ) | |||||
Share transactions–net: | ||||||||
Series I | (4,282,336 | ) | 61,606,856 | |||||
Series II | (2,499,743 | ) | 93,450,310 | |||||
Net increase (decrease) in net assets resulting from share transactions | (6,782,079 | ) | 155,057,166 | |||||
Net increase in net assets | 51,660,283 | 120,309,676 | ||||||
Net assets: | ||||||||
Beginning of period | 920,769,292 | 800,459,616 | ||||||
End of period (includes undistributed net investment income of $23,150,738 and $14,245,911, respectively) | $ | 972,429,575 | $ | 920,769,292 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Equity and Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objectives are both capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an |
Invesco Van Kampen V.I. Equity and Income Fund
independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. | ||
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. |
Invesco Van Kampen V.I. Equity and Income 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. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. | |
L. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently valued to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. |
Invesco Van Kampen V.I. Equity and Income Fund
M. | Collateral — To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $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).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.70% and Series II shares to 0.75% (after 12b-1 fee waivers) of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $55,886.
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, 2012, Invesco was paid $115,405 for accounting and fund administrative services and reimbursed $1,167,593 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. IDI had contractually agreed to waive 0.20% of Rule 12b-1plan fees on Series II shares through June 30, 2012. 12b-1 fees before fee waivers incurred under the Plan are detailed in the Statement of Operations of Distribution fees. For the six months ended June 30, 2012, 12b-1 fees incurred for Series II shares were $225,981 after fee waivers of $903,922.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Invesco Van Kampen V.I. Equity and Income Fund
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 669,846,118 | $ | 7,507,175 | $ | — | $ | 677,353,293 | ||||||||
U.S. Treasury Securities | — | 106,157,488 | — | 106,157,488 | ||||||||||||
U.S. Government Sponsored Securities | — | 7,475,721 | — | 7,475,721 | ||||||||||||
Corporate Debt Securities | — | 177,382,451 | 0 | 177,382,451 | ||||||||||||
Asset-Backed Securities | — | 11,608 | — | 11,608 | ||||||||||||
Municipal Obligations | — | 292,997 | — | 292,997 | ||||||||||||
Foreign Government Debt Securities | — | 131,238 | — | 131,238 | ||||||||||||
669,846,118 | 298,958,678 | 0 | 968,804,796 | |||||||||||||
Foreign Currency Contracts* | — | (104,103 | ) | — | (104,103 | ) | ||||||||||
Futures* | (40,195 | ) | — | (40,195 | ) | |||||||||||
Options* | — | (198,257 | ) | — | (198,257 | ) | ||||||||||
Total Investments | $ | 669,805,923 | $ | 298,656,318 | $ | 0 | $ | 968,462,241 | ||||||||
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Foreign currency contracts(a) | $ | 17,109 | $ | (121,212 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | — | (40,195 | ) | |||||
Equity risk | ||||||||
Options contracts(a) | — | (198,257 | ) | |||||
(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 (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Invesco Van Kampen V.I. Equity and Income Fund
Effect of Derivative Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||||||
Statement of Operations | ||||||||||||
Foreign Currency | ||||||||||||
Contracts* | Futures* | Options* | ||||||||||
Realized Gain (Loss) | ||||||||||||
Currency risk | $ | 1,075,499 | $ | — | $ | — | ||||||
Interest rate risk | — | (610,801 | ) | — | ||||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||||||
Currency risk | (908,384 | ) | — | — | ||||||||
Interest rate risk | — | 277,494 | — | |||||||||
Equity risk | — | — | $ | (198,257 | ) | |||||||
Total | $ | 167,115 | $ | (333,307 | ) | $ | (198,257 | ) | ||||
* | The average notional value of foreign currency contracts, futures and options outstanding during the period was $25,108,604, $25,083,268 and $2,160,000, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||
Settlement | Contract to | Notional | Appreciation | |||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||
7/12/12 | Bank of New York | EUR | 7,671,296 | USD | 9,626,633 | $ | 9,702,328 | $ | (75,695 | ) | ||||||||||||
7/12/12 | State Street CA | GBP | 6,131,140 | USD | 9,556,025 | 9,601,542 | (45,517 | ) | ||||||||||||||
7/12/12 | Bank of New York | USD | 1,560,000 | EUR | 1,243,137 | 1,572,266 | 12,266 | |||||||||||||||
7/12/12 | State Street CA | USD | 1,836,000 | EUR | 1,455,491 | 1,840,843 | 4,843 | |||||||||||||||
Total open foreign currency contracts | $ | (104,103 | ) | |||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||
Unrealized | ||||||||||||||||
Number of | Expiration | Notional | Appreciation | |||||||||||||
Long Contracts | Contracts | Month | Value | (Depreciation) | ||||||||||||
U.S. Treasury 2 Year Notes | 27 | September-2012 | $ | 5,945,063 | $ | (900 | ) | |||||||||
Short Contracts | ||||||||||||||||
U.S. Treasury 5 Year Notes | 68 | September-2012 | (8,429,875 | ) | (14,486 | ) | ||||||||||
U.S. Treasury 10 Year Notes | 36 | September-2012 | (4,801,500 | ) | (11,607 | ) | ||||||||||
U.S. Treasury Long Bond | 29 | September-2012 | (4,291,094 | ) | (13,202 | ) | ||||||||||
Subtotal | $ | (17,522,469 | ) | $ | (39,295 | ) | ||||||||||
Total | $ | (40,195 | ) | |||||||||||||
Open Options Written | ||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Contract | Strike | Number of | Premiums | Appreciation | ||||||||||||||||||||
Month | Price | Contracts | Received | Value | (Depreciation) | |||||||||||||||||||
Calls | ||||||||||||||||||||||||
eBay Inc. | July-2012 | $ | 40 | 1,080 | $ | 84,703 | $ | 282,960 | $ | (198,257 | ) | |||||||||||||
Invesco Van Kampen V.I. Equity and Income Fund
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 1,080 | 84,703 | ||||||
End of period | 1,080 | $ | 84,703 | |||||
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, 2012, the Fund engaged in securities purchases of $75,783 and securities sales of $389,047, which resulted in net realized gains of $15,803.
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $xx of capital loss carryforward in the fiscal year ending December 31, 2012.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 1,901,861 | $ | — | $ | 1,901,861 | ||||||
December 31, 2016 | 6,050,182 | — | 6,050,182 | |||||||||
December 31, 2017 | 47,497,547 | — | 47,497,547 | |||||||||
$ | 55,449,590 | $ | — | $ | 55,449,590 | |||||||
* | 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 and realized on securities held in each fund at such date of reorganization, the capital loss carryforward may be further limited for up to five years from the date of the reorganization.
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $128,661,259 and $144,211,385, 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 | $ | 122,589,690 | ||
Aggregate unrealized (depreciation) of investment securities | (26,686,105 | ) | ||
Net unrealized appreciation of investment securities | $ | 95,903,585 | ||
Cost of investments for tax purposes is $872,901,211. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 134,179 | $ | 1,927,289 | 166,964 | $ | 2,254,649 | ||||||||||
Series II | 3,189,289 | 45,784,525 | 10,464,491 | 146,470,102 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 13,178 | 166,498 | ||||||||||||
Series II | — | — | 1,025,856 | 14,481,929 | ||||||||||||
Issued as connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 4,636,112 | 68,904,153 | ||||||||||||
Series II | — | — | 2,097,600 | 31,153,983 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (432,778 | ) | (6,209,625 | ) | (712,240 | ) | (9,718,444 | ) | ||||||||
Series II | (3,368,028 | ) | (48,284,268 | ) | (7,121,326 | ) | (98,655,704 | ) | ||||||||
Net increase (decrease) in share activity | (477,338 | ) | $ | (6,782,079 | ) | 10,570,635 | $ | 155,057,166 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 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. | |
(b) | As of the opening of business on May 2, 2011, the Fund acquired all the net assets of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund (the “Target Funds”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 10, 2010 and by the shareholders of the Target Funds on April 1, 2011. The acquisition was accomplished by a tax-free exchange of 6,733,712 shares of the Fund for 3,229,995, 2,847,069 and 2,619,937 shares outstanding of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund, respectively, as of the close of business on April 29, 2011. Each class of the Target Funds was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Funds to the net asset value of the Fund on the close of business, April 29, 2011. Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund’s net assets at that date of $31,074,477, $31,415,511 and 37,568,148 including $4,748,360, 4,098,925 and 3,365,752 of unrealized appreciation, were combined with those of the Fund, respectively. The net assets of the Fund immediately before the acquisition were $883,038,141 and $983,096,277 immediately after the acquisition. | |
The pro forma results of operations for the year ended December 31, 2011 assuming the reorganization had been completed on January 1, 2011, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 16,266,072 | ||
