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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file
number | 811-07452 |
AIM Variable Insurance Funds (Invesco Variable Insurance Funds) |
(Exact name of registrant as specified in charter) |
11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
(Address of principal executive offices) (Zip code) |
Philip A. Taylor 11 Greenway Plaza, Suite 1000 Houston, Texas 77046 |
(Name and address of agent for service) |
Registrant’s telephone number, including area code: | (713) 626-1919 |
Date of fiscal year end: 12/31
Date of reporting period: 06/30/14
Item 1. Report to Stockholders.
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. American Franchise Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIAMFR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.42 | % | |||
Series II Shares | 4.29 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 1000 Growth Index‚ (Style-Specific Index) | 6.31 | ||||
Lipper VUF Large-Cap Growth Funds Indexn (Peer Group Index) | 4.21 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (7/3/95) | 9.28 | % | |||
10 Years | 7.97 | ||||
5 Years | 19.75 | ||||
1 Year | 34.21 | ||||
Series II Shares | |||||
Inception (9/18/00) | -0.20 | % | |||
10 Years | 7.69 | ||||
5 Years | 19.44 | ||||
1 Year | 33.86 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Capital Growth Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Capital Growth Fund (renamed Invesco V.I. American Franchise Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Franchise 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 0.96% and 1.21%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. American Franchise Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available
at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. American Franchise Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.78% |
| |||||||
Aerospace & Defense–3.20% | ||||||||
B/E Aerospace, Inc.(b) | 51,812 | $ | 4,792,092 | |||||
Honeywell International Inc. | 115,919 | 10,774,671 | ||||||
Precision Castparts Corp. | 35,880 | 9,056,112 | ||||||
24,622,875 | ||||||||
Agricultural Products–1.00% | ||||||||
Archer-Daniels-Midland Co. | 175,078 | 7,722,691 | ||||||
Apparel Retail–0.42% | ||||||||
Gap, Inc. (The) | 77,068 | 3,203,717 | ||||||
Apparel, Accessories & Luxury Goods–1.12% | ||||||||
Michael Kors Holdings Ltd.(b) | 97,167 | 8,613,855 | ||||||
Application Software–2.47% | ||||||||
Salesforce.com, Inc.(b) | 241,486 | 14,025,507 | ||||||
Splunk, Inc.(b) | 89,936 | 4,976,159 | ||||||
19,001,666 | ||||||||
Asset Management & Custody Banks–0.92% | ||||||||
Ameriprise Financial, Inc. | 58,726 | 7,047,120 | ||||||
Biotechnology–10.48% | ||||||||
Alkermes PLC(b) | 210,765 | 10,607,803 | ||||||
Amgen Inc. | 32,382 | 3,833,057 | ||||||
Biogen Idec Inc.(b) | 42,026 | 13,251,218 | ||||||
Celgene Corp.(b) | 191,052 | 16,407,546 | ||||||
Gilead Sciences, Inc.(b) | 440,434 | 36,516,383 | ||||||
80,616,007 | ||||||||
Brewers–1.01% | ||||||||
Anheuser-Busch InBev N.V.–ADR (Belgium) | 67,686 | 7,779,829 | ||||||
Cable & Satellite–8.11% | ||||||||
Comcast Corp.–Class A | 107,695 | 5,781,067 | ||||||
DISH Network Corp.–Class A(b) | 594,524 | 38,691,622 | ||||||
Time Warner Cable Inc. | 121,426 | 17,886,050 | ||||||
62,358,739 | ||||||||
Casinos & Gaming–0.63% | ||||||||
Las Vegas Sands Corp. | 63,960 | 4,875,031 | ||||||
Communications Equipment–1.87% | ||||||||
F5 Networks, Inc.(b) | 48,454 | 5,399,714 | ||||||
QUALCOMM, Inc. | 113,050 | 8,953,560 | ||||||
14,353,274 | ||||||||
Construction & Engineering–2.68% | ||||||||
Fluor Corp. | 145,882 | 11,218,326 | ||||||
Jacobs Engineering Group, Inc.(b) | 165,095 | 8,796,262 | ||||||
Quanta Services, Inc.(b) | 16,244 | 561,717 | ||||||
20,576,305 |
Shares | Value | |||||||
Construction Materials–0.97% | ||||||||
Martin Marietta Materials, Inc.(c) | 56,736 | $ | 7,491,989 | |||||
Consumer Electronics–0.98% | ||||||||
Harman International Industries, Inc. | 70,466 | 7,570,162 | ||||||
Data Processing & Outsourced Services–3.09% | ||||||||
Alliance Data Systems Corp.(b) | 22,221 | 6,249,656 | ||||||
MasterCard, Inc.–Class A | 238,628 | 17,531,999 | ||||||
23,781,655 | ||||||||
Drug Retail–0.96% | ||||||||
CVS Caremark Corp. | 97,995 | 7,385,883 | ||||||
Fertilizers & Agricultural Chemicals–1.31% | ||||||||
Monsanto Co. | 81,029 | 10,107,557 | ||||||
General Merchandise Stores–0.64% | ||||||||
Dollar General Corp.(b) | 86,431 | 4,957,682 | ||||||
Health Care Facilities–1.16% | ||||||||
HCA Holdings, Inc.(b) | 157,695 | 8,890,844 | ||||||
Home Entertainment Software–1.00% | ||||||||
Activision Blizzard, Inc. | 176,924 | 3,945,405 | ||||||
Electronic Arts Inc.(b) | 104,083 | 3,733,457 | ||||||
7,678,862 | ||||||||
Home Improvement Retail–2.48% | ||||||||
Lowe’s Cos., Inc. | 397,500 | 19,076,025 | ||||||
Hotels, Resorts & Cruise Lines–1.29% | ||||||||
Carnival Corp. | 263,079 | 9,904,924 | ||||||
Household Appliances–0.97% | ||||||||
Whirlpool Corp. | 53,394 | 7,433,513 | ||||||
Industrial Conglomerates–0.94% | ||||||||
Roper Industries, Inc. | 49,377 | 7,209,536 | ||||||
Industrial Machinery–1.65% | ||||||||
Flowserve Corp. | 94,803 | 7,048,603 | ||||||
Ingersoll-Rand PLC | 89,650 | 5,604,022 | ||||||
12,652,625 | ||||||||
Insurance Brokers–1.21% | ||||||||
Aon PLC | 102,999 | 9,279,180 | ||||||
Internet Retail–5.30% | ||||||||
Amazon.com, Inc.(b) | 45,568 | 14,799,575 | ||||||
Priceline Group Inc. (The)(b) | 17,808 | 21,423,024 | ||||||
TripAdvisor Inc.(b) | 41,592 | 4,519,387 | ||||||
40,741,986 | ||||||||
Internet Software & Services–13.32% | ||||||||
Baidu, Inc.–ADR (China)(b) | 21,672 | 4,048,546 | ||||||
Facebook Inc.–Class A(b) | 632,758 | 42,578,286 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Shares | Value | |||||||
Internet Software & Services–(continued) | ||||||||
Google Inc.–Class A(b) | 37,969 | $ | 22,199,335 | |||||
Google Inc.–Class C(b) | 37,489 | 21,566,672 | ||||||
Yelp Inc.(b) | 157,424 | 12,071,273 | ||||||
102,464,112 | ||||||||
Investment Banking & Brokerage–0.86% | ||||||||
Morgan Stanley | 204,593 | 6,614,492 | ||||||
IT Consulting & Other Services–0.39% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 61,717 | 3,018,578 | ||||||
Life Sciences Tools & Services–0.98% | ||||||||
Thermo Fisher Scientific, Inc. | 63,961 | 7,547,398 | ||||||
Movies & Entertainment–1.31% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 157,816 | 5,547,232 | ||||||
Walt Disney Co. (The) | 53,004 | 4,544,563 | ||||||
10,091,795 | ||||||||
Oil & Gas Equipment & Services–3.27% | ||||||||
Baker Hughes Inc. | 84,047 | 6,257,299 | ||||||
Schlumberger Ltd. | 160,484 | 18,929,088 | ||||||
25,186,387 | ||||||||
Oil & Gas Exploration & Production–2.37% | ||||||||
Anadarko Petroleum Corp. | 108,229 | 11,847,828 | ||||||
Pioneer Natural Resources Co. | 27,696 | 6,364,818 | ||||||
18,212,646 | ||||||||
Pharmaceuticals–3.77% | ||||||||
AbbVie Inc. | 82,287 | 4,644,278 | ||||||
Actavis PLC(b) | 55,021 | 12,272,434 | ||||||
Allergan, Inc. | 30,612 | 5,180,163 | ||||||
Bristol-Myers Squibb Co. | 63,622 | 3,086,303 | ||||||
Johnson & Johnson | 36,635 | 3,832,754 | ||||||
29,015,932 | ||||||||
Railroads–0.89% | ||||||||
Canadian Pacific Railway Ltd. (Canada) | 37,649 | 6,819,740 |
Shares | Value | |||||||
Semiconductor Equipment–0.56% | ||||||||
Applied Materials, Inc. | 191,695 | $ | 4,322,722 | |||||
Semiconductors–1.41% | ||||||||
NXP Semiconductors N.V. (Netherlands)(b) | 163,774 | 10,838,563 | ||||||
Specialized REIT’s–1.20% | ||||||||
American Tower Corp. | 102,600 | 9,231,948 | ||||||
Systems Software–2.93% | ||||||||
ServiceNow, Inc.(b) | 132,061 | 8,182,499 | ||||||
VMware, Inc.–Class A(b) | 148,339 | 14,360,699 | ||||||
22,543,198 | ||||||||
Technology Hardware, Storage & Peripherals–4.87% | ||||||||
Apple Inc. | 403,095 | 37,459,618 | ||||||
Wireless Telecommunication Services–3.79% | ||||||||
Sprint Corp.(b) | 3,413,125 | 29,113,957 | ||||||
Total Common Stocks & Other Equity Interests |
| 767,414,618 | ||||||
Money Market Funds–0.42% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,604,215 | 1,604,215 | ||||||
Premier Portfolio– | 1,604,215 | 1,604,215 | ||||||
Total Money Market Funds |
| 3,208,430 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.20% |
| 770,623,048 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan–0.75% |
| |||||||
Money Market Funds–0.75% |
| |||||||
Liquid Assets Portfolio– | 5,767,200 | 5,767,200 | ||||||
TOTAL INVESTMENTS–100.95% |
| 776,390,248 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.95)% |
| (7,284,714 | ) | |||||
NET ASSETS–100.00% |
| $ | 769,105,534 |
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 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) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at June 30, 2014. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. The following table presents the Fund’s gross and net amount of assets available for offset by the Fund as of June 30, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 5,641,176 | $ | (5,641,176 | ) | $ | — |
* | Amount does not include excess collateral received. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Information Technology | 31.9 | % | ||
Consumer Discretionary | 23.3 | |||
Health Care | 16.4 | |||
Industrials | 9.3 | |||
Energy | 5.6 | |||
Financials | 4.2 | |||
Telecommunication Services | 3.8 | |||
Consumer Staples | 3.0 | |||
Materials | 2.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.2 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $505,656,902)* | $ | 767,414,618 | ||
Investments in affiliated money market funds, at value and cost | 8,975,630 | |||
Total investments, at value (Cost $514,632,532) | 776,390,248 | |||
Cash | 41,852 | |||
Foreign currencies, at value (Cost $16,785) | 16,801 | |||
Receivable for: | ||||
Investments sold | 615,866 | |||
Fund shares sold | 514,713 | |||
Dividends | 207,259 | |||
Fund expenses absorbed | 13,838 | |||
Investment for trustee deferred compensation and retirement plans | 409,931 | |||
Other assets | 387 | |||
Total assets | 778,210,895 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 561,745 | |||
Fund shares reacquired | 1,221,388 | |||
Collateral upon return of securities loaned | 5,767,200 | |||
Accrued fees to affiliates | 1,060,888 | |||
Accrued trustees’ and officers’ fees and benefits | 768 | |||
Accrued other operating expenses | 39,269 | |||
Trustee deferred compensation and retirement plans | 454,103 | |||
Total liabilities | 9,105,361 | |||
Net assets applicable to shares outstanding | $ | 769,105,534 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 560,627,945 | ||
Undistributed net investment income (loss) | (1,027,100 | ) | ||
Undistributed net realized gain (loss) | (52,254,743 | ) | ||
Net unrealized appreciation | 261,759,432 | |||
$ | 769,105,534 | |||
Net Assets: |
| |||
Series I | $ | 557,329,946 | ||
Series II | $ | 211,775,588 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 10,541,541 | |||
Series II | 4,095,577 | |||
Series I: | ||||
Net asset value per share | $ | 52.87 | ||
Series II: | ||||
Net asset value per share | $ | 51.71 |
* | At June 30, 2014, securities with an aggregate value of $5,641,176 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $25,124) | $ | 3,065,702 | ||
Dividends from affiliated money market funds (includes securities lending income of $18,921) | 19,788 | |||
Total investment income | 3,085,490 | |||
Expenses: | ||||
Advisory fees | 2,625,115 | |||
Administrative services fees | 1,010,030 | |||
Custodian fees | 18,875 | |||
Distribution fees — Series II | 288,786 | |||
Transfer agent fees | 40,081 | |||
Trustees’ and officers’ fees and benefits | 17,575 | |||
Other | 34,976 | |||
Total expenses | 4,035,438 | |||
Less: Fees waived | (219,795 | ) | ||
Net expenses | 3,815,643 | |||
Net investment income (loss) | (730,153 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains (losses) from securities sold to affiliates of $(78,934)) | 61,277,887 | |||
Foreign currencies | (7,878 | ) | ||
61,270,009 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (29,112,016 | ) | ||
Foreign currencies | 73 | |||
(29,111,943 | ) | |||
Net realized and unrealized gain | 32,158,066 | |||
Net increase in net assets resulting from operations | $ | 31,427,913 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Franchise Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (730,153 | ) | $ | 62,847 | |||
Net realized gain | 61,270,009 | 115,022,775 | ||||||
Change in net unrealized appreciation (depreciation) | (29,111,943 | ) | 143,862,178 | |||||
Net increase in net assets resulting from operations | 31,427,913 | 258,947,800 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,241,984 | ) | |||||
Series ll | — | (576,996 | ) | |||||
Total distributions from net investment income | — | (2,818,980 | ) | |||||
Share transactions–net: | ||||||||
Series l | (46,679,697 | ) | (92,234,602 | ) | ||||
Series ll | (54,050,804 | ) | (46,160,962 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (100,730,501 | ) | (138,395,564 | ) | ||||
Net increase (decrease) in net assets | (69,302,588 | ) | 117,733,256 | |||||
Net assets: | ||||||||
Beginning of period | 838,408,122 | 720,674,866 | ||||||
End of period (includes undistributed net investment income (loss) of $(1,027,100) and $(296,947), respectively) | $ | 769,105,534 | $ | 838,408,122 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. American Franchise Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to 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 securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. American Franchise Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. American Franchise Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. American Franchise Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $250 million | 0 | .695% | ||||
Next $250 million | 0 | .67% | ||||
Next $500 million | 0 | .645% | ||||
Next $550 million | 0 | .62% | ||||
Next $3.45 billion | 0 | .60% | ||||
Next $250 million | 0 | .595% | ||||
Next $2.25 billion | 0 | .57% | ||||
Next $2.5 billion | 0 | .545% | ||||
Over $10 billion | 0 | .52% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2014, the Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. Prior to July 1, 2014, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.90% and Series II shares to 1.15% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse 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 Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $219,795.