Net realized/unrealized gains (losses) | (29,988,355 | ) | ||
Change in net assets resulting from operations | (13,722,283 | ) | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Funds that have been included in the Fund’s Statement of Operations since May 2, 2011. |
Invesco Van Kampen V.I. Equity and Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | rebate from | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | investment | Morgan Stanley | |||||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | Affiliates to | |||||||||||||||||||||||||||||||||||||||||||||||||
beginning | Investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | average | Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | net assets | turnover(c) | ||||||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 13.65 | $ | 0.15 | $ | 0.72 | $ | 0.87 | $ | — | $ | — | $ | — | $ | 14.52 | 6.37 | % | $ | 55,298 | 0.67 | %(d) | 0.68 | %(d) | 1.90 | %(d) | — | % | 16 | % | ||||||||||||||||||||||||||||||
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 06/30/12 | 13.63 | 0.13 | 0.74 | 0.87 | — | — | — | 14.50 | 6.38 | 917,132 | 0.72 | (d) | 0.93 | (d) | 1.85 | (d) | — | 16 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.05 | 0.25 | (0.42 | ) | (0.17 | ) | (0.25 | ) | — | (0.25 | ) | 13.63 | (1.30 | ) | 864,716 | 0.71 | 0.92 | 1.78 | — | 28 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.80 | 0.22 | 1.29 | 1.51 | (0.26 | ) | — | (0.26 | ) | 14.05 | 12.03 | 800,414 | 0.74 | 0.98 | 1.68 | — | 34 | |||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.77 | 0.24 | 2.11 | 2.35 | (0.32 | ) | — | (0.32 | ) | 12.80 | 22.49 | 672,782 | 0.74 | (g) | 1.04 | (g) | 2.09 | (g)(h) | 0.01 | 81 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/08 | 14.74 | 0.32 | (3.56 | ) | (3.24 | ) | (0.31 | ) | (0.42 | ) | (0.73 | ) | 10.77 | (22.68 | )(i) | 517,124 | 0.75 | (g) | 1.05 | (g) | 2.50 | (g)(h) | 0.01 | 95 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 14.89 | 0.35 | 0.17 | 0.52 | (0.28 | ) | (0.39 | ) | (0.67 | ) | 14.74 | 3.36 | 711,897 | 0.74 | (g) | 1.04 | (g) | 2.31 | (g)(h) | 0.00 | (j) | 70 | ||||||||||||||||||||||||||||||||||||||
(a) | Calculate using average shares outstanding. | |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. | |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $84,964,454 and sold of $24,142,395 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $56,666 and $908,889 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 is disclosed in the above table as “Ratio of Rebate from Morgan Stanley Affiliates to Average Net Assets”. | |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.79%, 2.20% and 2.01% for the years ended December 31, 2009 through December 31, 2007, respectively. | |
(i) | The Adviser reimbursed the Fund for losses incurred on derivative transactions which breached an investment guideline of the Fund during the period. The impact of this reimbursement is reflected in the total return shown above. Without this reimbursement, the total return for Series II would have been (22.68)%. | |
(j) | Amount is less than 0.005%. |
Invesco Van Kampen V.I. Equity and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,064.50 | $ | 3.44 | $ | 1,021.53 | $ | 3.37 | 0.67 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,063.80 | 3.69 | 1,021.28 | 3.62 | 0.72 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. The Fund’s adviser had contractually agreed to waive 0.20% of Rule 12b-1 plan fees on Series II shares through June 30, 2012. The annualized expense ratios restated as if this agreement had not been in effect throughout the entire most recent fiscal half year are 0.67% and 0.92% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $3.44 and $4.72 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 $3.37 and $4.62 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Equity and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. Equity and Income Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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
Invesco Van Kampen V.I. Equity and Income Fund
the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds – Mixed-Asset Target Allocation Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the third quintile of the performance universe for the one year period, the fifth quintile for the three year period and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was below the performance of the Index for the one and three year periods and above the performance of the Index for the five year period. Invesco Advisers noted that the Fund has less fixed income exposure that its peers and employs a traditional value approach while competitors typically have a core/growth bias. Invesco Advisers confirmed that performance of the Fund has been consistent with its investment process and the market environment. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series II shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers with comparable strategies. The Board also noted that the Fund’s effective fee rate was above the rate of one asset allocation fund advised by Invesco Advisers because Invesco Advisers does not charge a fee to the asset allocation fund, but does charge fees to the underlying funds in which the asset allocation fund invests.
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 also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. Equity and Income Fund
Invesco Van Kampen V.I. Growth and Income Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIGRI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.54 | % | ||
Series II Shares | 7.38 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 1000 Value Index▼ (Style-Specific Index) | 8.68 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Peer Group Index) | 7.53 | |||
Source(s): ▼ 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) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
Series I Shares | ||||
Inception (12/23/96) | 7.55 | % | ||
10 Years | 5.54 | |||
5 Years | -0.84 | |||
1 Year | 0.73 | |||
Series II Shares | ||||
Inception (9/18/00) | 3.98 | % | ||
10 Years | 5.27 | |||
5 Years | -1.10 | |||
1 Year | 0.47 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Growth and Income Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Growth and Income Fund. Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco Van Kampen V.I. Growth and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.72% and 0.97%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.84% and 1.09%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Growth and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2013. See current prospectus for more information. |
Invesco Van Kampen V.l. Growth and Income Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.31% | ||||||||
Agricultural Products–0.99% | ||||||||
Archer-Daniels-Midland Co. | 667,552 | $ | 19,706,135 | |||||
Asset Management & Custody Banks–1.77% | ||||||||
Northern Trust Corp. | 360,267 | 16,579,487 | ||||||
State Street Corp. | 416,336 | 18,585,239 | ||||||
35,164,726 | ||||||||
Biotechnology–0.31% | ||||||||
Amgen Inc. | 83,203 | 6,077,147 | ||||||
Cable & Satellite–4.24% | ||||||||
Comcast Corp.–Class A | 1,540,780 | 49,258,737 | ||||||
Time Warner Cable Inc. | 422,862 | 34,716,970 | ||||||
83,975,707 | ||||||||
Communications Equipment–0.42% | ||||||||
Juniper Networks, Inc.(b) | 508,716 | 8,297,158 | ||||||
Computer Hardware–0.51% | ||||||||
Dell Inc.(b) | 322,487 | 4,037,537 | ||||||
Hewlett-Packard Co. | 298,036 | 5,993,504 | ||||||
10,031,041 | ||||||||
Data Processing & Outsourced Services–0.87% | ||||||||
Western Union Co. (The) | 1,028,697 | 17,323,257 | ||||||
Department Stores–0.74% | ||||||||
Kohl’s Corp. | 320,834 | 14,594,739 | ||||||
Diversified Banks–2.79% | ||||||||
Comerica Inc. | 468,809 | 14,397,124 | ||||||
U.S. Bancorp | 466,395 | 14,999,263 | ||||||
Wells Fargo & Co. | 772,301 | 25,825,746 | ||||||
55,222,133 | ||||||||
Diversified Chemicals–1.23% | ||||||||
PPG Industries, Inc. | 229,335 | 24,337,030 | ||||||
Diversified Support Services–0.76% | ||||||||
Cintas Corp. | 390,912 | 15,093,112 | ||||||
Drug Retail–0.61% | ||||||||
Walgreen Co. | 410,125 | 12,131,498 | ||||||
Electric Utilities–3.05% | ||||||||
American Electric Power Co., Inc. | 221,124 | 8,822,848 | ||||||
Edison International | 350,778 | 16,205,944 | ||||||
Entergy Corp. | 162,190 | 11,011,079 | ||||||
FirstEnergy Corp. | 362,722 | 17,842,295 | ||||||
Pinnacle West Capital Corp. | 125,619 | 6,499,527 | ||||||
60,381,693 | ||||||||
Food Distributors–1.11% | ||||||||
Sysco Corp. | 737,631 | 21,988,780 | ||||||
Health Care Distributors–0.30% | ||||||||
Cardinal Health, Inc. | 141,836 | 5,957,112 | ||||||
Health Care Equipment–1.79% | ||||||||
Medtronic, Inc. | 916,512 | 35,496,510 | ||||||
Home Improvement Retail–1.35% | ||||||||
Home Depot, Inc. (The) | 504,474 | 26,732,077 | ||||||
Hotels, Resorts & Cruise Lines–1.02% | ||||||||
Carnival Corp. | 588,697 | 20,174,646 | ||||||
Household Products–2.27% | ||||||||
Energizer Holdings, Inc. | 146,881 | 11,052,795 | ||||||
Procter & Gamble Co. (The) | 553,293 | 33,889,197 | ||||||
44,941,992 | ||||||||
Industrial Conglomerates–7.23% | ||||||||
General Electric Co. | 4,597,250 | 95,806,690 | ||||||
Tyco International Ltd. | 900,197 | 47,575,411 | ||||||
143,382,101 | ||||||||
Industrial Machinery–1.48% | ||||||||
Ingersoll-Rand PLC | 694,361 | 29,288,147 | ||||||
Insurance Brokers–3.93% | ||||||||
Aon PLC | 333,399 | 15,596,405 | ||||||
Marsh & McLennan Cos., Inc. | 1,592,501 | 51,326,307 | ||||||
Willis Group Holdings PLC | 299,209 | 10,918,137 | ||||||
77,840,849 | ||||||||
Integrated Oil & Gas–4.08% | ||||||||
Chevron Corp. | 358,850 | 37,858,675 | ||||||
Exxon Mobil Corp. | 296,680 | 25,386,908 | ||||||
Hess Corp. | 94,502 | 4,106,112 | ||||||
Occidental Petroleum Corp. | 157,415 | 13,501,484 | ||||||
80,853,179 | ||||||||
Integrated Telecommunication Services–1.43% | ||||||||
Verizon Communications Inc. | 635,973 | 28,262,640 | ||||||
Internet Software & Services–2.79% | ||||||||
eBay Inc.(b)(c) | 1,316,908 | 55,323,305 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Shares | Value | |||||||
Investment Banking & Brokerage–0.97% | ||||||||
Charles Schwab Corp. (The) | 1,485,351 | $ | 19,205,588 | |||||
Investment Companies–Exchange Traded Funds–0.40% | ||||||||
SPDR S&P Homebuilders ETF | 370,300 | 7,905,905 | ||||||
IT Consulting & Other Services–1.00% | ||||||||
Amdocs Ltd.(b) | 668,505 | 19,867,969 | ||||||
Managed Health Care–3.15% | ||||||||
Cigna Corp. | 335,522 | 14,762,968 | ||||||
UnitedHealth Group Inc. | 641,244 | 37,512,774 | ||||||
WellPoint, Inc. | 160,812 | 10,258,198 | ||||||
62,533,940 | ||||||||
Movies & Entertainment–3.77% | ||||||||
Time Warner Inc. | 933,489 | 35,939,327 | ||||||
Viacom Inc.–Class B | 823,700 | 38,730,374 | ||||||
74,669,701 | ||||||||
Oil & Gas Equipment & Services–1.26% | ||||||||
Baker Hughes Inc. | 315,965 | 12,986,161 | ||||||
Cameron International Corp.(b) | 70,978 | 3,031,470 | ||||||
Halliburton Co. | 315,727 | 8,963,490 | ||||||
24,981,121 | ||||||||
Oil & Gas Exploration & Production–3.32% | ||||||||
Anadarko Petroleum Corp. | 554,387 | 36,700,420 | ||||||
ConocoPhillips | 207,767 | 11,610,020 | ||||||
Devon Energy Corp. | 265,879 | 15,418,323 | ||||||
WPX Energy Inc.(b) | 134,791 | 2,180,918 | ||||||
65,909,681 | ||||||||
Oil & Gas Refining & Marketing–0.17% | ||||||||
Phillips 66 | 103,885 | 3,453,137 | ||||||
Oil & Gas Storage & Transportation–0.95% | ||||||||
Williams Cos., Inc. (The) | 656,341 | 18,915,748 | ||||||
Other Diversified Financial Services–5.98% | ||||||||
Citigroup Inc. | 1,219,916 | 33,437,898 | ||||||
JPMorgan Chase & Co. | 2,379,310 | 85,012,746 | ||||||
118,450,644 | ||||||||
Packaged Foods & Meats–2.39% | ||||||||
Kraft Foods Inc.–Class A | 507,655 | 19,605,636 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 832,299 | 27,757,172 | ||||||
47,362,808 | ||||||||
Personal Products–1.51% | ||||||||
Avon Products, Inc. | 1,846,952 | 29,939,092 | ||||||
Pharmaceuticals–6.71% | ||||||||
Bristol-Myers Squibb Co. | 1,002,634 | 36,044,692 | ||||||
Eli Lilly & Co. | 208,149 | 8,931,674 | ||||||
Hospira, Inc.(b) | 170,331 | 5,958,178 | ||||||
Merck & Co., Inc. | 965,776 | 40,321,148 | ||||||
Pfizer Inc. | 1,819,161 | 41,840,703 | ||||||
133,096,395 | ||||||||
Property & Casualty Insurance–0.79% | ||||||||
Chubb Corp. (The) | 215,063 | 15,660,888 | ||||||
Regional Banks–3.75% | ||||||||
BB&T Corp. | 667,322 | 20,586,884 | ||||||
Fifth Third Bancorp | 1,146,215 | 15,359,281 | ||||||
PNC Financial Services Group, Inc. | 629,970 | 38,497,466 | ||||||
74,443,631 | ||||||||
Semiconductor Equipment–0.85% | ||||||||
Applied Materials, Inc. | 1,465,402 | 16,793,507 | ||||||
Semiconductors–0.96% | ||||||||
Intel Corp. | 713,409 | 19,012,350 | ||||||
Soft Drinks–2.81% | ||||||||
Coca-Cola Co. (The) | 194,644 | 15,219,214 | ||||||
PepsiCo, Inc. | 573,972 | 40,556,862 | ||||||
55,776,076 | ||||||||
Systems Software–2.44% | ||||||||
Microsoft Corp. | 1,579,135 | 48,305,740 | ||||||
Wireless Telecommunication Services–2.06% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 1,446,135 | 40,752,084 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,645,411,777) | 1,829,612,719 | |||||||
Money Market Funds–7.75% | ||||||||
Liquid Assets Portfolio–Institutional Class(d) | 76,843,583 | 76,843,583 | ||||||
Premier Portfolio–Institutional Class(d) | 76,843,583 | 76,843,583 | ||||||
Total Money Market Funds (Cost $153,687,166) | 153,687,166 | |||||||
TOTAL INVESTMENTS–100.06% (Cost $1,799,098,943) | 1,983,299,885 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.06)% | (1,216,425 | ) | ||||||
NET ASSETS–100.00% | $ | 1,982,083,460 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt | |
ETF | – Exchange-Traded Fund | |
SPDR | – Standard & Poor’s Depositary Receipt |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | A portion of this security is subject to call options written. See Note 1K and Note 4. | |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
As of June 30, 2012
Financials | 20.4 | % | ||
Health Care | 12.3 | |||
Consumer Staples | 11.7 | |||
Consumer Discretionary | 11.1 | |||
Energy | 9.8 | |||
Information Technology | 9.8 | |||
Industrials | 9.5 | |||
Telecommunication Services | 3.5 | |||
Utilities | 3.0 | |||
Materials | 1.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.7 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,645,411,777) | $ | 1,829,612,719 | ||
Investments in affiliated money market funds, at value and cost | 153,687,166 | |||
Total investments, at value (Cost $1,799,098,943) | 1,983,299,885 | |||
Receivable for: | ||||
Investments sold | 11,225,894 | |||
Fund shares sold | 285,531 | |||
Dividends | 4,278,231 | |||
Fund expenses absorbed | 114,840 | |||
Investment for trustee deferred compensation and retirement plans | 13,111 | |||
Total assets | 1,999,217,492 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 9,604,493 | |||
Fund shares reacquired | 3,929,341 | |||
Options written, at value (premiums received $214,500) | 716,570 | |||
Foreign currency contracts outstanding | 317,844 | |||
Accrued fees to affiliates | 2,416,206 | |||
Accrued other operating expenses | 58,142 | |||
Trustee deferred compensation and retirement plans | 91,436 | |||
Total liabilities | 17,134,032 | |||
Net assets applicable to shares outstanding | $ | 1,982,083,460 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,788,177,588 | ||
Undistributed net investment income | 42,691,737 | |||
Undistributed net realized gain (loss) | (32,166,893 | ) | ||
Unrealized appreciation | 183,381,028 | |||
$ | 1,982,083,460 | |||
Net Assets: | ||||
Series I | $ | 137,696,467 | ||
Series II | $ | 1,844,386,993 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 7,206,162 | |||
Series II | 96,806,622 | |||
Series I: | ||||
Net asset value per share | $ | 19.11 | ||
Series II: | ||||
Net asset value per share | $ | 19.05 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $198,868) | $ | 24,143,327 | ||
Dividends from affiliated money market funds | 106,238 | |||
Total investment income | 24,249,565 | |||
Expenses: | ||||
Advisory fees | 5,540,058 | |||
Administrative services fees | 2,578,585 | |||
Custodian fees | 29,539 | |||
Distribution fees — Series II | 2,274,457 | |||
Transfer agent fees | 12,248 | |||
Trustees’ and officers’ fees and benefits | 48,992 | |||
Other | 97,076 | |||
Total expenses | 10,580,955 | |||
Less: Fees waived | (2,314,432 | ) | ||
Net expenses | 8,266,523 | |||
Net investment income | 15,983,042 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $139,260) | 28,219,811 | |||
Foreign currencies | (56,028 | ) | ||
Foreign currency contracts | 3,081,315 | |||
31,245,098 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 95,676,804 | |||
Foreign currency contracts | (2,759,689 | ) | ||
Option contracts written | (502,070 | ) | ||
92,415,045 | ||||
Net realized and unrealized gain | 123,660,143 | |||
Net increase in net assets resulting from operations | $ | 139,643,185 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Growth and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 15,983,042 | $ | 26,723,123 | ||||
Net realized gain | 31,245,098 | 43,550,187 | ||||||
Change in net unrealized appreciation (depreciation) | 92,415,045 | (107,765,526 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 139,643,185 | (37,492,216 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,800,201 | ) | |||||
Series II | — | (18,264,703 | ) | |||||
Total distributions from net investment income | — | (20,064,904 | ) | |||||
Share transactions–net: | ||||||||
Series I | (30,983,929 | ) | 6,256,808 | |||||
Series II | (8,022,049 | ) | 52,879,530 | |||||
Net increase (decrease) in net assets resulting from share transactions | (39,005,978 | ) | 59,136,338 | |||||
Net increase in net assets | 100,637,207 | 1,579,218 | ||||||
Net assets: | ||||||||
Beginning of period | 1,881,446,253 | 1,879,867,035 | ||||||
End of period (includes undistributed net investment income of $42,691,737 and $26,708,695, respectively) | $ | 1,982,083,460 | $ | 1,881,446,253 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Growth and Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek long-term growth of capital and income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). |
Invesco Van Kampen V.I. Growth 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. | ||
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. |
Invesco Van Kampen V.I. Growth and Income 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. | Call Options Written — The Fund may write call options. A call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently valued to reflect the current market value of the option written. If a written call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $500 million | 0 | .60% | ||
Over $500 million | 0 | .55% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of
Invesco Van Kampen V.I. Growth and Income Fund
Series I shares to 0.72% and Series II shares to 0.97% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.62% and Series II shares to 0.87% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $2,314,432.