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, 2014, Invesco was paid $92,773 for accounting and fund administrative services and reimbursed $917,257 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $3,709 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
Invesco V.I. American Franchise Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2014, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2014, the Fund engaged in securities purchases of $1,096,349 and securities sales of $1,076,115, which resulted in net realized gains (losses) of $(78,934).
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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. American Franchise Fund
The Fund had a capital loss carryforward as of December 31, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 93,041,814 | $ | — | $ | 93,041,814 | ||||||
December 31, 2017 | 5,236,281 | — | 5,236,281 | |||||||||
December 31, 2018 | 13,944,388 | — | 13,944,388 | |||||||||
$ | 112,222,483 | $ | — | $ | 112,222,483 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $257,217,053 and $355,217,354, 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 | $ | 265,057,940 | ||
Aggregate unrealized (depreciation) of investment securities | (4,578,993 | ) | ||
Net unrealized appreciation of investment securities | $ | 260,478,947 |
Cost of investments for tax purposes is $515,911,301.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 245,276 | $ | 12,435,445 | 372,037 | $ | 16,044,363 | ||||||||||
Series II | 141,812 | 7,029,870 | 211,725 | 9,101,632 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 49,800 | 2,241,984 | ||||||||||||
Series II | — | — | 13,081 | 576,996 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,171,715 | ) | (59,115,142 | ) | (2,635,529 | ) | (110,520,949 | ) | ||||||||
Series II | (1,245,830 | ) | (61,080,674 | ) | (1,335,787 | ) | (55,839,590 | ) | ||||||||
Net increase (decrease) in share activity | (2,030,457 | ) | $ | (100,730,501 | ) | (3,324,673 | ) | $ | (138,395,564 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 24% 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. American Franchise Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Return of capital distributions | Total distributions | Net asset value, end of period | Total return | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(c) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 50.63 | $ | (0.03 | ) | $ | 2.27 | $ | 2.24 | $ | — | $ | — | $ | — | $ | 52.87 | 4.42 | %(d) | $ | 557,330 | 0.90 | %(e) | 0.95 | %(e) | (0.11 | )%(e) | 33 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 36.28 | 0.04 | 14.50 | 14.54 | (0.19 | ) | — | (0.19 | ) | 50.63 | 40.13 | (d) | 580,620 | 0.90 | 0.96 | 0.08 | 75 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 31.90 | 0.19 | 4.19 | 4.38 | — | — | — | 36.28 | 13.73 | (d) | 496,341 | 0.88 | 0.98 | 0.52 | 190 | |||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 34.00 | (0.05 | ) | (2.05 | ) | (2.10 | ) | — | — | — | 31.90 | (6.18 | )(d) | 122,986 | 0.84 | 0.99 | (0.15 | ) | 126 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 28.37 | 0.03 | 5.60 | 5.63 | — | — | — | 34.00 | 19.84 | (d) | 74,870 | 0.79 | 0.90 | 0.12 | 158 | |||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 17.10 | 0.04 | 11.26 | 11.30 | (0.03 | ) | (0.00 | )(f) | (0.03 | ) | 28.37 | 66.07 | 74,214 | 0.84 | 0.84 | 0.17 | 13 | |||||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 49.58 | (0.09 | ) | 2.22 | 2.13 | — | — | — | 51.71 | 4.29 | (d) | 211,776 | 1.15 | (e) | 1.20 | (e) | (0.36 | )(e) | 33 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 35.55 | (0.07 | ) | 14.20 | 14.13 | (0.10 | ) | — | (0.10 | ) | 49.58 | 39.79 | (d) | 257,788 | 1.15 | 1.21 | (0.17 | ) | 75 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 31.35 | 0.10 | 4.10 | 4.20 | — | — | — | 35.55 | 13.40 | (d) | 224,334 | 1.13 | 1.23 | 0.27 | 190 | |||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 33.49 | (0.14 | ) | (2.00 | ) | (2.14 | ) | — | — | — | 31.35 | (6.39 | )(d) | 85,724 | 1.09 | 1.24 | (0.40 | ) | 126 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 28.01 | (0.05 | ) | 5.53 | 5.48 | — | — | — | 33.49 | 19.56 | (d) | 109,920 | 1.04 | 1.15 | (0.18 | ) | 158 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 16.91 | (0.02 | ) | 11.12 | 11.10 | — | — | — | 28.01 | 65.64 | (g) | 112,533 | 1.09 | 1.09 | (0.07 | ) | 13 |
(a) | Calculated using average shares outstanding. |
(b) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $14,357,093 and sold of $15,173,740 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Appreciation Fund and Invesco V.I. Leisure Fund into the Fund. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $81,993,574 and sold of $49,870,241 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Large Cap Growth Fund into the Fund. |
(c) | On June 1, 2010, the predecessor Fund’s former Class I and Class II shares were reorganized into Series I and Series II shares 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) of $558,722 and $232,943 for Series I and Series II, respectively. |
(f) | Amount is less than $0.01 per share. |
(g) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. American Franchise Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/14) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,044.20 | $ | 4.56 | $ | 1,020.33 | $ | 4.51 | 0.90 | % | ||||||||||||
Series II | 1,000.00 | 1,042.90 | 5.83 | 1,019.09 | 5.76 | 1.15 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective July 1, 2014, the Fund’s adviser has contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses of Series I and Series II shares to 2.00% and 2.25%, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.82 and $6.08 for Series I and Series II, 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 $4.76 and $6.01 for Series I and Series II, respectively. |
Invesco V.I. American Franchise Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Franchise Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee
data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support
functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Large-Cap Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one and five year periods and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was 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. Invesco Advisers noted that the momentum driven process employed by the Fund had resulted in top performance since November 2012, but that abrupt market changes during 2011 and 2012 had created a challenging environment for the
Invesco V.I. American Franchise Fund
portfolio management team’s process leading to relative underperformance. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of the one mutual fund advised by Invesco Advisers with a similar investment process. The Board also noted that Invesco Advisers sub-advises one other mutual fund that is managed using an investment process substantially similar to the investment process used for the Fund and that the sub-advisory effective fee rate was below the effective advisory fee rate of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended.
Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from
the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. American Franchise Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. American Value Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIAMVA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.64 | % | |||
Series II Shares | 7.50 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell Midcap Value Index‚ (Style-Specific Index) | 11.14 | ||||
Lipper VUF Mid-Cap Value Funds Indexn (Peer Group Index) | 8.51 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Value Index is an unmanaged index considered representative of mid-cap value stocks. The Russell Midcap Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Value Funds Index is an unmanaged index considered representative of mid-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (1/2/97) | 10.93 | % | |||
10 Years | 10.65 | ||||
5 Years | 21.92 | ||||
1 Year | 24.63 | ||||
Series II Shares | |||||
Inception (5/5/03) | 12.56 | % | |||
10 Years | 10.50 | ||||
5 Years | 21.73 | ||||
1 Year | 24.33 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Universal Institutional Funds Mid Cap Value Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Mid Cap Value Fund (renamed Invesco V.I. American Value Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. American Value Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.00% and 1.25%, 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 1.01% 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. American Value Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
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, 2016. See current prospectus for more information. |
Invesco V.I. American Value Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks–96.16% |
| |||||||
Aerospace & Defense–1.97% | ||||||||
Textron Inc. | 213,106 | $ | 8,159,829 | |||||
Air Freight & Logistics–1.14% | ||||||||
UTi Worldwide, Inc.(b) | 456,043 | 4,715,485 | ||||||
Alternative Carriers–2.88% | ||||||||
tw telecom inc.(b) | 295,270 | 11,902,334 | ||||||
Apparel Retail–4.02% | ||||||||
Ascena Retail Group, Inc.(b) | 631,509 | 10,798,804 | ||||||
Express, Inc.(b) | 343,849 | 5,855,748 | ||||||
16,654,552 | ||||||||
Application Software–5.80% | ||||||||
Cadence Design Systems, Inc.(b) | 679,848 | 11,890,541 | ||||||
Citrix Systems, Inc.(b) | 193,814 | 12,123,066 | ||||||
24,013,607 | ||||||||
Asset Management & Custody Banks–2.82% | ||||||||
Northern Trust Corp. | 134,721 | 8,650,435 | ||||||
American Capital Ltd.(b) | 197,526 | 3,020,173 | ||||||
11,670,608 | ||||||||
Auto Parts & Equipment–5.17% | ||||||||
Dana Holding Corp. | 372,602 | 9,098,941 | ||||||
Johnson Controls, Inc. | 246,407 | 12,303,101 | ||||||
21,402,042 | ||||||||
Automotive Retail–1.96% | ||||||||
Advance Auto Parts, Inc. | 60,270 | 8,131,628 | ||||||
Building Products–1.86% | ||||||||
Owens Corning Inc. | 199,013 | 7,697,823 | ||||||
Communications Equipment–2.02% | ||||||||
Ciena Corp.(b) | 385,215 | 8,343,757 | ||||||
Diversified Banks–2.62% | ||||||||
Comerica Inc. | 216,575 | 10,863,402 | ||||||
Diversified Chemicals–2.51% | ||||||||
Eastman Chemical Co. | 119,119 | 10,405,045 | ||||||
Electric Utilities–2.06% | ||||||||
Edison International | 146,699 | 8,524,679 | ||||||
General Merchandise Stores–1.41% | ||||||||
Family Dollar Stores, Inc. | 88,042 | 5,823,098 | ||||||
Health Care Equipment–1.99% | ||||||||
CareFusion Corp.(b) | 186,131 | 8,254,910 | ||||||
Health Care Facilities–6.91% | ||||||||
Brookdale Senior Living Inc.(b) | 250,409 | 8,348,636 | ||||||
HealthSouth Corp. | 282,640 | 10,138,297 |
Shares | Value | |||||||
Health Care Facilities–(continued) | ||||||||
Universal Health Services, Inc.–Class B | 105,452 | $ | 10,098,083 | |||||
28,585,016 | ||||||||
Heavy Electrical Equipment–2.11% | ||||||||
Babcock & Wilcox Co. (The) | 268,684 | 8,721,483 | ||||||
Human Resource & Employment Services–2.28% | ||||||||
Robert Half International, Inc. | 197,780 | 9,442,017 | ||||||
Industrial Machinery–5.15% | ||||||||
Ingersoll-Rand PLC | 157,035 | 9,816,258 | ||||||
Snap-on Inc. | 96,877 | 11,481,862 | ||||||
21,298,120 | ||||||||
Insurance Brokers–4.64% | ||||||||
Arthur J. Gallagher & Co. | 95,395 | 4,445,407 | ||||||
Marsh & McLennan Cos., Inc. | 158,964 | 8,237,515 | ||||||
Willis Group Holdings PLC | 150,357 | 6,510,458 | ||||||
19,193,380 | ||||||||
Investment Banking & Brokerage–2.20% | ||||||||
Stifel Financial Corp.(b) | 192,208 | 9,101,049 | ||||||
IT Consulting & Other Services–2.42% | ||||||||
Teradata Corp.(b) | 249,448 | 10,027,810 | ||||||
Life Sciences Tools & Services–1.59% | ||||||||
PerkinElmer, Inc. | 140,537 | 6,582,753 | ||||||
Multi-Utilities–0.99% | ||||||||
CenterPoint Energy, Inc. | 160,010 | 4,086,655 | ||||||
Oil & Gas Equipment & Services–2.04% | ||||||||
AMEC PLC (United Kingdom) | 406,190 | 8,437,293 | ||||||
Oil & Gas Exploration & Production–2.75% | ||||||||
Newfield Exploration Co.(b) | 257,927 | 11,400,373 | ||||||
Oil & Gas Storage & Transportation–3.06% | ||||||||
ONEOK, Inc. | 56,102 | 3,819,424 | ||||||
Williams Cos., Inc. (The) | 151,777 | 8,834,939 | ||||||
12,654,363 | ||||||||
Packaged Foods & Meats–3.12% | ||||||||
ConAgra Foods, Inc. | 435,620 | 12,929,202 | ||||||
Paper Packaging–1.39% | ||||||||
Sealed Air Corp. | 168,112 | 5,744,387 | ||||||
Personal Products–0.50% | ||||||||
Avon Products, Inc. | 141,645 | 2,069,434 | ||||||
Property & Casualty Insurance–3.79% | ||||||||
ACE Ltd. | 77,474 | 8,034,054 | ||||||
Fidelity National Financial, Inc.–Class A | 234,164 | 7,671,212 | ||||||
15,705,266 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Shares | Value | |||||||
Real Estate Operating Companies–2.55% | ||||||||
Forest City Enterprises, Inc.– | 530,160 | $ | 10,534,279 | |||||
Regional Banks–5.79% | ||||||||
BB&T Corp. | 245,388 | 9,675,649 | ||||||
Wintrust Financial Corp. | 186,987 | 8,601,402 | ||||||
Zions Bancorp. | 192,550 | 5,674,448 | ||||||
23,951,499 | ||||||||
Specialty Chemicals–1.97% | ||||||||
W.R. Grace & Co.(b) | 86,181 | 8,146,690 | ||||||
Technology Hardware, Storage & Peripherals–0.68% | ||||||||
Diebold, Inc. | 69,672 | 2,798,724 | ||||||
Total Common Stocks |
| 397,972,592 |
Shares | Value | |||||||
Money Market Funds–4.11% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 8,506,431 | $ | 8,506,431 | |||||
Premier Portfolio–Institutional Class(c) | 8,506,431 | 8,506,431 | ||||||
Total Money Market Funds |
| 17,012,862 | ||||||
TOTAL INVESTMENTS–100.27% |
| 414,985,454 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.27)% |
| (1,137,570 | ) | |||||
NET ASSETS–100.00% | $ | 413,847,884 |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Financials | 24.4 | % | ||
Industrials | 14.5 | |||
Consumer Discretionary | 12.6 | |||
Information Technology | 10.9 | |||
Health Care | 10.5 | |||
Energy | 6.9 | |||
Materials | 5.9 | |||
Utilities | 4.0 | |||
Consumer Staples | 3.6 | |||
Telecommunication Services | 2.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $306,593,294) | $ | 397,972,592 | ||
Investments in affiliated money market funds, at value and cost | 17,012,862 | |||
Total investments, at value (Cost $323,606,156) | 414,985,454 | |||
Receivable for: | ||||
Investments sold | 627,957 | |||
Fund shares sold | 448,624 | |||
Dividends | 570,391 | |||
Investment for trustee deferred compensation and retirement plans | 45,906 | |||
Total assets | 416,678,332 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 637,178 | |||
Fund shares reacquired | 1,405,599 | |||
Forward foreign currency contracts outstanding | 51,574 | |||
Accrued fees to affiliates | 667,603 | |||
Accrued trustees’ and officers’ fees and benefits | 642 | |||
Accrued other operating expenses | 15,202 | |||
Trustee deferred compensation and retirement plans | 52,650 | |||
Total liabilities | 2,830,448 | |||
Net assets applicable to shares outstanding | $ | 413,847,884 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 228,859,624 | ||
Undistributed net investment income | 1,459,941 | |||
Undistributed net realized gain | 92,197,050 | |||
Net unrealized appreciation | 91,331,269 | |||
$ | 413,847,884 | |||
Net Assets: | ||||
Series I | $ | 159,363,744 | ||
Series II | $ | 254,484,140 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,443,360 | |||
Series II | 11,997,721 | |||
Series I: | ||||
Net asset value per share | $ | 21.41 | ||
Series II: | ||||
Net asset value per share | $ | 21.21 |
Investment income: | ||||
Dividends | $ | 3,143,754 | ||
Dividends from affiliated money market funds | 4,856 | |||
Total investment income | 3,148,610 | |||
Expenses: | ||||
Advisory fees | 1,623,254 | |||
Administrative services fees | 556,294 | |||
Custodian fees | 7,830 | |||
Distribution fees — Series II | 370,664 | |||
Transfer agent fees | 9,652 | |||
Trustees’ and officers’ fees and benefits | 15,679 | |||
Other | 22,899 | |||
Total expenses | 2,606,272 | |||
Less: Fees waived | (17,991 | ) | ||
Net expenses | 2,588,281 | |||
Net investment income | 560,329 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 59,362,938 | |||
Foreign currencies | (13,487 | ) | ||
Forward foreign currency contracts | (61,805 | ) | ||
Option contracts written | 25,124 | |||
59,312,770 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (29,973,031 | ) | ||
Foreign currencies | 3,545 | |||
Forward foreign currency contracts | (51,574 | ) | ||
Option contracts written | 41,876 | |||
(29,979,184 | ) | |||
Net realized and unrealized gain | 29,333,586 | |||
Net increase in net assets resulting from operations | $ | 29,893,915 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 560,329 | $ | 958,336 | ||||
Net realized gain | 59,312,770 | 44,249,741 | ||||||
Change in net unrealized appreciation (depreciation) | (29,979,184 | ) | 75,761,875 | |||||
Net increase in net assets resulting from operations | 29,893,915 | 120,969,952 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (973,786 | ) | |||||
Series ll | — | (1,555,508 | ) | |||||
Total distributions from net investment income | — | (2,529,294 | ) | |||||
Share transactions–net: | ||||||||
Series l | (9,158,016 | ) | (16,003,140 | ) | ||||
Series ll | (84,466,239 | ) | 23,196,508 | |||||
Net increase (decrease) in net assets resulting from share transactions | (93,624,255 | ) | 7,193,368 | |||||
Net increase (decrease) in net assets | (63,730,340 | ) | 125,634,026 | |||||
Net assets: | ||||||||
Beginning of period | 477,578,224 | 351,944,198 | ||||||
End of period (includes undistributed net investment income of $1,459,941 and $899,612, respectively) | $ | 413,847,884 | $ | 477,578,224 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco 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-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. American Value Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. American Value 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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 and Purchased — The Fund may write covered call options and/or buy call options. A covered call option gives the purchaser of such option the right to buy, and the writer the obligation to sell, the underlying security at the stated exercise price during the option period. Options written by the Fund normally will have expiration dates between three and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. |
When the Fund writes a covered call option, an amount equal to the premium received by the Fund is recorded as an asset and an equivalent liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written covered call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written covered call option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized and unrealized gains and losses on these contracts are included in the Statement of Operation. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised.
When the Fund buys a call option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities. The amount of the investment is subsequently “marked-to-market” to reflect the current value of the option purchased. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased.
L. | 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. |
Invesco V.I. American Value Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $1 billion | 0.72% | |||
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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $17,991.
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, 2014, Invesco was paid $54,334 for accounting and fund administrative services and reimbursed $501,960 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $6,517 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. American Value Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2014. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 406,548,161 | $ | 8,437,293 | $ | — | $ | 414,985,454 | ||||||||
Forward Foreign Currency Contracts* | — | (51,574 | ) | — | (51,574 | ) | ||||||||||
Total Investments | $ | 406,548,161 | $ | 8,385,719 | $ | — | $ | 414,933,880 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (51,574 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||
Forward Foreign Currency Contracts | Options Written | |||||||
Realized Gain (Loss) | ||||||||
Currency risk | $ | (61,805 | ) | $ | — | |||
Equity risk | — | 25,124 | ||||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Currency risk | $ | (51,574 | ) | $ | — | |||
Equity risk | — | 41,876 | ||||||
Total | $ | (113,379 | ) | $ | 67,000 |
The table below summarizes the average notional value of forward foreign currency contracts and options written outstanding during the period.
Forward Foreign Currency Contracts | Options Written | |||||||
Average notional value | $ | 3,285,801 | $ | 1,954,167 |
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | GBP | 1,866,157 | USD | 3,167,633 | $ | 3,193,181 | $ | (25,548 | ) | ||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | GBP | 1,890,085 | USD | 3,208,098 | 3,234,124 | (26,026 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk | $ | (51,574 | ) |
Currency Abbreviations:
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | 1,675 | $ | 25,124 | |||||
Expired | (1,675 | ) | (25,124 | ) | ||||
End of period | — | $ | — |
Invesco V.I. American Value Fund
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York Mellon (The) | $ | 25,548 | $ | — | $ | 25,548 | $ | — | $ | — | $ | 25,548 | ||||||||||||
State Street Bank and Trust Co. | 26,026 | — | 26,026 | — | — | 26,026 | ||||||||||||||||||
Total | $ | 51,574 | $ | — | $ | 51,574 | $ | — | $ | — | $ | 51,574 |
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, 2014, the Fund engaged in securities purchases of $971,100.