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, 2012, Invesco was paid $207,571 for accounting and fund administrative services and reimbursed $2,371,014 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 1,983,299,885 | $ | — | $ | — | $ | 1,983,299,885 | ||||||||
Foreign Currency Contracts* | — | (317,844 | ) | — | (317,844 | ) | ||||||||||
Options* | (502,070 | ) | — | — | (502,070 | ) | ||||||||||
Total Investments | $ | 1,982,797,815 | $ | (317,844 | ) | $ | — | $ | 1,982,479,971 | |||||||
* | Unrealized appreciation (depreciation). |
Invesco Van Kampen V.I. Growth and Income Fund
NOTE 4—Derivative Investments
Value of Derivative Instruments at Period-End
The table below summarizes the value of the Fund’s derivative instruments, detailed by primary risk exposure, held as of June 30, 2012:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk Foreign Currency Contracts(a) | $ | 51,736 | $ | (369,580 | ) | |||
Equity risk Option Contracts(a) | $ | — | $ | (502,070 | ) | |||
(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 Instruments for the six months ended June 30, 2012
The table below summarizes the gains (losses) on derivative instruments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on | ||||||||
Statement of Operations | ||||||||
Foreign Currency | ||||||||
Contracts* | Options* | |||||||
Realized Gain | ||||||||
Currency risk | $ | 3,081,315 | $ | — | ||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Currency risk | (2,759,689 | ) | — | |||||
Equity risk | — | (502,070 | ) | |||||
Total | $ | 321,626 | $ | (502,070 | ) | |||
* | The average notional value of foreign currency contracts and options outstanding during the period was $77,291,068 and $5,470,000, respectively. |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement | Contract to | Notional | Unrealized | |||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | Appreciation | |||||||||||||||||||||
07/12/12 | Bank of New York | USD | 4,800,000 | EUR | 3,825,036 | $ | 4,837,743 | $ | 37,743 | |||||||||||||||||
07/12/12 | State Street Bank | USD | 5,305,000 | EUR | 4,205,545 | 5,318,993 | 13,993 | |||||||||||||||||||
$ | 51,736 | |||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||
Settlement | Contract to | Notional | Appreciation | |||||||||||||||||||||||
Date | Counterparty | Deliver | Receive | Value | (Depreciation) | |||||||||||||||||||||
07/12/12 | Bank of New York | EUR | 23,532,373 | USD | 29,530,540 | $ | 29,762,741 | $ | (232,201 | ) | ||||||||||||||||
07/12/12 | State Street Bank | GBP | 18,504,914 | USD | 28,841,852 | 28,979,231 | (137,379 | ) | ||||||||||||||||||
$ | (369,580 | ) | ||||||||||||||||||||||||
Total open foreign currency contracts | $ | (317,844 | ) | |||||||||||||||||||||||
Currency Abbreviations: | ||
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Options Written | ||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||
Contract | Strike | Number of | Premiums | Appreciation | ||||||||||||||||||||
Month | Price | Contracts | Received | Value | (Depreciation) | |||||||||||||||||||
Calls | ||||||||||||||||||||||||
eBay Inc. | July-2012 | $ | 40 | 2,735 | $ | 214,500 | $ | 716,570 | $ | (502,070 | ) | |||||||||||||
Invesco Van Kampen V.I. Growth and Income Fund
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of | Premiums | |||||||
Contracts | Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 2,735 | 214,500 | ||||||
End of period | 2,735 | $ | 214,500 | |||||
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, 2012, the Fund engaged in securities purchases of $221,607 and securities sales of $1,049,535, which resulted in net realized gains of $139,260.
NOTE 6—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2012, the Fund paid legal fees of $165 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A partner of that firm is a Trustee of the Trust.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. 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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 58,992,327 | $ | — | $ | 58,992,327 | ||||||
* | 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 Van Kampen V.I. Growth and Income Fund
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2012 was $255,855,009 and $308,378,639, 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 | $ | 251,546,602 | ||
Aggregate unrealized (depreciation) of investment securities | (69,323,478 | ) | ||
Net unrealized appreciation of investment securities | $ | 182,223,124 | ||
Cost of investments for tax purposes is $1,801,076,761. |
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 410,843 | $ | 7,781,133 | 2,123,242 | $ | 37,996,201 | ||||||||||
Series II | 4,028,989 | 75,858,698 | 11,601,479 | 208,213,439 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 112,865 | 1,800,201 | ||||||||||||
Series II | — | — | 1,146,560 | 18,264,703 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,017,326 | ) | (38,765,062 | ) | (1,820,667 | ) | (33,539,594 | ) | ||||||||
Series II | (4,444,355 | ) | (83,880,747 | ) | (9,473,533 | ) | (173,598,612 | ) | ||||||||
Net increase (decrease) in share activity | (2,021,849 | ) | $ | (39,005,978 | ) | 3,689,946 | $ | 59,136,338 | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 78% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco Van Kampen V.I. 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
expenses | expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | (losses) | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | on securities | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | (both realized | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | and unrealized) | operations | income | gains | distributions | of period | return | (000s omitted) | absorbed | absorbed | net assets | turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 17.77 | $ | 0.17 | $ | 1.17 | $ | 1.34 | $ | — | $ | — | $ | — | $ | 19.11 | 7.54 | %(d) | $ | 137,696 | 0.61 | %(e) | 0.84 | %(e) | 1.85 | %(e) | 14 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 22.00 | 0.39 | 0.16 | 0.55 | (0.36 | ) | (0.83 | ) | (1.19 | ) | 21.36 | 2.80 | 263,473 | 0.60 | — | 1.80 | 28 | |||||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 17.74 | 0.15 | 1.16 | 1.31 | — | — | — | 19.05 | 7.38 | (d) | 1,844,387 | 0.86 | (e) | 1.09 | (e) | 1.60 | (e) | 14 | ||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 21.96 | 0.34 | 0.15 | 0.49 | (0.31 | ) | (0.83 | ) | (1.14 | ) | 21.31 | 2.52 | (f) | 1,843,682 | 0.85 | — | 1.54 | 28 | ||||||||||||||||||||||||||||||||||||||
(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 of the predecessor fund were reorganized into Series I and Series II shares, 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 $150,617 and $1,829,563 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 Van Kampen V.I. Growth and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,3 | (06/30/12) | Period2,4 | Ratio2 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,075.40 | $ | 3.15 | $ | 1,021.83 | $ | 3.07 | 0.61 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,073.80 | 4.43 | 1,020.59 | 4.32 | 0.86 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. Effective July 1, 2012, 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 0.72% and 0.97% 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 0.71% and 0.96% 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 $3.66 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 $3.57 and $4.82 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Growth and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. Growth and Income Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 third quintile of the performance universe for the one year period, the fourth 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
Invesco Van Kampen V.I. Growth and Income Fund
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 and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers and below the total account level fee of two mutual funds sub-advised by Invesco Advisers with comparable investment strategies.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts with investment strategies comparable to those of the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund because of expenses of the Fund. 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. Growth and Income Fund
Invesco Van Kampen V.I. Mid Cap Growth Fund
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIMCG-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.44 | % | ||
Series II Shares | 6.46 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell Midcap Growth Index▼ (Style-Specific Index) | 8.10 | |||
Lipper VUF Mid-Cap Growth Funds Index▼ (Peer Group Index) | 8.38 | |||
Source(s): ▼Lipper Inc.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
10 | Years | 6.22 | % | |||||
5 | Years | 1.41 | ||||||
1 | Year | -9.50 | ||||||
Series II Shares | ||||||||
Inception (9/25/00) | -3.07 | % | ||||||
10 | Years | 6.19 | ||||||
5 | Years | 1.35 | ||||||
1 | Year | -9.73 |
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is September 25, 2000.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date
of this report for Series I and Series II shares was 1.08% and 1.33%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Mid Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above,
for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.70% | ||||||||
Aerospace & Defense–2.10% | ||||||||
BE Aerospace, Inc.(b) | 57,865 | $ | 2,526,386 | |||||
Triumph Group, Inc. | 44,099 | 2,481,451 | ||||||
5,007,837 | ||||||||
Apparel Retail–1.33% | ||||||||
American Eagle Outfitters, Inc. | 161,030 | 3,177,122 | ||||||
Apparel, Accessories & Luxury Goods–2.32% | ||||||||
Michael Kors Holdings Ltd.(b) | 86,513 | 3,619,704 | ||||||
Under Armour, Inc.–Class A(b)(c) | 20,451 | 1,932,210 | ||||||
5,551,914 | ||||||||
�� | ||||||||
Application Software–2.52% | ||||||||
Autodesk, Inc.(b) | 45,996 | 1,609,400 | ||||||
Citrix Systems, Inc.(b) | 37,676 | 3,162,523 | ||||||
Salesforce.com, Inc.(b) | 8,996 | 1,243,787 | ||||||
6,015,710 | ||||||||
Asset Management & Custody Banks–2.02% | ||||||||
Affiliated Managers Group, Inc.(b) | 44,069 | 4,823,352 | ||||||
Auto Parts & Equipment–0.88% | ||||||||
BorgWarner, Inc.(b) | 32,012 | 2,099,667 | ||||||
Automobile Manufacturers–1.63% | ||||||||
Tesla Motors, Inc.(b)(c) | 124,708 | 3,902,113 | ||||||
Biotechnology–4.41% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 25,519 | 2,534,037 | ||||||
BioMarin Pharmaceutical Inc.(b) | 100,534 | 3,979,136 | ||||||
Medivation Inc.(b) | 16,829 | 1,538,170 | ||||||
Onyx Pharmaceuticals, Inc.(b) | 37,227 | 2,473,734 | ||||||
10,525,077 | ||||||||
Broadcasting–2.27% | ||||||||
Discovery Communications, Inc.–Class A(b) | 100,274 | 5,414,796 | ||||||
Building Products–1.63% | ||||||||
Lennox International Inc. | 83,389 | 3,888,429 | ||||||
Communications Equipment–1.19% | ||||||||
F5 Networks, Inc.(b) | 28,497 | 2,837,161 | ||||||
Computer Storage & Peripherals–0.43% | ||||||||
NetApp, Inc.(b) | 32,104 | 1,021,549 | ||||||
Construction & Engineering–1.59% | ||||||||
KBR, Inc. | 67,778 | 1,674,794 | ||||||
MasTec Inc.(b) | 140,470 | 2,112,669 | ||||||
3,787,463 | ||||||||
Consumer Finance–2.04% | ||||||||
Discover Financial Services | 140,873 | 4,871,388 | ||||||
Data Processing & Outsourced Services–2.17% | ||||||||
Alliance Data Systems Corp.(b) | 25,898 | 3,496,230 | ||||||
VeriFone Systems, Inc.(b) | 51,118 | 1,691,495 | ||||||
5,187,725 | ||||||||
Electrical Components & Equipment–2.96% | ||||||||
AMETEK, Inc. | 91,450 | 4,564,270 | ||||||
Polypore International, Inc.(b)(c) | 62,036 | 2,505,634 | ||||||
7,069,904 | ||||||||
Electronic Components–1.85% | ||||||||
Amphenol Corp.–Class A | 80,621 | 4,427,705 | ||||||
Food Retail–1.31% | ||||||||
Whole Foods Market, Inc. | 32,753 | 3,122,016 | ||||||
General Merchandise Stores–2.12% | ||||||||
Dollar Tree, Inc.(b) | 93,954 | 5,054,725 | ||||||
Health Care Equipment–2.11% | ||||||||
Hologic, Inc.(b) | 148,051 | 2,670,840 | ||||||
Varian Medical Systems, Inc.(b) | 38,889 | 2,363,285 | ||||||
5,034,125 | ||||||||
Health Care Facilities–1.39% | ||||||||
Universal Health Services, Inc.–Class B | 76,988 | 3,322,802 | ||||||
Health Care Services–3.93% | ||||||||
DaVita, Inc.(b) | 38,459 | 3,777,059 | ||||||
Express Scripts Holding Co.(b) | 50,192 | 2,802,219 | ||||||
HMS Holdings Corp.(b) | 84,055 | 2,799,872 | ||||||
9,379,150 | ||||||||
Homebuilding–1.34% | ||||||||
Toll Brothers, Inc.(b) | 107,877 | 3,207,183 | ||||||
Hotels, Resorts & Cruise Lines–1.32% | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 59,615 | 3,161,980 | ||||||
Household Products–1.62% | ||||||||
Church & Dwight Co., Inc. | 69,729 | 3,867,868 | ||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Human Resource & Employment Services–1.31% | ||||||||
Robert Half International, Inc. | 109,652 | $ | 3,132,758 | |||||
Industrial Gases–1.59% | ||||||||
Airgas, Inc. | 45,291 | 3,804,897 | ||||||
Industrial Machinery–2.83% | ||||||||
Flowserve Corp. | 36,772 | 4,219,587 | ||||||
Graco Inc. | 54,969 | 2,532,972 | ||||||
6,752,559 | ||||||||
Internet Software & Services–3.28% | ||||||||
Equinix, Inc.(b) | 22,465 | 3,945,977 | ||||||
Facebook Inc.–Class B (Acquired 04/04/12-04/05/12; Cost $3,119,195)(d) | 93,789 | 2,480,907 | ||||||
Liquidity Services Inc.(b) | 27,717 | 1,418,833 | ||||||
7,845,717 | ||||||||
IT Consulting & Other Services–2.07% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 52,114 | 3,126,840 | ||||||
Teradata Corp.(b) | 25,196 | 1,814,364 | ||||||
4,941,204 | ||||||||
Life Sciences Tools & Services–1.65% | ||||||||
Agilent Technologies, Inc. | 100,375 | 3,938,715 | ||||||
Managed Health Care–1.09% | ||||||||
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost $3,327,813)(b)(d) | 237,251 | 2,609,761 | ||||||
Metal & Glass Containers–0.88% | ||||||||
Owens-Illinois, Inc.(b) | 108,993 | 2,089,396 | ||||||
Movies & Entertainment–1.47% | ||||||||
Cinemark Holdings, Inc. | 154,120 | 3,521,642 | ||||||
Oil & Gas Equipment & Services–2.67% | ||||||||
Cameron International Corp.(b) | 75,287 | 3,215,508 | ||||||
Weatherford International Ltd.(b) | 250,287 | 3,161,125 | ||||||
6,376,633 | ||||||||
Oil & Gas Exploration & Production–1.89% | ||||||||
Pioneer Natural Resources Co. | 30,507 | 2,691,023 | ||||||
Whiting Petroleum Corp.(b) | 44,245 | 1,819,354 | ||||||
4,510,377 | ||||||||
Pharmaceuticals–1.40% | ||||||||
Endo Health Solutions Inc.(b) | 55,382 | 1,715,734 | ||||||
Medicis Pharmaceutical Corp.–Class A | 47,932 | 1,636,878 | ||||||
3,352,612 | ||||||||
Railroads–1.52% | ||||||||
Kansas City Southern | 52,195 | 3,630,684 | ||||||
Regional Banks–1.00% | ||||||||
First Republic Bank | 71,269 | 2,394,638 | ||||||
Restaurants–2.82% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 9,397 | 3,570,390 | ||||||
Jack in the Box Inc.(b) | 113,682 | 3,169,454 | ||||||
6,739,844 | ||||||||
Semiconductors–3.84% | ||||||||
Avago Technologies Ltd. | 93,581 | 3,359,558 | ||||||
Broadcom Corp.–Class A(b) | 78,730 | 2,661,074 | ||||||
ON Semiconductor Corp.(b) | 445,319 | 3,161,765 | ||||||
9,182,397 | ||||||||
Soft Drinks–2.18% | ||||||||
Monster Beverage Corp.(b) | 73,210 | 5,212,552 | ||||||
Specialty Chemicals–2.66% | ||||||||
Albemarle Corp. | 56,109 | 3,346,341 | ||||||
LyondellBasell Industries N.V.–Class A | 74,407 | 2,996,370 | ||||||
6,342,711 | ||||||||
Specialty Stores–7.19% | ||||||||
Dick’s Sporting Goods, Inc. | 91,164 | 4,375,872 | ||||||
GNC Holdings, Inc.–Class A | 80,258 | 3,146,113 | ||||||
PetSmart, Inc. | 83,279 | 5,677,962 | ||||||
Ulta Salon, Cosmetics & Fragrance, Inc. | 42,557 | 3,973,973 | ||||||
17,173,920 | ||||||||
Steel–1.06% | ||||||||
Allegheny Technologies, Inc. | 79,379 | 2,531,396 | ||||||
Systems Software–1.04% | ||||||||
Red Hat, Inc.(b) | 43,924 | 2,480,828 | ||||||
Technology Distributors–1.14% | ||||||||
Avnet, Inc.(b) | 88,009 | 2,715,958 | ||||||
Trucking–1.54% | ||||||||
J.B. Hunt Transport Services, Inc. | 61,867 | 3,687,273 | ||||||
Wireless Telecommunication Services–2.10% | ||||||||
SBA Communications Corp.–Class A(b) | 88,005 | 5,020,685 | ||||||
Total Common Stocks & Other Equity Interests (Cost $203,741,284) | 235,747,918 | |||||||
Money Market Funds–1.25% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 1,490,610 | 1,490,610 | ||||||
Premier Portfolio–Institutional Class(e) | 1,490,611 | 1,490,611 | ||||||
Total Money Market Funds (Cost $2,981,221) | 2,981,221 | |||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.95% (Cost $206,722,505) | 238,729,139 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan | ||||||||
Money Market Funds–2.36% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $5,648,304)(e)(f) | 5,648,304 | $ | 5,648,304 | |||||
TOTAL INVESTMENTS–102.31% (Cost $212,370,809) | 244,377,443 | |||||||
OTHER ASSETS LESS LIABILITIES–(2.31%) | (5,510,726 | ) | ||||||
NET ASSETS–100.00% | $ | 238,866,717 | ||||||
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, 2012. | |
(d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2012 was $5,090,668, which represented 2.13% of the Fund’s Net Assets. | |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. | |
(f) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. |
By sector, based on Net Assets
as of June 30, 2012
Consumer Discretionary | 24.7 | % | ||
Information Technology | 19.5 | |||
Health Care | 16.0 | |||
Industrials | 15.5 | |||
Materials | 6.2 | |||
Consumer Staples | 5.1 | |||
Financials | 5.1 | |||
Energy | 4.5 | |||
Telecommunication Services | 2.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $203,741,284)* | $ | 235,747,918 | ||
Investments in affiliated money market funds, at value and cost | 8,629,525 | |||
Total investments, at value (Cost $212,370,809) | 244,377,443 | |||
Receivable for: | ||||
Investments sold | 3,732,068 | |||
Fund shares sold | 10,976 | |||
Dividends | 125,558 | |||
Investment for trustee deferred compensation and retirement plans | 60,436 | |||
Total assets | 248,306,481 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,155,688 | |||
Fund shares reacquired | 242,060 | |||
Collateral upon return of securities loaned | 5,648,304 | |||
Accrued fees to affiliates | 205,453 | |||
Accrued other operating expenses | 83,936 | |||
Trustee deferred compensation and retirement plans | 104,323 | |||
Total liabilities | 9,439,764 | |||
Net assets applicable to shares outstanding | $ | 238,866,717 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 212,341,909 | ||
Undistributed net investment income (loss) | (240,691 | ) | ||
Undistributed net realized gain (loss) | (5,241,091 | ) | ||
Unrealized appreciation | 32,006,590 | |||
$ | 238,866,717 | |||
Net Assets: | ||||
Series I | $ | 96,056,813 | ||
Series II | $ | 142,809,904 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 25,707,782 | |||
Series II | 38,290,559 | |||
Series I: | ||||
Net asset value per share | $ | 3.74 | ||
Series II: | ||||
Net asset value per share | $ | 3.73 | ||
* | At June 30, 2012, securities with an aggregate value of $5,616,921 were on loan to brokers. |
Statement of Operations
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $6,613) | $ | 437,538 | ||
Dividends from affiliated money market funds (includes securities lending income of $82,009) | 84,516 | |||
Total investment income | 522,054 | |||
Expenses: | ||||
Advisory fees | 475,983 | |||
Administrative services fees | 163,854 | |||
Custodian fees | 7,779 | |||
Distribution fees — Series II | 116,822 | |||
Transfer agent fees | 11,582 | |||
Trustees’ and officers’ fees and benefits | 13,467 | |||
Professional services fees | 47,535 | |||
Other | 11,190 | |||
Total expenses | 848,212 | |||
Less: Fees waived | (92,819 | ) | ||
Net expenses | 755,393 | |||
Net investment income (loss) | (233,339 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from investment securities | (5,213,756 | ) | ||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (2,455,904 | ) | ||
Foreign currencies | (36 | ) | ||
(2,455,940 | ) | |||
Net realized and unrealized gain (loss) | (7,669,696 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (7,903,035 | ) | |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (233,339 | ) | $ | (458,415 | ) | ||
Net realized gain (loss) | (5,213,756 | ) | 5,213,870 | |||||
Change in net unrealized appreciation (depreciation) | (2,455,940 | ) | (11,146,604 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (7,903,035 | ) | (6,391,149 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series I | (593 | ) | — | |||||
Series II | (3,328,808 | ) | — | |||||
Total distributions from net realized gains | (3,329,401 | ) | — | |||||
Share transactions–net: | ||||||||
Series I | 103,257,490 | — | ||||||
Series II | 81,750,970 | (7,991,842 | ) | |||||
Net increase (decrease) in net assets resulting from share transactions | 185,008,460 | (7,991,842 | ) | |||||
Net increase (decrease) in net assets | 173,776,024 | (14,382,991 | ) | |||||
Net assets: | ||||||||
Beginning of period | 65,090,693 | 79,473,684 | ||||||
End of period (includes undistributed net investment income (loss) of $(240,691) and $(7,352), respectively) | $ | 238,866,717 | $ | 65,090,693 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Mid Cap Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. | |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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 Net Assets | Rate | |||
First $500 million | 0 | .75% | ||
Next $500 million | 0 | .70% | ||
Over $1 billion | 0 | .65% | ||
Invesco Van Kampen V.I. Mid Cap Growth Fund
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2012, the Adviser has contractually agreed, through at least June 30, 2014, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.09% and Series II shares to 1.34% of average daily net assets. Prior to July 1, 2012, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.01% and Series II shares to 1.26% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of 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.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $92,819.