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
Invesco V.I. American Value 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, 2014 was $115,117,769 and $199,499,554, 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 | $ | 95,895,132 | ||
Aggregate unrealized (depreciation) of investment securities | (5,327,335 | ) | ||
Net unrealized appreciation of investment securities | $ | 90,567,797 |
Cost of investments for tax purposes is $324,417,657.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 476,355 | $ | 9,312,899 | 895,207 | $ | 15,703,262 | ||||||||||
Series II | 1,775,856 | 35,409,634 | 4,725,902 | 82,234,030 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 52,552 | 973,785 | ||||||||||||
Series II | — | — | 84,584 | 1,555,508 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (919,160 | ) | (18,470,915 | ) | (1,862,072 | ) | (32,680,187 | ) | ||||||||
Series II | (6,039,336 | ) | (119,875,873 | ) | (3,450,540 | ) | (60,593,030 | ) | ||||||||
Net increase (decrease) in share activity | (4,706,285 | ) | $ | (93,624,255 | ) | 445,633 | $ | 7,193,368 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 56% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both realized and unrealized) | Total from operations | Dividends income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of to average net assets absorbed | Ratio of fee waivers | Ratio of net to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 19.89 | $ | 0.04 | $ | 1.48 | $ | 1.52 | $ | — | $ | 21.41 | 7.64 | % | $ | 159,364 | 0.98 | %(d) | 0.99 | %(d) | 0.42 | %(d) | 27 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 14.91 | 0.07 | 5.03 | 5.10 | (0.12 | ) | 19.89 | 34.27 | 156,824 | 0.99 | 1.00 | 0.39 | 42 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 12.81 | 0.12 | 2.08 | 2.20 | (0.10 | ) | 14.91 | 17.21 | 131,233 | 0.99 | 1.00 | 0.86 | 26 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.79 | 0.10 | 0.01 | 0.11 | (0.09 | ) | 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 | ) | 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 | ) | 10.56 | 39.21 | 158,853 | 1.02 | 1.02 | 1.12 | 64 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 19.73 | 0.02 | 1.46 | 1.48 | — | 21.21 | 7.50 | 254,484 | 1.23 | (d) | 1.24 | (d) | 0.17 | (d) | 27 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 14.81 | 0.03 | 4.99 | 5.02 | (0.10 | ) | 19.73 | 33.93 | 320,754 | 1.24 | 1.25 | 0.14 | 42 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 12.74 | 0.10 | 2.06 | 2.16 | (0.09 | ) | 14.81 | 16.98 | 220,711 | 1.17 | 1.25 | 0.68 | 26 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.72 | 0.09 | 0.01 | 0.10 | (0.08 | ) | 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 | ) | 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 | ) | 10.50 | 39.16 | 121,046 | 1.12 | 1.37 | 1.01 | 64 |
(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 $155,652 and $298,989 for Series I and Series II shares, respectively. |
Invesco V.I. American Value Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,076.40 | $ | 5.05 | $ | 1,019.93 | $ | 4.91 | 0.98 | % | ||||||||||||
Series II | 1,000.00 | 1,075.00 | 6.33 | 1,018.70 | 6.16 | 1.23 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. American Value Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. American Value Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Mid-Cap Value 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 year period, the first quintile for the three year period and the second quintile for the five year
Invesco V.I. American Value Fund
period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisors and above the effective sub-advisor effective fee rate of three mutual funds sub-advised by Invesco Advisers. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly
by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or
similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. American Value Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Balanced-Risk Allocation Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIBRA-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.67 | % | |||
Series II Shares | 6.56 | ||||
MSCI World Index‚ (Broad Market Index) | 6.18 | ||||
Custom V.I. Balanced-Risk Allocation Indexn (Style-Specific Index) | 5.33 | ||||
Source(s): ‚FactSet Research Systems Inc.; nInvesco, FactSet Research Systems Inc. |
|
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom V.I. Balanced-Risk Allocation Index, created by Invesco to serve as a benchmark for Invesco V.I. Balanced-Risk Allocation Fund, comprises the following indexes: MSCI World Index (60%) and Barclays U.S. Aggregate Index (40%).
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (1/23/09) | 12.27 | % | |||
5 Years | 11.20 | ||||
1 Year | 12.57 | ||||
Series II Shares | |||||
Inception (1/23/09) | 11.97 | % | |||
5 Years | 10.92 | ||||
1 Year | 12.27 |
The returns shown above include the returns of Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the first predecessor fund) for the period June 1, 2010, to May 2, 2011, the date the first predecessor fund was reorganized into the Fund, and the returns of Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio (the second predecessor fund) for the period prior to June 1, 2010, the date the second predecessor fund was reorganized into the first predecessor fund. The second predecessor fund was advised by Van Kampen Asset Management. Returns shown above for Series I and Series II shares are blended returns of the predecessor funds and Invesco V.I. Balanced-Risk Allocation Fund. Share class returns will differ from the predecessor funds because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance.
Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.80% and 1.05%, respectively.1,2,3 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.22% and 1.47%, respectively.1 The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Balanced-Risk Allocation Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable
product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | The expense ratio includes acquired fund fees and expenses of the underlying funds in which the Fund invests of 0.11% for Invesco V.I. Balanced-Risk Allocation Fund. |
2 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2015. See current prospectus for more information. |
3 | Total annual Fund operating expenses after any contractual fee waivers by the adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
June 30, 2014
(Unaudited)
Interest Rate | Maturity Date | Principal Amount | Value | |||||||||||||
U.S. Treasury Securities–9.45% | ||||||||||||||||
U.S. Treasury Bills–7.96%(a) | ||||||||||||||||
U.S. Treasury Bills(b) | 0.06 | % | 07/03/14 | $ | 7,020,000 | $ | 7,019,998 | |||||||||
U.S. Treasury Bills | 0.07 | % | 07/10/14 | 7,240,000 | 7,240,000 | |||||||||||
U.S. Treasury Bills | 0.05 | % | 07/17/14 | 8,000,000 | 7,999,964 | |||||||||||
U.S. Treasury Bills(b) | 0.06 | % | 07/24/14 | 8,000,000 | 7,999,949 | |||||||||||
U.S. Treasury Bills | 0.05 | % | 07/31/14 | 13,900,000 | 13,899,768 | |||||||||||
U.S. Treasury Bills(b) | 0.06 | % | 08/07/14 | 13,900,000 | 13,899,999 | |||||||||||
U.S. Treasury Bills(b) | 0.07 | % | 08/28/14 | 16,295,000 | 16,294,604 | |||||||||||
U.S. Treasury Bills | 0.05 | % | 12/04/14 | 6,700,000 | 6,698,691 | |||||||||||
U.S. Treasury Bills | 0.05 | % | 12/11/14 | 21,980,000 | 21,975,514 | |||||||||||
U.S. Treasury Bills | 0.02 | % | 12/18/14 | 3,569,000 | 3,568,241 | |||||||||||
U.S. Treasury Bills | 0.04 | % | 12/18/14 | 3,451,000 | 3,450,265 | |||||||||||
U.S. Treasury Bills(b) | 0.10 | % | 01/08/15 | 4,000,000 | 3,999,256 | |||||||||||
114,046,249 | ||||||||||||||||
U.S. Treasury Notes–1.49% | ||||||||||||||||
U.S. Treasury Notes(c) | 0.08 | % | 01/31/16 | 21,290,000 | 21,284,980 | |||||||||||
Total U.S. Treasury Securities (Cost $135,327,442) | 135,331,229 | |||||||||||||||
Expiration Date | ||||||||||||||||
Commodity-Linked Securities–2.32% | ||||||||||||||||
Canadian Imperial Bank of Commerce, Commodity Linked EMTN, U.S. Federal Funds Effective Rate minus 0.04% (linked to the Canadian Imperial Bank of Commerce Custom 1 Agriculture Commodity Index, multiplied by two)(d) | 12/11/14 | 10,272,220 | 12,171,563 | |||||||||||||
Cargill, Inc., Commodity Linked Notes, one month LIBOR rate minus 0.1% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by two)(d) | 12/19/14 | 10,000,000 | 11,810,606 | |||||||||||||
Cargill, Inc., Commodity Linked Notes, one month LIBOR rate minus 0.1% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by two)(d) | 06/11/15 | 9,900,000 | 9,307,606 | |||||||||||||
Total Commodity-Linked Securities (Cost $30,172,220) | 33,289,775 | |||||||||||||||
Shares | ||||||||||||||||
Money Market Funds–84.26% | ||||||||||||||||
Government & Agency Portfolio–Institutional Class(e) | 177,212,366 | 177,212,366 | ||||||||||||||
Invesco V.I. Money Market Fund–Series I(e) | 20,440,310 | 20,440,310 | ||||||||||||||
Liquid Assets Portfolio–Institutional Class(e) | 236,283,155 | 236,283,155 | ||||||||||||||
Premier Portfolio–Institutional Class(e) | 196,902,629 | 196,902,629 | ||||||||||||||
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional Class (Ireland)(e) | 201,404,302 | 201,404,302 | ||||||||||||||
STIC Prime Portfolio–Institutional Class(e) | 157,522,104 | 157,522,104 | ||||||||||||||
Treasury Portfolio–Institutional Class(e) | 216,592,892 | 216,592,892 | ||||||||||||||
Total Money Market Funds (Cost $1,206,357,758) | 1,206,357,758 | |||||||||||||||
TOTAL INVESTMENTS–96.03% (Cost $1,371,857,420) | 1,374,978,762 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–3.97% | 56,771,636 | |||||||||||||||
NET ASSETS–100.00% | $ | 1,431,750,398 |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Open Futures Contracts and Swap Agreements at Period-End(f) | ||||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value(g) | Unrealized Appreciation (Depreciation) | |||||||||||||||||
Brent Crude | Long | 328 | September-2014 | $ | 36,758,960 | $ | 1,373,295 | |||||||||||||||
Gas Oil | Long | 124 | August-2014 | 11,392,500 | (222,379 | ) | ||||||||||||||||
Gasoline Reformulated Blendstock Oxygenate Blending | Long | 257 | August-2014 | 32,849,380 | 131,123 | |||||||||||||||||
Silver | Long | 333 | September-2014 | 35,058,240 | (12,682 | ) | ||||||||||||||||
WTI Crude | Long | 308 | October-2014 | 31,985,800 | 2,326,043 | |||||||||||||||||
Subtotal — Commodity Risk | 3,595,400 | |||||||||||||||||||||
Australia 10 Year Bonds | Long | 2,430 | September-2014 | 276,061,117 | 5,154,966 | |||||||||||||||||
Canada 10 Year Bonds | Long | 2,160 | September-2014 | 275,273,477 | 2,068,842 | |||||||||||||||||
Euro Bonds | Long | 1,278 | September-2014 | 257,262,413 | 3,580,704 | |||||||||||||||||
Japan 10 Year Bonds | Long | 138 | September-2014 | 198,397,986 | 618,881 | |||||||||||||||||
Long Gilt | Long | 1,265 | September-2014 | 237,982,021 | 53,554 | |||||||||||||||||
U.S. Treasury 20 Year Bonds | Long | 932 | September-2014 | 127,858,750 | 336,000 | |||||||||||||||||
Subtotal — Interest Rate Risk | 11,812,947 | |||||||||||||||||||||
Dow Jones EURO STOXX 50 Index | Long | 2,395 | September-2014 | 105,992,584 | (1,011,224 | ) | ||||||||||||||||
E-Mini S&P 500 Index | Long | 723 | September-2014 | 70,579,260 | 861,954 | |||||||||||||||||
FTSE 100 Index | Long | 893 | September-2014 | 102,568,877 | (88,119 | ) | ||||||||||||||||
Hang Seng Index | Long | 502 | July-2014 | 74,823,287 | 1,026,277 | |||||||||||||||||
Russell 2000 Index Mini | Long | 485 | September-2014 | 57,729,550 | 1,448,939 | |||||||||||||||||
Tokyo Stock Price Index | Long | 700 | September-2014 | 87,232,257 | 1,769,637 | |||||||||||||||||
Subtotal — Market Risk | 4,007,464 | |||||||||||||||||||||
Total Futures Contracts | $ | 19,415,811 | ||||||||||||||||||||
Swap Agreements | Counterparty | Termination Date | ||||||||||||||||||||
Receive a return equal to the Dow Jones-UBS Gold Index and pay the product of (i) 0.15% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Bank of America Securities LLC | 160,000 | December-2014 | $ | 25,029,072 | $ | 0 | ||||||||||||||
Receive a return equal to the MLCX Dynamic Enhanced Copper Excess Return Index and pay the product of (i) 0.25% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Bank of America Securities LLC | 59,600 | May-2015 | 40,504,767 | 0 | ||||||||||||||||
Receive a return equal to the Barclays Commodity Strategy 1452 Index and pay the product of (i) 0.33% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Barclays Capital Inc. | 51,500 | May-2015 | 27,463,188 | 1,379,305 | ||||||||||||||||
Receive a return equal to the Barclays Commodity Strategy 1635 Excess Return Index and pay the product of (i) 0.53% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Barclays Capital Inc. | 28,400 | October-2014 | 20,522,064 | (666,071 | ) | |||||||||||||||
Receive a return equal to the Single Commodity Gold Excess Return Index and pay the product of (i) 0.12% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Cargill, Inc. | 19,000 | May-2015 | 16,995,205 | 0 | ||||||||||||||||
Receive a return equal to the CIBC Dynamic Roll LME Copper Excess Return Index and pay the product of (i) 0.30% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | CIBC World Markets Corp. | 326,000 | April-2015 | 27,444,440 | 1,379,209 | ||||||||||||||||
Receive a return equal to the Goldman Sachs Alpha Basket B765 Excess Return Strategy and pay the product of (i) 0.60% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Goldman Sachs & Co. | 23,000 | June-2015 | 13,932,001 | 0 |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Swap Agreements | Type of Contract | Counterparty | Number of Contracts | Termination Date | Notional Value(g) | Unrealized Appreciation (Depreciation) | ||||||||||||||||
Receive a return equal to the J.P. Morgan Bespoke Commodity 165 Index and pay the product of (i) 0.49% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | JPMorgan Securities Inc. | 4,600 | June-2015 | $ | 3,453,531 | $ | (142,696 | ) | |||||||||||||
Receive a return equal to the S&P GSCI Gold Index Excess Return and pay the product of (i) 0.09% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | JPMorgan Securities Inc. | 191,000 | April-2015 | 21,182,052 | 57,836 | ||||||||||||||||