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, 2012, Invesco was paid $24,864 for accounting and fund administrative services and reimbursed $138,990 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 239,286,775 | $ | 5,090,668 | $ | — | $ | 244,377,443 | ||||||||
Invesco Van Kampen V.I. Mid Cap Growth Fund
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2012, the Fund engaged in securities purchases of $35,199.
NOTE 5—Trustees’ and Officers’ Fees and Benefits
“Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and “Trustees’ and Officers’ Fees and Benefits” also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. “Trustees’ and Officers’ Fees and Benefits” include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund did not have a capital loss carryover as of December 31, 2011.
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, 2012 was $69,322,185 and $39,500,986, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 42,920,336 | ||
Aggregate unrealized (depreciation) of investment securities | (11,009,427 | ) | ||
Net unrealized appreciation of investment securities | $ | 31,910,909 | ||
Cost of investments for tax purposes is $212,466,534. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,295,769 | $ | 8,956,657 | — | $ | — | ||||||||||
Series II | 2,142,605 | 7,918,029 | 1,834,465 | 7,278,754 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series II | 855,735 | 3,328,808 | — | — | ||||||||||||
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 | (4,247,021 | ) | (16,036,157 | ) | — | — | ||||||||||
Series II | (2,699,298 | ) | (10,373,810 | ) | (3,749,212 | ) | (15,270,596 | ) | ||||||||
Net increase (decrease) in share activity | 46,318,967 | $ | 185,008,460 | (1,914,747 | ) | $ | (7,991,842 | ) | ||||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 57% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. | |
(b) | As of the opening of business on April 30, 2012 the Fund acquired all the net assets of Invesco V.I. Capital Development Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on November 30, 2011 and by the shareholders of the Target Fund on April 2, 2012. The acquisition was accomplished by a tax-free exchange of 47,971,177 shares of the Fund for 13,665,309 shares outstanding of the Target Fund as of the close of business on April 29, 2011. Each class of the Target Fund was exchanged for the like class of shares of the Fund based on the relative net asset value of the Target Fund to the net asset value of the Fund 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 after 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 six months ended June 30, 2012 are as follows: |
Net investment income (loss) | $ | (587,959 | ) | |
Net realized/unrealized gains | 17,588,551 | |||
Change in net assets resulting from operations | $ | 17,000,592 | ||
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since April 30, 2012. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||
(losses) | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||
Net asset | Net | on securities | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||
value, | investment | (both | Total from | from net | Net asset | Net assets, | with fee waivers | fee waivers | income (loss) | |||||||||||||||||||||||||||||||||||||||
beginning | income | realized and | investment | realized | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||
of period | (loss)(a) | unrealized) | operations | gains | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 3.69 | $ | (0.00 | ) | $ | 0.25 | $ | 0.25 | $ | (0.20 | ) | $ | 3.74 | 6.44 | % | $ | 96,057 | 1.01 | %(d) | 1.15 | %(d) | (0.19 | )%(d) | 55 | % | ||||||||||||||||||||||
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(e) | 3.30 | (0.00 | )(f) | 0.75 | 0.75 | — | 4.05 | 22.73 | 12 | 1.01 | (g) | 1.12 | (g) | (0.18 | )(g) | 105 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 3.68 | (0.00 | ) | 0.25 | 0.25 | (0.20 | ) | 3.73 | 6.46 | 142,810 | 1.26 | (d) | 1.40 | (d) | (0.44 | )(d) | 55 | |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||
Year ended 12/31/07 | 5.24 | (0.02 | ) | 0.88 | 0.86 | (0.38 | ) | 5.72 | 17.60 | 43,316 | 1.26 | 1.39 | (0.37 | ) | 201 | |||||||||||||||||||||||||||||||||
(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, 2012, the portfolio turnover calculation excludes the value of securities purchased of $158,450,343 and sold of $38,711,544 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco VI Capital Development into the Fund. | |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $33,655 and $93,971 for Series I and Series II shares, respectively. | |
(e) | Commencement date of June 1, 2010. | |
(f) | Amount is less than $0.01 per share. | |
(g) | Annualized. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
ACTUAL | (5% annual return before expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2,4 | (06/30/12) | Period2,5 | Ratio3 | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,064.40 | $ | 5.18 | $ | 1,019.84 | $ | 5.07 | 1.01 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,064.60 | 6.47 | 1,018.60 | 6.32 | 1.26 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
3 | Effective July 1, 2012, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expense of Series I and Series II shares to 1.09% and 1.34% of average daily net assets, respectively. The annualized expense ratios restated as if these agreements had been in effect throughout the entire most recent fiscal half year are 1.09% and 1.34% for Series I and Series II shares, respectively. |
4 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.59 and $6.88 for Series I and Series II shares, respectively. |
5 | The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $5.47 and $6.72 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Mid Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts |
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. Mid Cap Growth Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees also considered information provided in connection with fund reorganizations approved by the Trustees. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and 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 fifth 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 II shares of the Fund was below the performance of the Index for the one and five year periods and above the performance of the Index for the three year period. Invesco Advisers presented an analysis to the Board
Invesco Van Kampen V.I. Mid Cap Growth Fund
that included an explanation of reasons for differences in performance relative to that of the universe and index, including differences between the Fund’s investment strategies and those of peers. The Board discussed actions that Invesco Advisers had taken or was taking to address performance issues and Invesco Adviser’s resources and responsiveness to performance concerns. These explanations provided a sound basis for understanding comparative performance and monitoring and addressing it going forward, and were part of the Board’s overall conclusion about the nature, extent and quality of the services provided by Invesco Advisers. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series II shares of the Fund was below the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s rate was above the rates of 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 solely for investment management services. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fees charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts 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 waive fees and/or 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 noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen V.I. Mid Cap Growth Fund
Invesco Van Kampen V.I. Value Opportunities Fund
Effective April 30, 2012, Invesco V.I. Basic Value Fund was renamed Invesco Van Kampen V.I. Value Opportunities Fund.
Semiannual Report to Shareholders § June 30, 2012
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12 months ended June 30, 2012, is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov.
Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc.
VK-VIVOPP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/11 to 6/30/12, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.99 | % | ||
Series II Shares | 9.05 | |||
S&P 500 Index▼ (Broad Market Index) | 9.49 | |||
Russell 3000 Value Index▼ (Style-Specific Index)* | 8.64 | |||
Russell 1000 Value Index▼ (Former Style-Specific Index)* | 8.68 | |||
Lipper VUF Multi-Cap Value Funds Index▼ (Peer Group Index)* | 6.53 | |||
Lipper VUF Large-Cap Value Funds Index▼ (Former Peer Group Index)* | 7.53 | |||
Source(s): ▼Lipper Inc.
* | During the reporting period, the Fund has elected to use the Russell 3000 Value Index and the Lipper VUF Multi-Cap Value Funds Index as its style-specific and peer group indexes, respectively, rather than the Russell 1000 Value Index and the Lipper VUF Large-Cap Value Funds Index because the new indexes more closely reflect the performance of the types of securities in which the Fund invests. |
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 Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co.