Receive a return equal to the S&P GSCI Aluminum Dynamic Roll Index Excess Return and pay the product of (i) 0.38% of the Notional Amount multiplied by (ii) days in the period divided by 365. | Long | Morgan Stanley Capital Services LLC | 72,000 | October-2014 | 8,167,622 | (50,752 | ) | |||||||||||||||
Subtotal – Commodity Risk | 1,956,831 | |||||||||||||||||||||
Receive a return equal to the Canada 10 Year Bond Futures multiplied by the number of index units multiplied by 1,000 | Long | Bank of America Securities LLC | 5 | September-2014 | 637,207 | 4,027 | ||||||||||||||||
Receive a return equal to Euro-Bund EUR Excess Return Index and pay the product of (i) 0.30% of the Notional Value multiplied by (ii) days in the period divided by 360 multiplied by (iii) mid spot price for converting one Euro to an amount of USD | Long | Barclays Capital Inc. | 33,000 | December-2014 | EUR | 5,615,685 | 68,188 | |||||||||||||||
Receive a return equal to the LIFFE Long Gilt Futures multiplied by 0.01% of the Notional Value | Long | Goldman Sachs & Co. | 220 | September-2014 | 41,388,178 | 72 | ||||||||||||||||
Subtotal – Interest Rate Risk | 72,287 | |||||||||||||||||||||
Receive a return equal to the Hang Seng Index Futures multiplied by the Notional Value | Long | Goldman Sachs & Co. | 233 | July-2014 | 34,728,737 | 403,430 | ||||||||||||||||
Subtotal – Market Risk | 403,430 | |||||||||||||||||||||
Total Swap Agreements | $ | 2,432,548 |
Investments Abbreviations:
EMTN | – European Medium-Term Notes | |
EUR | – Euro | |
LIBOR | – London InterBank Offered Rate | |
USD | – U.S. Dollar |
Index Information: | ||
Canadian Imperial Bank of Commerce Custom 1 Agriculture | – a basket of indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Sugar, Soybeans, Soybean Meal and Live Cattle. | |
Monthly Rebalance Commodity Excess Return Index | – an index comprised of four commodity indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Sugar, Soybeans, Soybean Meal and Live Cattle. | |
Dow Jones-UBS Gold Index | – a commodity index composed of futures contracts on gold. | |
MLCX Dynamic Enhanced Copper Excess Return Index | – a commodity index composed of futures contracts on copper. | |
Barclays Commodity Strategy 1452 Index | – a commodity index that provides exposure to futures contracts on copper. | |
Barclays Commodity Strategy 1635 Excess Return Index | – an index comprised of four commodity indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Sugar, Soybean, Soymeal and Live Cattle. | |
Single Commodity Gold Excess Return Index | – a commodity index composed of futures contracts on gold. | |
CIBC Dynamic Roll LME Copper Excess Return Index | – a commodity index composed of futures contracts on copper. | |
Goldman Sachs Alpha Basket B765 Excess Return Strategy | – a basket of four indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Sugar, Soybean, Soybean Meal and Live Cattle. | |
J.P. Morgan Bespoke Commodity 165 Index | – an index comprised of four commodity indices that provide exposure to various components of the agriculture markets. The underlying commodities comprising the indices are: Soybean, Soybean Meal, Seasonal Sugar and Live Cattle. | |
S&P GSCI Gold Index Excess Return | – a commodity index composed of futures contracts on gold. | |
S&P GSCI Aluminum Dynamic Roll Index Excess Return | – a commodity index composed of futures contracts on aluminum. | |
Euro-Bund EUR Excess Return Index | – an index composed of futures contracts on Euro Government bonds. |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Notes to Consolidated Schedule of Investments:
(a) | Securities traded on a discount basis. The interest rates shown represent the discount rates at the time of purchase by the Fund. |
(b) | All or a portion of the value was designated as collateral for swap agreements. See Note 1M and Note 4. |
(c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2014. |
(d) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2013 was $33,289,775, which represented 2.32% of the Fund’s Net Assets. |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(f) | Futures contracts collateralized by $19,510,000 cash held with Goldman Sachs & Co., the futures commission merchant. |
(g) | Notional value is denominated in U.S. Dollars unless otherwise noted. |
Target Risk Allocation and Notional Asset Weights*
By asset class
Asset Class | Risk Allocation** | % of Net Assets as of 06/30/14*** | ||||||
Equities | 41.34 | % | 38.55 | % | ||||
Fixed Income | 30.01 | 89.86 | ||||||
Commodities | 28.65 | 31.39 |
* | Risk contribution is measured as the standard deviation of each asset class as a percentage of total portfolio standard deviation. The risk contribution of each underlying asset determines the dollar-weighting of the asset. Standard deviation measures a fund’s range of total returns and fluctuations over a defined period of time. |
** | Based on the expected market exposure. |
*** | 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, 2014
(Unaudited)
Consolidated Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $165,499,662) | $ | 168,621,004 | ||
Investments in affiliated money market funds, at value and cost | 1,206,357,758 | |||
Total investments, at value (Cost $1,371,857,420) | 1,374,978,762 | |||
Cash | 37,990,000 | |||
Receivable for: | ||||
Deposits with brokers for open futures contracts | 19,510,000 | |||
Fund shares sold | 819,878 | |||
Dividends and interest | 32,809 | |||
Swaps receivables | 2,792,336 | |||
Investment for trustee deferred compensation and retirement plans | 86,804 | |||
Unrealized appreciation on swap transactions | 2,568,160 | |||
Total assets | 1,438,778,749 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 4,613,624 | |||
Variation margin — futures contracts | 73,912 | |||
Accrued fees to affiliates | 2,043,587 | |||
Accrued trustees’ and officers’ fees and benefits | 609 | |||
Accrued other operating expenses | 60,056 | |||
Trustee deferred compensation and retirement plans | 100,933 | |||
Premiums received on swap agreements | 18 | |||
Unrealized depreciation on swap transactions | 135,612 | |||
Total liabilities | 7,028,351 | |||
Net assets applicable to shares outstanding | $ | 1,431,750,398 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,259,273,144 | ||
Undistributed net investment income (loss) | (6,386,563 | ) | ||
Undistributed net realized gain | 153,894,172 | |||
Net unrealized appreciation | 24,969,645 | |||
$ | 1,431,750,398 | |||
Net Assets: | ||||
Series I | $ | 8,994,498 | ||
Series II | $ | 1,422,755,900 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 685,512 | |||
Series II | 109,415,851 | |||
Series I: | ||||
Net asset value per share | $ | 13.12 | ||
Series II: | ||||
Net asset value per share | $ | 13.00 |
Investment income: | ||||
Dividends from affiliated money market funds | $ | 236,037 | ||
Interest | 50,739 | |||
Total investment income | 286,776 | |||
Expenses: | ||||
Advisory fees | 6,219,347 | |||
Administrative services fees | 1,285,092 | |||
Custodian fees | 13,084 | |||
Distribution fees — Series II | 1,703,988 | |||
Transfer agent fees | 8,422 | |||
Trustees’ and officers’ fees and benefits | 21,967 | |||
Other | 69,639 | |||
Total expenses | 9,321,539 | |||
Less: Fees waived | (2,769,868 | ) | ||
Net expenses | 6,551,671 | |||
Net investment income (loss) | (6,264,895 | ) | ||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 3,334,642 | |||
Foreign currencies | 456,152 | |||
Futures contracts | 74,804,437 | |||
Swap agreements | 4,138,724 | |||
82,733,955 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 1,798,772 | |||
Foreign currencies | 19,587 | |||
Futures contracts | 7,455,113 | |||
Swap agreements | 2,164,583 | |||
11,438,055 | ||||
Net realized and unrealized gain | 94,172,010 | |||
Net increase in net assets resulting from operations | $ | 87,907,115 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (6,264,895 | ) | $ | (13,300,908 | ) | ||
Net realized gain | 82,733,955 | 21,894,049 | ||||||
Change in net unrealized appreciation | 11,438,055 | 11,089,536 | ||||||
Net increase in net assets resulting from operations | 87,907,115 | 19,682,677 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (155,774 | ) | |||||
Series ll | — | (23,299,211 | ) | |||||
Total distributions from net investment income | — | (23,454,985 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (273,003 | ) | |||||
Series ll | — | (44,221,706 | ) | |||||
Total distributions from net realized gains | — | (44,494,709 | ) | |||||
Share transactions–net: | ||||||||
Series l | (399,763 | ) | (1,259,550 | ) | ||||
Series ll | (34,062,153 | ) | 73,671,743 | |||||
Net increase (decrease) in net assets resulting from share transactions | (34,461,916 | ) | 72,412,193 | |||||
Net increase in net assets | 53,445,199 | 24,145,176 | ||||||
Net assets: | ||||||||
Beginning of period | 1,378,305,199 | 1,354,160,023 | ||||||
End of period (includes undistributed net investment income (loss) of $(6,386,563) and $(121,668), respectively) | $ | 1,431,750,398 | $ | 1,378,305,199 |
Notes to Consolidated Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Balanced-Risk Allocation Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these consolidated financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund will seek to gain exposure to the commodity markets primarily through investments in the Invesco Cayman Commodity Fund IV Ltd. (the “Subsidiary”), a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands. The Subsidiary was organized by the Fund to invest in commodity-linked derivatives. The Fund may invest up to 25% of its total assets in the Subsidiary.
The Fund’s investment objective is total return with a low to moderate correlation to traditional financial market indices.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its consolidated financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) 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
Invesco V.I. Balanced-Risk Allocation Fund
on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) 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 of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the consolidated financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The financial statements are prepared on a consolidated basis in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. The accompanying financial statements reflect the financial position of the Fund and its Subsidiary and the results of operations on a consolidated basis. All inter-company accounts and transactions have been eliminated in consolidation. |
In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the consolidated financial statements are released to print.
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust, and under the Subsidiary’s organizational documents, the directors and officers of the Subsidiary, are indemnified against certain liabilities that may arise out of the performance of their duties to the Fund and/or the Subsidiary, respectively. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Foreign Currency Translations — Foreign currency is valued at the close of the NYSE based on quotations posted by banks and major currency dealers. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at date of valuation. Purchases and sales of portfolio securities (net of foreign taxes withheld on disposition) and income items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions. The Fund does not separately account for the portion of the results of operations resulting from changes in foreign exchange rates on investments and the fluctuations arising from changes in market prices of securities held. The combined results of changes in foreign exchange rates and the fluctuation of market prices on investments (net of estimated foreign tax withholding) are included with the net realized and unrealized gain or loss from investments in the Consolidated Statement of Operations. Reported net realized foreign currency gains or losses arise from (1) sales of foreign currencies, (2) currency gains or losses realized between the trade and settlement dates on securities transactions, and (3) the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates. |
The Fund may invest in foreign securities which may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable.
J. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward foreign currency contracts does not eliminate fluctuations in the price of the underlying securities the Fund owns or intends to acquire but establishes a rate of exchange in advance. Fluctuations in the value of these contracts are measured by the difference in the contract date and reporting date exchange rates and are recorded as unrealized appreciation (depreciation) until the contracts are closed. When the contracts are closed, realized gains (losses) are recorded. Realized and unrealized gains (losses) on the contracts are included in the Consolidated Statement of Operations. The primary risks associated with forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Consolidated Statement of Assets and Liabilities. |
K. | Structured Securities — The Fund may invest in structured securities. Structured securities are a type of derivative security whose value is determined by reference to changes in the value of underlying securities, currencies, interest rates, commodities, indices or other financial indicators (“reference instruments”). Most structured securities are fixed-income securities that have maturities of three years or less. Structured securities may be positively or negatively indexed (i.e., their principal value or interest rates may increase or decrease if the underlying reference instrument appreciates) and may have return characteristics similar to direct investments in the underlying reference instrument. |
Structured securities may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of the reference instruments. In addition to the credit risk of structured securities and the normal risks of price changes in response to changes in interest rates, the principal amount of structured notes or indexed securities may decrease as a result of changes in the value of the underlying
Invesco V.I. Balanced-Risk Allocation Fund
reference instruments. Changes in the daily value of structured securities are recorded as unrealized gains (losses) in the Consolidated Statement of Operations. When the structured securities mature or are sold, the Fund recognizes a realized gain (loss) on the Consolidated Statement of Operations.
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 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. |
M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Consolidated Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Consolidated Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the
Invesco V.I. Balanced-Risk Allocation Fund
Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
N. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
O. | 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 and commodity-linked derivatives. 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.
P. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $250 million | 0 | .95% | ||||
Next $250 million | 0 | .925% | ||||
Next $500 million | 0 | .90% | ||||
Next $1.5 billion | 0 | .875% | ||||
Next $2.5 billion | 0 | .85% | ||||
Next $2.5 billion | 0 | .825% | ||||
Next $2.5 billion | 0 | .80% | ||||
Over $10 billion | 0 | .775% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc., Invesco Canada Ltd. and Invesco PowerShares Capital Management LLC (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Subsidiary has entered into a separate contract with the Adviser whereby the Adviser provides investment advisory and other services to the Subsidiary. In consideration of these services, the Subsidiary pays an advisory fee to the Adviser based on the annual rate of the Subsidiary’s average daily net assets as set forth in the table above.
Effective May 1, 2014, the Adviser has contractually agreed, through at least April 30, 2015, to waive advisory fees and/or reimburse expenses of shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.76% and Series II shares to 1.01% of average daily net assets. Prior to May 1, 2014, 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 0.78% and 1.03% of average net assets for Series I and Series II shares, respectively. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. The total annual fund operating expenses used in determining whether the Fund meets or exceeds the expense limitations described above do not include Acquired Fund Fees and Expenses. Acquired Fund Fees and Expenses are not operating expenses of a Fund directly, but are fees and expenses, including management fees of the investment companies in which a Fund invests. As a result, the total annual fund operating expenses after expense reimbursement may exceed the expense limits above. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2015. The fee waiver agreement cannot be terminated during its term.
Further, the Adviser has contractually agreed, through at least June 30, 2016, 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, 2014, the Adviser waived advisory fees of $2,769,868.
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, 2014, Invesco was paid $160,257 for accounting and fund administrative services and reimbursed $1,124,835 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the
Invesco V.I. Balanced-Risk Allocation Fund
course of providing such services. For the six months ended June 30, 2014, 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, 2014, 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. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Money Market Funds | $ | 1,206,357,758 | $ | — | $ | — | $ | 1,206,357,758 | ||||||||
U.S. Treasury Securities | — | 135,331,229 | — | 135,331,229 | ||||||||||||
Commodity-Linked Securities | — | 33,289,775 | — | 33,289,775 | ||||||||||||
1,206,357,758 | 168,621,004 | — | 1,374,978,762 | |||||||||||||
Futures Contracts* | 19,415,811 | — | — | 19,415,811 | ||||||||||||
Swap Agreements* | — | 2,432,548 | — | 2,432,548 | ||||||||||||
Total Investments | $ | 1,225,773,569 | $ | 171,053,552 | $ | — | $ | 1,396,827,121 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Commodity risk | ||||||||
Futures contracts(a) | $ | 3,830,461 | $ | (235,061 | ) | |||
Swap agreements(b) | 2,816,350 | (859,519 | ) | |||||
Interest rate risk | ||||||||
Futures contracts(a) | 11,812,947 | — | ||||||
Swap agreements(b) | 72,287 | — | ||||||
Market risk | ||||||||
Futures contracts(a) | 5,106,807 | (1,099,343 | ) | |||||
Swap agreements(b) | 403,430 | — | ||||||
Total | $ | 24,042,282 | $ | (2,193,923 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Consolidated Statement of Assets and Liabilities. |
(b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under the caption Unrealized appreciation on swap transactions — OTC and Unrealized depreciation on swap transactions. |
Invesco V.I. Balanced-Risk Allocation Fund
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||
Futures Contracts | Swap Agreements | |||||||
Realized Gain (Loss) | ||||||||
Commodity risk | $ | 4,016,832 | $ | 4,002,598 | ||||
Interest rate risk | 46,225,629 | 1,221,263 | ||||||
Market risk | 24,561,976 | (1,085,137 | ) | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Commodity risk | 3,441,780 | 1,956,831 | ||||||
Interest rate risk | 22,273,431 | 72,287 | ||||||
Market risk | (18,260,098 | ) | 403,430 | |||||
Total | $ | 82,259,550 | $ | 6,571,272 |
The table below summarizes the average notional value of futures contracts and swap agreements outstanding during the period.
Futures Contracts | Swap Agreements | |||||||
Average notional value | $ | 1,876,221,365 | $ | 257,136,848 |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Consolidated Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Counterparty | Gross amounts presented in Consolidated Statement of Assets & Liabilities | Gross amounts offset in Consolidated Statement of Assets & Liabilities | Net amounts of assets presented in Consolidated Statement of Assets & Liabilities | Collateral Received | ||||||||||||||||||||
Financial Instruments | Cash | Net Amount(a) | ||||||||||||||||||||||
Fund | ||||||||||||||||||||||||
Bank of America Securities LLC(b) | $ | 4,027 | $ | — | $ | 4,027 | $ | — | $ | — | $ | 4,027 | ||||||||||||
Barclays Capital Inc.(b) | 68,188 | — | 68,188 | — | — | 68,188 | ||||||||||||||||||
Goldman Sachs & Co.(b) | 403,502 | — | 403,502 | (403,502 | ) | — | — | |||||||||||||||||
Goldman Sachs & Co.(c)(d) | 3,830,461 | (235,061 | ) | 3,595,400 | — | — | 3,595,400 | |||||||||||||||||
Subtotal — Fund | 4,306,178 | (235,061 | ) | 4,071,117 | (403,502 | ) | — | 3,667,615 | ||||||||||||||||
Subsidiary | ||||||||||||||||||||||||
Bank of America Securities LLC(b) | 0 | — | 0 | 0 | — | — | ||||||||||||||||||
Barclays Capital Inc.(b) | 1,379,305 | (666,071 | ) | 713,234 | — | — | 713,234 | |||||||||||||||||
Cargill, Inc.(b) | 0 | — | 0 | — | 0 | — | ||||||||||||||||||
CIBC World Markets Corp.(b) | 1,379,209 | — | 1,379,209 | (262,997 | ) | — | 1,116,212 | |||||||||||||||||
Goldman Sachs & Co.(b) | 0 | — | 0 | — | — | — | ||||||||||||||||||
Goldman Sachs & Co.(c)(d) | 16,919,754 | (1,099,343 | ) | 15,820,411 | — | — | 15,820,411 | |||||||||||||||||
JPMorgan Securities Inc.(b) | 57,836 | (57,836 | ) | — | — | — | — | |||||||||||||||||
Subtotal — Subsidiary | 19,736,104 | (1,823,250 | ) | 17,912,854 | (262,997 | ) | 0 | 17,649,857 | ||||||||||||||||
Total | $ | 24,042,282 | $ | (2,058,311 | ) | $ | 21,983,971 | $ | (666,499 | ) | $ | 0 | $ | 21,317,472 |
Invesco V.I. Balanced-Risk Allocation Fund
Liabilities: | ||||||||||||||||||||||||
Counterparty | Gross amounts presented in Consolidated Statement of Assets & Liabilities | Gross amounts offset in Consolidated Statement of Assets & Liabilities | Net amounts of liabilities presented in Consolidated Statement of Assets & Liabilities | Collateral Pledged | ||||||||||||||||||||
Financial Instruments | Cash | Net Amount(a) | ||||||||||||||||||||||
Fund | ||||||||||||||||||||||||
Goldman Sachs & Co.(c)(d) | $ | 235,061 | $ | (235,061 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Subsidiary | ||||||||||||||||||||||||
Barclays Capital Inc.(b) | 666,071 | (666,071 | ) | — | — | — | — | |||||||||||||||||
Goldman Sachs & Co.(c)(d) | 1,099,343 | (1,099,343 | ) | — | — | — | — | |||||||||||||||||
JPMorgan Securities Inc.(b) | 142,696 | (57,836 | ) | 84,860 | (84,860 | ) | — | — | ||||||||||||||||
Morgan Stanley Capital Services LLC(b) | 50,752 | — | 50,752 | (50,752 | ) | — | — | |||||||||||||||||
Subtotal — Subsidiary | 1,958,862 | (1,823,250 | ) | 135,612 | (135,612 | ) | — | — | ||||||||||||||||
Total | $ | 2,193,923 | $ | (2,058,311 | ) | $ | 135,612 | $ | (135,612 | ) | $ | — | $ | — |
(a) | The Fund and the Subsidiary are recognized as separate legal entities and as such are subject to separate netting arrangements with the Counterparty. |
(b) | Swap agreements Counterparty. |
(c) | Includes cumulative appreciation (depreciation) of futures contracts. |
(d) | Futures contracts Counterparty. |
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Consolidated Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $9,900,000 and $11,377,646, respectively. During the same period, purchases of U.S. Treasury obligations were $21,286,544. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 3,123,493 | ||
Aggregate unrealized (depreciation) of investment securities | (2,151 | ) | ||
Net unrealized appreciation of investment securities | $ | 3,121,342 |
Cost of investments is the same for financial reporting and tax purposes.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 66,274 | $ | 847,979 | 207,164 | $ | 2,643,732 | ||||||||||
Series II | 7,456,950 | 93,046,506 | 38,806,552 | 487,478,913 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 34,804 | 427,741 | ||||||||||||
Series II | — | — | 5,534,502 | 67,520,918 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (97,691 | ) | (1,247,742 | ) | (343,623 | ) | (4,331,023 | ) | ||||||||
Series II | (10,225,173 | ) | (127,108,659 | ) | (39,055,450 | ) | (481,328,088 | ) | ||||||||
Net increase (decrease) in share activity | (2,799,640 | ) | $ | (34,461,916 | ) | 5,183,949 | $ | 72,412,193 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 92% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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—Consolidated Financial Highlights
The following schedule presents consolidated financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 12.30 | $ | (0.04 | ) | $ | 0.86 | $ | 0.82 | $ | — | $ | — | $ | — | $ | 13.12 | 6.67 | % | $ | 8,994 | 0.71 | %(d) | 1.11 | %(d) | (0.67 | )%(d) | 24 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 12.65 | (0.08 | ) | 0.30 | 0.22 | (0.21 | ) | (0.36 | ) | (0.57 | ) | 12.30 | 1.70 | 8,821 | 0.70 | 1.11 | (0.65 | ) | 76 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.53 | (0.07 | ) | 1.34 | 1.27 | (0.11 | ) | (0.04 | ) | (0.15 | ) | 12.65 | 10.98 | 10,354 | 0.70 | 1.15 | (0.59 | ) | 188 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/11(e) | 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 06/30/14 | 12.21 | (0.06 | ) | 0.85 | 0.79 | — | — | — | 13.00 | 6.47 | 1,422,756 | 0.96 | (d) | 1.36 | (d) | (0.92 | )(d) | 24 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.57 | (0.11 | ) | 0.30 | 0.19 | (0.19 | ) | (0.36 | ) | (0.55 | ) | 12.21 | 1.50 | 1,369,485 | 0.95 | 1.36 | (0.90 | ) | 76 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.49 | (0.10 | ) | 1.32 | 1.22 | (0.10 | ) | (0.04 | ) | (0.14 | ) | 12.57 | 10.64 | 1,343,806 | 0.95 | 1.40 | (0.84 | ) | 188 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/11(e) | 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 | (i)(j) | 0.44 | (g)(i)(j) | 87 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $8,858 and $1,374,488 for Series I and Series II shares, respectively. |
(e) | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Predecessor Fund”). On such date, holders of the Predecessor Fund’s Series I and Series II shares received Series I and Series II shares, respectively, of the Fund. |
(f) | On June 1, 2010, the Class I and Class II shares of the Invesco Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio were reorganized into Series I and Series II shares, respectively, of the Predecessor Fund. |
(g) | Ratio of net investment income (loss) to average net assets without fee waivers and/or expenses absorbed for the year ended December 31, 2010 and the eleven months ended December 31, 2009 was 0.48% and (0.15)% for Series I shares and 0.19% and (0.12)% for Series II shares, respectively. |
(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 expenses to average net assets for the underlying funds was 0.08% at December 31, 2009. |
(j) | Annualized. |
(k) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,066.70 | $ | 3.64 | $ | 1,021.27 | $ | 3.56 | 0.71 | % | ||||||||||||
Series II | 1,000.00 | 1,065.60 | 4.92 | 1,020.03 | 4.81 | 0.96 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Balanced-Risk Allocation Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Balanced-Risk Allocation Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment
process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board noted that that comparative performance data for only the past four calendar years was available. The Board compared the Fund’s performance during the past one, three and four calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Global Flexible Portfolio Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of its performance universe for the one year period and the third quintile for the three and four year periods (the first quintile being the best performing funds and the fifth quintile being the