The Lipper VUF Multi-Cap Value Funds Index is an unmanaged index considered representative of multi-cap value variable insurance underlying funds tracked by Lipper.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/12
As of 6/30/12
Series I Shares | ||||||||
Inception (9/10/01) | 1.44 | % | ||||||
10 | Years | 2.32 | ||||||
5 | Years | -5.26 | ||||||
1 | Year | 2.30 | ||||||
Series II Shares | ||||||||
Inception (9/10/01) | 1.20 | % | ||||||
10 | Years | 2.07 | ||||||
5 | Years | -5.48 | ||||||
1 | Year | 2.12 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.00% and 1.25%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco Van Kampen V.I. Value Opportunities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the
Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco Van Kampen V.I. Value Opportunities Fund
Schedule of Investments(a)
June 30, 2012
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–95.68% | ||||||||
Advertising–5.88% | ||||||||
Omnicom Group Inc. | 278,923 | $ | 13,555,658 | |||||
Aerospace & Defense–1.74% | ||||||||
Honeywell International Inc. | 71,937 | 4,016,962 | ||||||
Asset Management & Custody Banks–1.70% | ||||||||
Bank of New York Mellon Corp. (The) | 178,193 | 3,911,336 | ||||||
Automobile Manufacturers–1.92% | ||||||||
Renault S.A. (France) | 110,254 | 4,417,595 | ||||||
Brewers–3.37% | ||||||||
Molson Coors Brewing Co.–Class B | 186,911 | 7,777,367 | ||||||
Cable & Satellite–6.31% | ||||||||
Comcast Corp.–Class A | 89,807 | 2,871,130 | ||||||
Time Warner Cable Inc. | 142,409 | 11,691,779 | ||||||
14,562,909 | ||||||||
Computer Hardware–5.81% | ||||||||
Apple Inc. | 12,483 | 7,290,072 | ||||||
Dell Inc.(b) | 165,688 | 2,074,414 | ||||||
Hewlett-Packard Co. | 201,049 | 4,043,095 | ||||||
13,407,581 | ||||||||
Department Stores–1.98% | ||||||||
Macy’s, Inc. | 132,637 | 4,556,081 | ||||||
Diversified Banks–6.12% | ||||||||
Comerica Inc. | 87,527 | 2,687,954 | ||||||
U.S. Bancorp | 110,496 | 3,553,551 | ||||||
Wells Fargo & Co. | 235,140 | 7,863,082 | ||||||
14,104,587 | ||||||||
General Merchandise Stores–2.25% | ||||||||
Target Corp. | 89,246 | 5,193,225 | ||||||
Household Products–1.88% | ||||||||
Procter & Gamble Co. (The) | 70,761 | 4,334,111 | ||||||
Hypermarkets & Super Centers–1.97% | ||||||||
Wal-Mart Stores, Inc. | 65,090 | 4,538,075 | ||||||
Industrial Conglomerates–1.89% | ||||||||
General Electric Co. | 209,413 | 4,364,167 | ||||||
Integrated Oil & Gas–12.95% | ||||||||
Chevron Corp. | 89,170 | 9,407,435 | ||||||
Exxon Mobil Corp. | 34,695 | 2,968,851 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 173,260 | 3,252,090 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 148,683 | 10,025,695 | ||||||
Total SA–ADR (France) | 93,610 | 4,207,769 | ||||||
29,861,840 | ||||||||
Internet Software & Services–1.23% | ||||||||
Google Inc.–Class A(b) | 4,900 | 2,842,343 | ||||||
Investment Banking & Brokerage–2.18% | ||||||||
Goldman Sachs Group, Inc. (The) | 24,251 | 2,324,701 | ||||||
Morgan Stanley | 185,198 | 2,702,039 | ||||||
5,026,740 | ||||||||
Life & Health Insurance–1.38% | ||||||||
MetLife, Inc. | 103,318 | 3,187,360 | ||||||
Managed Health Care–2.37% | ||||||||
UnitedHealth Group Inc. | 93,508 | 5,470,218 | ||||||
Oil & Gas Drilling–1.04% | ||||||||
Noble Corp.(b) | 73,943 | 2,405,366 | ||||||
Other Diversified Financial Services–7.40% | ||||||||
Bank of America Corp. | 401,604 | 3,285,121 | ||||||
Citigroup Inc. | 159,509 | 4,372,141 | ||||||
JPMorgan Chase & Co. | 263,119 | 9,401,242 | ||||||
17,058,504 | ||||||||
Pharmaceuticals–4.52% | ||||||||
Bristol-Myers Squibb Co. | 99,857 | 3,589,859 | ||||||
Pfizer Inc. | 297,012 | 6,831,276 | ||||||
10,421,135 | ||||||||
Property & Casualty Insurance–16.29% | ||||||||
Allied World Assurance Co. Holdings AG | 66,173 | 5,258,768 | ||||||
Allstate Corp. (The) | 177,245 | 6,219,527 | ||||||
Aspen Insurance Holdings Ltd. | 248,971 | 7,195,262 | ||||||
Chubb Corp. (The) | 198,702 | 14,469,480 | ||||||
Travelers Cos., Inc. (The) | 69,120 | 4,412,621 | ||||||
37,555,658 | ||||||||
Steel–1.17% | ||||||||
POSCO–ADR (South Korea) | 33,624 | 2,704,715 | ||||||
Wireless Telecommunication Services–2.33% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 190,407 | 5,365,669 | ||||||
Total Common Stocks & Other Equity Interests (Cost $185,929,918) | 220,639,202 | |||||||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
Shares | Value | |||||||
Money Market Funds–3.96% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 4,561,872 | $ | 4,561,872 | |||||
Premier Portfolio–Institutional Class(c) | 4,561,873 | 4,561,873 | ||||||
Total Money Market Funds (Cost $9,123,745) | 9,123,745 | |||||||
TOTAL INVESTMENTS–99.64% (Cost $195,053,663) | 229,762,947 | |||||||
OTHER ASSETS LESS LIABILITIES–0.36% | 840,586 | |||||||
NET ASSETS–100.00% | $ | 230,603,533 | ||||||
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. | |
(b) | Non-income producing security. | |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
By sector, based on Net Assets
as of June 30, 2012
Financials | 35.1 | % | ||
Consumer Discretionary | 18.3 | |||
Energy | 14.0 | |||
Consumer Staples | 7.2 | |||
Information Technology | 7.1 | |||
Health Care | 6.9 | |||
Industrials | 3.6 | |||
Telecommunication Services | 2.3 | |||
Materials | 1.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.3 | |||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
Statement of Assets and Liabilities
June 30, 2012
(Unaudited)
Assets: | ||||
Investments, at value (Cost $185,929,918) | $ | 220,639,202 | ||
Investments in affiliated money market funds, at value and cost | 9,123,745 | |||
Total investments, at value (Cost $195,053,663) | 229,762,947 | |||
Receivable for: | ||||
Investments sold | 665,662 | |||
Fund shares sold | 7,042 | |||
Dividends | 599,371 | |||
Investment for trustee deferred compensation and retirement plans | 31,111 | |||
Total assets | 231,066,133 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 136,940 | |||
Accrued fees to affiliates | 203,633 | |||
Accrued other operating expenses | 24,737 | |||
Trustee deferred compensation and retirement plans | 97,290 | |||
Total liabilities | 462,600 | |||
Net assets applicable to shares outstanding | $ | 230,603,533 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 251,227,818 | ||
Undistributed net investment income | 4,794,238 | |||
Undistributed net realized gain (loss) | (60,127,807 | ) | ||
Unrealized appreciation | 34,709,284 | |||
$ | 230,603,533 | |||
Net Assets: | ||||
Series I | $ | 129,791,418 | ||
Series II | $ | 100,812,115 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 19,462,878 | |||
Series II | 15,216,026 | |||
Series I: | ||||
Net asset value per share | $ | 6.67 | ||
Series II: | ||||
Net asset value per share | $ | 6.63 | ||
For the six months ended June 30, 2012
(Unaudited)
Investment income: | ||||
Dividends (net of foreign withholding taxes of $93,922) | $ | 3,028,473 | ||
Dividends from affiliated money market funds | 4,571 | |||
Total investment income | 3,033,044 | |||
Expenses: | ||||
Advisory fees | 837,303 | |||
Administrative services fees | 327,866 | |||
Custodian fees | 7,210 | |||
Distribution fees — Series II | 127,964 | |||
Transfer agent fees | 18,754 | |||
Trustees’ and officers’ fees and benefits | 15,527 | |||
Other | 27,920 | |||
Total expenses | 1,362,544 | |||
Less: Fees waived | (3,895 | ) | ||
Net expenses | 1,358,649 | |||
Net investment income | 1,674,395 | |||
Realized and unrealized gain from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 10,305,967 | |||
Foreign currencies | (5,170 | ) | ||
10,300,797 | ||||
Change in net unrealized appreciation of investment securities | 9,335,532 | |||
Net realized and unrealized gain | 19,636,329 | |||
Net increase in net assets resulting from operations | $ | 21,310,724 | ||
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco Van Kampen V.I. Value Opportunities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2012 and the year ended December 31, 2011
(Unaudited)
June 30, | December 31, | |||||||
2012 | 2011 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,674,395 | $ | 3,225,795 | ||||
Net realized gain | 10,300,797 | 13,180,072 | ||||||
Change in net unrealized appreciation (depreciation) | 9,335,532 | (23,850,063 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 21,310,724 | (7,444,196 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,326,452 | ) | |||||
Series II | — | (702,510 | ) | |||||
Total distributions from net investment income | — | (2,028,962 | ) | |||||
Share transactions–net: | ||||||||
Series I | (17,820,492 | ) | (40,031,379 | ) | ||||
Series II | (12,068,798 | ) | (25,126,460 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (29,889,290 | ) | (65,157,839 | ) | ||||
Net increase (decrease) in net assets | (8,578,566 | ) | (74,630,997 | ) | ||||
Net assets: | ||||||||
Beginning of period | 239,182,099 | 313,813,096 | ||||||
End of period (includes undistributed net investment income of $4,794,238 and $3,119,843, respectively) | $ | 230,603,533 | $ | 239,182,099 | ||||
Notes to Financial Statements
June 30, 2012
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco Van Kampen V.I. Value Opportunities Fund, formerly Invesco V.I. Basic Value Fund, (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-five separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. | |
A security listed or traded on an exchange (except convertible bonds) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”). | ||
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded. |
Invesco Van Kampen V.I. Value Opportunities Fund
Debt obligations (including convertible bonds) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. | ||
Foreign securities (including foreign exchange contracts) are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trade is not the current value as of the close of the NYSE. Foreign securities meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and 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 are unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value. | ||
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments. | ||
B. | Securities Transactions and Investment Income — Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. | |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held. | ||
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser. | ||
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. | ||
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. | |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. | |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. | |
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. | ||
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
Invesco Van Kampen V.I. Value Opportunities 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 $250 million | 0 | .695% | ||
Next $250 million | 0 | .67% | ||
Next $500 million | 0 | .645% | ||
Next $1.5 billion | 0 | .62% | ||
Next $2.5 billion | 0 | .595% | ||
Next $2.5 billion | 0 | .57% | ||
Next $2.5 billion | 0 | .545% | ||
Over $10 billion | 0 | .52% | ||
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2013, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.30% and Series II shares to 1.45% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless the Board of the Trustees and Invesco
Invesco Van Kampen V.I. Value Opportunities Fund
mutually agree to amend or continue the fee waiver agreement, it will terminate on April 30, 2013. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Further, the Adviser has contractually agreed, through at least June 30, 2013, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Adviser receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds.
For the six months ended June 30, 2012, the Adviser waived advisory fees of $3,895.
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, 2012, Invesco was paid $32,682 for accounting and fund administrative services and reimbursed $295,184 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, 2012, expenses incurred under the agreement are shown in the Statement of Operations as Transfer agent fees.
The Trust has entered into a master distribution agreement with Invesco Distributors, Inc. (“IDI”) to serve as the distributor for the Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund’s Series II shares (the “Plan”). The Fund, pursuant to the Plan, pays IDI compensation at the annual rate of 0.25% of the Fund’s average daily net assets of Series II shares. Of the Plan payments, up to 0.25% of the average daily net assets of the Series II shares may be paid to insurance companies who furnish continuing personal shareholder services to customers who purchase and own Series II shares of the Fund. For the six months ended June 30, 2012, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3) generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. | |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. | |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2012. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 225,345,352 | $ | 4,417,595 | $ | — | $ | 229,762,947 | ||||||||
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
Invesco Van Kampen V.I. Value Opportunities Fund
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 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund had a capital loss carryforward as of December 31, 2011, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 28,504,080 | $ | — | $ | 28,504,080 | ||||||
December 31, 2017 | 32,409,899 | — | 32,409,899 | |||||||||
December 31, 2018 | 7,875,284 | — | 7,875,284 | |||||||||
$ | 68,789,263 | $ | — | $ | 68,789,263 | |||||||
* | 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, 2012 was $8,555,526 and $43,914,311, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 51,336,704 | ||
Aggregate unrealized (depreciation) of investment securities | (18,266,761 | ) | ||
Net unrealized appreciation of investment securities | $ | 33,069,943 | ||
Cost of investments for tax purposes is $196,693,004. |
Invesco Van Kampen V.I. Value Opportunities Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended | Year ended | |||||||||||||||
June 30, 2012(a) | December 31, 2011 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 830,880 | $ | 5,720,093 | 969,060 | $ | 6,229,063 | ||||||||||
Series II | 975,194 | 6,189,826 | 2,174,535 | 13,057,835 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 248,399 | 1,326,452 | ||||||||||||
Series II | — | — | 132,299 | 702,510 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,545,089 | ) | (23,540,585 | ) | (7,489,282 | ) | (47,586,894 | ) | ||||||||
Series II | (2,775,801 | ) | (18,258,624 | ) | (6,151,667 | ) | (38,886,805 | ) | ||||||||
Net increase (decrease) in share activity | (4,514,816 | ) | $ | (29,889,290 | ) | (10,116,656 | ) | $ | (65,157,839 | ) | ||||||
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 58% 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.
Ratio of | Ratio of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net gains | expenses | expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(losses) on | to average | to average net | Ratio of net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset | securities | Dividends | Distributions | net assets | assets without | investment | ||||||||||||||||||||||||||||||||||||||||||||||||||
value, | Net | (both | Total from | from net | from net | Net asset | Net assets, | with fee waivers | fee waivers | income | ||||||||||||||||||||||||||||||||||||||||||||||
beginning | investment | realized and | investment | investment | realized | Total | value, end | Total | end of period | and/or expenses | and/or expenses | to average | Portfolio | |||||||||||||||||||||||||||||||||||||||||||
of period | income(a) | unrealized) | operations | income | gains | distributions | of period | return(b) | (000s omitted) | absorbed | absorbed | net assets | turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | $ | 6.12 | $ | 0.05 | $ | 0.50 | $ | 0.55 | $ | — | $ | — | $ | — | $ | 6.67 | 8.99 | % | $ | 129,791 | 1.02 | %(d) | 1.02 | %(d) | 1.50 | %(d) | 4 | % | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.35 | 0.07 | 0.17 | 0.24 | (0.08 | ) | (0.78 | ) | (0.86 | ) | 12.73 | 1.62 | 399,974 | 0.96 | 0.99 | 0.52 | 25 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/12 | 6.08 | 0.04 | 0.51 | 0.55 | — | — | — | 6.63 | 9.05 | 100,812 | 1.27 | (d) | 1.27 | (d) | 1.25 | (d) | 4 | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/07 | 13.24 | 0.04 | 0.16 | 0.20 | (0.04 | ) | (0.78 | ) | (0.82 | ) | 12.62 | 1.36 | 303,628 | 1.21 | 1.24 | 0.27 | 25 | |||||||||||||||||||||||||||||||||||||||
(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 $139,341 and $102,933 for Series I and Series II shares, respectively. |
Invesco Van Kampen V.I. Value Opportunities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2012 through June 30, 2012.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
HYPOTHETICAL | ||||||||||||||||||||||||||||||
(5% annual return before | ||||||||||||||||||||||||||||||
ACTUAL | expenses) | |||||||||||||||||||||||||||||
Beginning | Ending | Expenses | Ending | Expenses | Annualized | |||||||||||||||||||||||||
Account Value | Account Value | Paid During | Account Value | Paid During | Expense | |||||||||||||||||||||||||
Class | (01/01/12) | (06/30/12)1 | Period2 | (06/30/12) | Period2 | Ratio | ||||||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,089.90 | $ | 5.30 | $ | 1,019.79 | $ | 5.12 | 1.02 | % | ||||||||||||||||||
Series II | 1,000.00 | 1,090.50 | 6.60 | 1,018.55 | 6.37 | 1.27 | ||||||||||||||||||||||||
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2012 through June 30, 2012, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 182/366 to reflect the most recent fiscal half year. |
Invesco Van Kampen V.I. Value Opportunities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
(Formerly Known as Invesco V.I. Basic Value Fund)
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of the Invesco Van Kampen V.I. Value Opportunities Fund (the Fund) investment advisory agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds (the sub-advisory contracts) with Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the Affiliated Sub-Advisers). During contract renewal meetings held on June 19-20, 2012, the Board as a whole, and the disinterested or “independent” Trustees, who comprise 80% of the Board, voting separately, approved the continuance of the Fund’s investment advisory agreement and the sub-advisory contracts for another year, effective July 1, 2012. In doing so, the Board considered the process that it follows in reviewing and approving the Fund’s investment advisory agreement and sub-advisory contracts and the information that it is provided. The Board determined that the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interests of the Fund and its shareholders and the compensation to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the series portfolios of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, 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 an independent company, Lipper Inc. (Lipper). The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. The independent Trustees are assisted in their annual evaluation of the Fund’s investment advisory agreement by the Senior Officer and by independent legal counsel. 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 private sessions with the Senior Officer and independent legal counsel.
In evaluating the fairness and reasonableness of the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Trustees recognized that the advisory fees for the Invesco Funds include advisory fees that are the result of years of review and negotiation between the Trustees and Invesco Advisers as well as advisory fees previously approved by a different board that, at the time, was responsible for overseeing Morgan Stanley and Van Kampen funds, which have become Invesco Funds following the acquisition of the retail mutual fund business of Morgan Stanley. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. One Trustee may have weighed a particular piece of information 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 20, 2012, 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’ performance and investment process oversight, independent credit analysis and investment risk management.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the prior relationship between Invesco Advisers and the Fund, as well as the Board’s knowledge of Invesco Advisers’ operations, and concluded that it is beneficial to maintain the current relationship, in part because of such prior relationship and knowledge. The Board also considered services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and 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 invests and make recommendations on securities of companies located in such countries. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
Invesco Van Kampen V.I. Value Opportunities Fund
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Multi-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one year period, the second 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 below the performance of the Index for the one and five year periods and above the performance of the Index for the three year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees and Fee Waivers |
The Board compared the Fund’s contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual advisory fee rate for Series I shares of the Fund was at the median contractual advisory fee rate of funds in the expense group. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using audited financial data from the most recent annual report of each fund in the expense group that was publicly available as of the end of the past calendar year and including only one fund per investment adviser. The Board noted that comparative data is as of varying dates, which may affect the comparability of data during times of market volatility.
The Board also compared the Fund’s effective fee rate (the advisory fee after advisory fee waivers and before expense limitations/waivers) to the advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective fee rate was above the effective fee rate of one mutual fund with comparable investment strategies.
Other than the mutual fund described above, the Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts with investment strategies comparable to those of the Fund.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2013 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board noted that at the current expense ratio for the Fund, this expense waiver does not have any impact.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory, as well as the allocation of fees between Invesco Advisers and the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers provides services to sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described above other than day-to-day portfolio management. The Board also noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Advisers to the Affiliated Sub-Advisers.
Based upon the information and considerations described above, the Board concluded that the Fund’s advisory and sub-advisory fees are fair and reasonable.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and were assisted in their 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. The Board noted that Invesco Advisers proposes sharing economies of scale in administration expenses by lowering per class administrative fees.
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, 2011. The Board reviewed with Invesco Advisers the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in connection with managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the 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 administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and therefore may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board 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 waivers is in an amount equal to 100% of the net advisory fee Invesco Advisers receives from the affiliated money market funds with respect to the Fund’s investment in the affiliated money market funds of uninvested cash, but not cash collateral. The Board concluded that the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders.
The Board also considered use of an affiliated broker to execute certain trades for the Fund and that such trades are executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco Van Kampen 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 June 12, 2012, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of June 12, 2012, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, |
processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. | ||
(b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
12(a) (1) | Not applicable. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
By: | /s/ Philip A. Taylor | |||
Principal Executive Officer |
Date: August 24, 2012
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Philip A. Taylor | |||
Principal Executive Officer |
Date: August 24, 2012
By: | /s/ Sheri Morris | |||
Principal Financial Officer |
Date: August 24, 2012
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. |