Invesco V.I. Balanced-Risk Allocation Fund
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 year period (there being no four year performance data for the Index). Invesco Advisers noted that being underweight equities and overweight commodities versus the Fund’s Lipper peers affected performance. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the Fund’s contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the effective advisory fee rate of the Fund was lower than the effective advisory fee rate of one mutual fund, higher than the rate of another mutual fund, higher than the effective advisory fee rate of two off-shore funds and lower than the rate of two off-shore funds advised by Invesco Advisers and higher than the sub-adviser effective fee rate of a mutual fund sub-advised by Invesco Advisers managed using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco
Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of
profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transaction 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
Invesco V.I. Balanced-Risk Allocation Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Comstock Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VICOM-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.59 | % | |||
Series II Shares | 6.45 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 8.28 | ||||
Lipper VUF Large-Cap Value Funds Indexn (Peer Group Index) | 7.44 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (4/30/99) | 7.24 | % | |||
10 Years | 8.06 | ||||
5 Years | 19.70 | ||||
1 Year | 23.29 | ||||
Series II Shares | |||||
Inception (9/18/00) | 7.37 | % | |||
10 Years | 7.79 | ||||
5 Years | 19.38 | ||||
1 Year | 23.00 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Comstock Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Comstock Fund (renamed Invesco V.I. Comstock Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Comstock Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.78% and 1.03%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.84% and 1.09%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Comstock Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2015. See current prospectus for more information. |
Invesco V.I. Comstock Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.08% |
| |||||||
Aerospace & Defense–1.92% | ||||||||
Honeywell International Inc. | 184,730 | $ | 17,170,653 | |||||
Textron Inc. | 678,044 | 25,962,305 | ||||||
43,132,958 | ||||||||
Aluminum–1.13% | ||||||||
Alcoa Inc. | 1,704,863 | 25,385,410 | ||||||
Application Software–1.59% | ||||||||
Autodesk, Inc.(b) | 240,609 | 13,565,536 | ||||||
Citrix Systems, Inc.(b) | 352,364 | 22,040,368 | ||||||
35,605,904 | ||||||||
Asset Management & Custody Banks–3.30% | ||||||||
Bank of New York Mellon Corp. (The) | 1,285,375 | 48,175,855 | ||||||
State Street Corp. | 382,737 | 25,742,891 | ||||||
73,918,746 | ||||||||
Auto Parts & Equipment–1.27% | ||||||||
Johnson Controls, Inc. | 569,555 | 28,437,881 | ||||||
Automobile Manufacturers–1.96% | ||||||||
General Motors Co. | 1,213,162 | 44,037,781 | ||||||
Cable & Satellite–2.75% | ||||||||
Comcast Corp.–Class A | 592,194 | 31,788,974 | ||||||
Time Warner Cable Inc. | 203,426 | 29,964,650 | ||||||
61,753,624 | ||||||||
Communications Equipment–1.81% | ||||||||
Cisco Systems, Inc. | 1,631,245 | 40,536,438 | ||||||
Department Stores–1.04% | ||||||||
Kohl’s Corp. | 441,799 | 23,273,971 | ||||||
Diversified Banks–7.34% | ||||||||
Bank of America Corp. | 2,338,923 | 35,949,247 | ||||||
JPMorgan Chase & Co. | 1,168,359 | 67,320,846 | ||||||
U.S. Bancorp | 209,832 | 9,089,922 | ||||||
Wells Fargo & Co. | 993,433 | 52,214,838 | ||||||
164,574,853 | �� | |||||||
Drug Retail–1.53% | ||||||||
CVS Caremark Corp. | 454,821 | 34,279,859 | ||||||
Electric Utilities–1.70% | ||||||||
FirstEnergy Corp. | 313,970 | 10,901,038 | ||||||
PPL Corp. | 764,435 | 27,160,376 | ||||||
38,061,414 | ||||||||
Electrical Components & Equipment–1.10% | ||||||||
Emerson Electric Co. | 370,281 | 24,571,847 | ||||||
Electronic Components–0.97% | ||||||||
Corning Inc. | 995,755 | 21,856,822 | ||||||
General Merchandise Stores–0.75% | ||||||||
Target Corp. | 288,638 | 16,726,572 | ||||||
Health Care Distributors–0.46% | ||||||||
Cardinal Health, Inc. | 149,287 | 10,235,117 |
Shares | Value | |||||||
Health Care Services–0.68% | ||||||||
Express Scripts Holding Co.(b) | 220,816 | $ | 15,309,173 | |||||
Hotels, Resorts & Cruise Lines–1.68% | ||||||||
Carnival Corp. | 1,003,315 | 37,774,810 | ||||||
Housewares & Specialties–0.59% | ||||||||
Newell Rubbermaid Inc. | 425,655 | 13,191,048 | ||||||
Industrial Conglomerates–2.09% | ||||||||
General Electric Co. | 1,787,975 | 46,987,983 | ||||||
Industrial Machinery–1.35% | ||||||||
Ingersoll–Rand PLC | 483,163 | 30,202,519 | ||||||
Integrated Oil & Gas–9.25% | ||||||||
BP PLC–ADR (United Kingdom) | 876,873 | 46,255,051 | ||||||
Chevron Corp. | 228,639 | 29,848,822 | ||||||
Occidental Petroleum Corp. | 258,615 | 26,541,657 | ||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 625,417 | 51,515,598 | ||||||
Suncor Energy, Inc. (Canada) | 1,249,361 | 53,260,259 | ||||||
207,421,387 | ||||||||
Integrated Telecommunication Services–1.75% | ||||||||
AT&T Inc. | 224,884 | 7,951,898 | ||||||
Verizon Communications Inc. | 462,055 | 22,608,351 | ||||||
Vivendi S.A. (France) | 358,373 | 8,769,169 | ||||||
39,329,418 | ||||||||
Internet Software & Services–1.99% | ||||||||
eBay Inc.(b) | 638,806 | 31,978,628 | ||||||
Yahoo! Inc.(b) | 358,601 | 12,597,653 | ||||||
44,576,281 | ||||||||
Investment Banking & Brokerage–2.48% | ||||||||
Goldman Sachs Group, Inc. (The) | 129,631 | 21,705,415 | ||||||
Morgan Stanley | 1,045,764 | 33,809,550 | ||||||
55,514,965 | ||||||||
Life & Health Insurance–2.02% | ||||||||
Aflac, Inc. | 222,053 | 13,822,799 | ||||||
MetLife, Inc. | 565,096 | 31,396,734 | ||||||
45,219,533 | ||||||||
Managed Health Care–3.15% | ||||||||
UnitedHealth Group Inc. | 555,718 | 45,429,946 | ||||||
WellPoint, Inc. | 234,882 | 25,275,652 | ||||||
70,705,598 | ||||||||
Movies & Entertainment–4.22% | ||||||||
Time Warner Inc. | 213,424 | 14,993,036 | ||||||
Twenty-First Century Fox, Inc.–Class B | 870,675 | 29,803,205 | ||||||
Viacom Inc.–Class B | 575,610 | 49,922,656 | ||||||
94,718,897 | ||||||||
Multi-Utilities–0.74% | ||||||||
PG&E Corp. | 346,417 | 16,634,944 | ||||||
Oil & Gas Drilling–0.35% | ||||||||
Noble Corp. PLC | 235,800 | 7,913,448 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–5.21% | ||||||||
Halliburton Co. | 586,955 | $ | 41,679,675 | |||||
Weatherford International PLC(b) | 3,269,829 | 75,206,067 | ||||||
116,885,742 | ||||||||
Oil & Gas Exploration & Production–2.63% | ||||||||
Murphy Oil Corp. | 471,799 | 31,365,198 | ||||||
QEP Resources Inc. | 798,866 | 27,560,877 | ||||||
58,926,075 | ||||||||
Other Diversified Financial Services–3.90% | ||||||||
Citigroup Inc. | 1,859,321 | 87,574,019 | ||||||
Packaged Foods & Meats–3.00% | ||||||||
ConAgra Foods, Inc. | 1,068,890 | 31,724,655 | ||||||
Mondelez International Inc.–Class A | 457,210 | 17,195,668 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 417,943 | 18,289,186 | ||||||
67,209,509 | ||||||||
Paper Products–1.03% | ||||||||
International Paper Co. | 457,695 | 23,099,867 | ||||||
Pharmaceuticals–9.36% | ||||||||
Bristol-Myers Squibb Co. | 510,847 | 24,781,188 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 201,994 | 10,802,639 | ||||||
Merck & Co., Inc. | 856,381 | 49,541,641 | ||||||
Novartis AG (Switzerland) | 408,539 | 36,993,326 | ||||||
Pfizer Inc. | 1,132,820 | 33,622,098 | ||||||
Roche Holding AG–ADR (Switzerland) | 546,330 | 20,368,767 | ||||||
Sanofi–ADR (France) | 634,366 | 33,729,240 | ||||||
209,838,899 | ||||||||
Property & Casualty Insurance–2.22% | ||||||||
Allstate Corp. (The) | 713,711 | 41,909,110 |
Shares | Value | |||||||
Property & Casualty Insurance–(continued) | ||||||||
Travelers Cos., Inc. (The) | 83,081 | $ | 7,815,430 | |||||
49,724,540 | ||||||||
Publishing–0.03% | ||||||||
Time Inc.(b) | 26,678 | 646,141 | ||||||
Regional Banks–2.74% | ||||||||
Fifth Third Bancorp | 1,176,668 | 25,121,862 | ||||||
PNC Financial Services Group, Inc. (The) | 408,104 | 36,341,661 | ||||||
61,463,523 | ||||||||
Semiconductors–1.05% | ||||||||
Intel Corp. | 764,939 | 23,636,615 | ||||||
Systems Software–2.19% | ||||||||
Microsoft Corp. | 924,765 | 38,562,700 | ||||||
Symantec Corp. | 464,890 | 10,645,981 | ||||||
49,208,681 | ||||||||
Technology Hardware, Storage & Peripherals–1.76% | ||||||||
Hewlett-Packard Co. | 1,172,444 | 39,487,914 | ||||||
Total Common Stocks & Other Equity Interests (Cost $1,697,012,228) |
| 2,199,590,726 | ||||||
Money Market Funds–2.65% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 29,728,965 | 29,728,965 | ||||||
Premier Portfolio–Institutional Class(c) | 29,728,964 | 29,728,964 | ||||||
Total Money Market Funds |
| 59,457,929 | ||||||
TOTAL INVESTMENTS–100.73% |
| 2,259,048,655 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.73)% |
| (16,263,435 | ) | |||||
NET ASSETS–100.00% |
| $ | 2,242,785,220 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Financials | 24.0 | % | ||
Energy | 17.4 | |||
Consumer Discretionary | 14.7 | |||
Health Care | 13.6 | |||
Information Technology | 11.4 | |||
Industrials | 6.5 | |||
Consumer Staples | 4.5 | |||
Utilities | 2.4 | |||
Materials | 2.2 | |||
Telecommunication Services | 1.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,697,012,228) | $ | 2,199,590,726 | ||
Investments in affiliated money market funds, at value and cost | 59,457,929 | |||
Total investments, at value (Cost $1,756,470,157) | 2,259,048,655 | |||
Foreign currencies, at value (Cost $62) | 62 | |||
Receivable for: | ||||
Investments sold | 1,014,289 | |||
Fund shares sold | 677,084 | |||
Dividends | 3,626,517 | |||
Investment for trustee deferred compensation and retirement plans | 179,070 | |||
Total assets | 2,264,545,677 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 6,768,431 | |||
Fund shares reacquired | 7,894,809 | |||
Forward foreign currency contracts outstanding | 3,057,568 | |||
Accrued fees to affiliates | 3,762,559 | |||
Accrued trustees’ and officers’ fees and benefits | 1,148 | |||
Accrued other operating expenses | 63,391 | |||
Trustee deferred compensation and retirement plans | 212,551 | |||
Total liabilities | 21,760,457 | |||
Net assets applicable to shares outstanding | $ | 2,242,785,220 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,851,118,003 | ||
Undistributed net investment income | 45,960,124 | |||
Undistributed net realized gain (loss) | (153,825,377 | ) | ||
Net unrealized appreciation | 499,532,470 | |||
$ | 2,242,785,220 | |||
Net Assets: |
| |||
Series I | $ | 332,035,658 | ||
Series II | $ | 1,910,749,562 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 17,551,424 | |||
Series II | 101,537,384 | |||
Series I: | ||||
Net asset value per share | $ | 18.92 | ||
Series II: | ||||
Net asset value per share | $ | 18.82 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $809,973) | $ | 32,818,733 | ||
Dividends from affiliated money market funds | 9,781 | |||
Total investment income | 32,828,514 | |||
Expenses: | ||||
Advisory fees | 6,109,095 | |||
Administrative services fees | 2,826,562 | |||
Custodian fees | 43,953 | |||
Distribution fees — Series II | 2,330,647 | |||
Transfer agent fees | 18,063 | |||
Trustees’ and officers’ fees and benefits | 26,974 | |||
Other | 56,672 | |||
Total expenses | 11,411,966 | |||
Less: Fees waived | (634,292 | ) | ||
Net expenses | 10,777,674 | |||
Net investment income | 22,050,840 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 105,950,786 | |||
Foreign currencies | (3,256 | ) | ||
Forward foreign currency contracts | (4,401 | ) | ||
105,943,129 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 12,494,652 | |||
Foreign currencies | 4,611 | |||
Forward foreign currency contracts | (2,442,193 | ) | ||
10,057,070 | ||||
Net realized and unrealized gain | 116,000,199 | |||
Net increase in net assets resulting from operations | $ | 138,051,039 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 22,050,840 | $ | 24,032,151 | ||||
Net realized gain | 105,943,129 | 153,555,605 | ||||||
Change in net unrealized appreciation | 10,057,070 | 454,948,048 | ||||||
Net increase in net assets resulting from operations | 138,051,039 | 632,535,804 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,795,702 | ) | |||||
Series ll | — | (25,448,903 | ) | |||||
Total distributions from net investment income | — | (30,244,605 | ) | |||||
Share transactions–net: | ||||||||
Series l | (391,099 | ) | (21,202,269 | ) | ||||
Series ll | (122,737,491 | ) | (244,847,685 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (123,128,590 | ) | (266,049,954 | ) | ||||
Net increase in net assets | 14,922,449 | 336,241,245 | ||||||
Net assets: | ||||||||
Beginning of period | 2,227,862,771 | 1,891,621,526 | ||||||
End of period (includes undistributed net investment income of $45,960,124 and $23,909,284, respectively) | $ | 2,242,785,220 | $ | 2,227,862,771 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco 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-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Comstock Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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).
The Adviser has contractually agreed, through at least April 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.78% and Series II shares to 1.03% of average daily net assets. 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 Invesco continues the fee waiver agreement, it will terminate on April 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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. Comstock Fund
For the six months ended June 30, 2014, the Adviser waived advisory fees of $634,292.
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, 2014, Invesco was paid $218,330 for accounting and fund administrative services and reimbursed $2,608,232 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, 2014, 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, 2014, 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, 2014. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 2,238,679,888 | $ | 20,368,767 | $ | — | $ | 2,259,048,655 | ||||||||
Forward Foreign Currency Contracts* | — | (3,057,568 | ) | — | (3,057,568 | ) | ||||||||||
Total Investments | $ | 2,238,679,888 | $ | 17,311,199 | $ | — | $ | 2,255,991,087 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (3,057,568 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Invesco V.I. Comstock Fund
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Forward Foreign Currency Contracts | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (4,401 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | (2,442,193 | ) | ||
$ | (2,446,594 | ) |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 229,415,284 |
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/18/14 | Barclays Capital Inc. | CAD | 12,426,378 | USD | 11,431,442 | $ | 11,640,035 | $ | (208,593 | ) | ||||||||||||||||
07/18/14 | CIBC World Markets Corp. | CAD | 12,471,511 | USD | 11,470,798 | 11,682,312 | (211,514 | ) | ||||||||||||||||||
07/18/14 | Deutsche Bank Securities Inc. | CAD | 12,426,377 | USD | 11,434,965 | 11,640,034 | (205,069 | ) | ||||||||||||||||||
07/18/14 | Goldman Sachs & Co. | CAD | 12,426,378 | USD | 11,424,453 | 11,640,035 | (215,582 | ) | ||||||||||||||||||
07/18/14 | Barclays Capital Inc. | CHF | 10,921,901 | USD | 12,134,003 | 12,318,482 | (184,479 | ) | ||||||||||||||||||
07/18/14 | CIBC World Markets Corp. | CHF | 10,921,902 | USD | 12,137,874 | 12,318,483 | (180,609 | ) | ||||||||||||||||||
07/18/14 | Deutsche Bank Securities Inc. | CHF | 10,921,902 | USD | 12,140,708 | 12,318,483 | (177,775 | ) | ||||||||||||||||||
07/18/14 | Goldman Sachs & Co. | CHF | 10,923,215 | USD | 12,138,119 | 12,319,964 | (181,845 | ) | ||||||||||||||||||
07/18/14 | Barclays Capital Inc. | EUR | 14,062,582 | USD | 19,041,650 | 19,256,889 | (215,239 | ) | ||||||||||||||||||
07/18/14 | CIBC World Markets Corp. | EUR | 14,062,581 | USD | 19,050,157 | 19,256,888 | (206,731 | ) | ||||||||||||||||||
07/18/14 | Deutsche Bank Securities Inc. | EUR | 14,074,056 | USD | 19,060,775 | 19,272,601 | (211,826 | ) | ||||||||||||||||||
07/18/14 | Goldman Sachs & Co. | EUR | 14,062,582 | USD | 19,044,392 | 19,256,889 | (212,497 | ) | ||||||||||||||||||
07/18/14 | RBC Capital Markets Corp. | EUR | 14,062,582 | USD | 19,040,919 | 19,256,889 | (215,970 | ) | ||||||||||||||||||
07/18/14 | Barclays Capital Inc. | GBP | 7,050,842 | USD | 11,954,801 | 12,065,485 | (110,684 | ) | ||||||||||||||||||
07/18/14 | CIBC World Markets Corp. | GBP | 7,050,658 | USD | 11,962,358 | 12,065,171 | (102,813 | ) | ||||||||||||||||||
07/18/14 | Deutsche Bank Securities Inc. | GBP | 7,050,658 | USD | 11,960,243 | 12,065,171 | (104,928 | ) | ||||||||||||||||||
07/18/14 | Goldman Sachs & Co. | GBP | 7,050,658 | USD | 11,953,756 | 12,065,170 | (111,414 | ) | ||||||||||||||||||
Total forward foreign currency contracts — Currency Risk | $ | (3,057,568 | ) |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Comstock Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Barclays Capital Inc. | $ | 718,995 | $ | — | $ | 718,995 | $ | — | $ | — | $ | 718,995 | ||||||||||||
CIBC World Markets Corp. | 701,667 | — | 701,667 | — | — | 701,667 | ||||||||||||||||||
Deutsche Bank Securities Inc. | 699,598 | — | 699,598 | — | — | 699,598 | ||||||||||||||||||
Goldman Sachs & Co. | 721,338 | — | 721,338 | — | — | 721,338 | ||||||||||||||||||
RBC Capital Markets Corp. | 215,970 | — | 215,970 | — | — | 215,970 | ||||||||||||||||||
Total | $ | 3,057,568 | $ | — | $ | 3,057,568 | $ | — | $ | — | $ | 3,057,568 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 258,810,033 | $ | — | $ | 258,810,033 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $180,042,067 and $285,440,973, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 574,893,566 | ||
Aggregate unrealized (depreciation) of investment securities | (74,355,541 | ) | ||
Net unrealized appreciation of investment securities | $ | 500,538,025 |
Cost of investments for tax purposes is $1,758,510,630.
Invesco V.I. Comstock Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,200,526 | $ | 39,554,135 | 1,838,995 | $ | 28,829,985 | ||||||||||
Series II | 2,591,484 | 46,154,308 | 6,957,139 | 109,015,706 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 296,764 | 4,795,702 | ||||||||||||
Series II | — | — | 1,579,696 | 25,448,903 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,217,139 | ) | (39,945,234 | ) | (3,486,962 | ) | (54,827,956 | ) | ||||||||
Series II | (9,436,444 | ) | (168,891,799 | ) | (24,285,108 | ) | (379,312,294 | ) | ||||||||
Net increase (decrease) in share activity | (6,861,573 | ) | $ | (123,128,590 | ) | (17,099,476 | ) | $ | (266,049,954 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 60% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both | Total from operations | Dividends income | Distributions from net gains | Total distributions | Net asset value, end of period | Total return | Net assets, end of period (000’s omitted) | Ratio of to average net assets absorbed | Ratio of fee waivers | Ratio of net investment income to average net assets | Portfolio turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 17.75 | $ | 0.20 | $ | 0.97 | $ | 1.17 | $ | — | $ | — | $ | — | $ | 18.92 | 6.59 | %(d) | $ | 332,036 | 0.78 | %(e) | 0.83 | %(e) | 2.24 | %(e) | 8 | % | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 13.27 | 0.22 | 4.53 | 4.75 | (0.27 | ) | — | (0.27 | ) | 17.75 | 35.97 | (d) | 311,837 | 0.76 | 0.84 | 1.36 | 11 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.32 | 0.23 | 1.94 | 2.17 | (0.22 | ) | — | (0.22 | ) | 13.27 | 19.23 | (d) | 250,995 | 0.67 | 0.85 | 1.81 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 11.71 | 0.20 | (0.40 | ) | (0.20 | ) | (0.19 | ) | — | (0.19 | ) | 11.32 | (1.84 | )(d) | 262,319 | 0.62 | 0.80 | 1.75 | 24 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.11 | 0.17 | 1.44 | 1.61 | (0.01 | ) | (0.00 | ) | (0.01 | ) | 11.71 | 15.98 | (d) | 223,354 | 0.61 | 0.73 | 1.58 | 21 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.25 | 0.16 | 2.12 | 2.28 | (0.42 | ) | (0.00 | ) | (0.42 | ) | 10.11 | 28.78 | 148,060 | 0.62 | 0.62 | 1.91 | 27 | |||||||||||||||||||||||||||||||||||||||
Series II(c) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 17.68 | 0.18 | 0.96 | 1.14 | — | — | — | 18.82 | 6.45 | (d) | 1,910,750 | 1.03 | (e) | 1.08 | (e) | 1.99 | (e) | 8 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 13.22 | 0.17 | 4.52 | 4.69 | (0.23 | ) | — | (0.23 | ) | 17.68 | 35.65 | (d) | 1,916,026 | 1.01 | 1.09 | 1.11 | 11 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.28 | 0.19 | 1.94 | 2.13 | (0.19 | ) | — | (0.19 | ) | 13.22 | 18.92 | (d) | 1,640,627 | 0.92 | 1.10 | 1.56 | 14 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 11.67 | 0.17 | (0.40 | ) | (0.23 | ) | (0.16 | ) | — | (0.16 | ) | 11.28 | (2.11 | )(d) | 1,528,067 | 0.87 | 1.05 | 1.50 | 24 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.10 | 0.14 | 1.44 | 1.58 | (0.01 | ) | (0.00 | ) | (0.01 | ) | 11.67 | 15.70 | (d) | 1,664,751 | 0.86 | 0.98 | 1.32 | 21 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.22 | 0.14 | 2.11 | 2.25 | (0.37 | ) | (0.00 | ) | (0.37 | ) | 10.10 | 28.41 | (f) | 2,165,319 | 0.87 | 0.87 | 1.63 | 27 |
(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 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, respectively of the Fund. |
(d) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $314,475 and $1,879,970 for Series I and Series II shares, respectively. |
(f) | These returns include combined Rule 12b-1 fees and service fees of up to 0.25%. |
Invesco V.I. Comstock Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending (06/30/14)1 | Expenses Paid During Period2 | Ending (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,065.90 | $ | 3.98 | $ | 1,020.95 | $ | 3.89 | 0.78 | % | ||||||||||||
Series II | 1,000.00 | 1,064.50 | 5.25 | 1,019.71 | 5.14 | 1.03 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Comstock Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Comstock Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Comstock Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund and below the rate of an offshore fund advised by Invesco Advisers using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated
Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and
other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Comstock Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Core Equity Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VICEQ-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.48 | % | |||
Series II Shares | 8.31 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 1000 Index‚ (Style-Specific Index) | 7.27 | ||||
Lipper VUF Large-Cap Core Funds Indexn (Peer Group Index) | 6.28 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/2/94) | 8.76 | % | |||
10 Years | 8.11 | ||||
5 Years | 16.16 | ||||
1 Year | 23.71 | ||||
Series II Shares | |||||
Inception (10/24/01) | 7.36 | % | |||
10 Years | 7.84 | ||||
5 Years | 15.87 | ||||
1 Year | 23.37 |
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 0.90% 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 0.92% and 1.17%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance 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, 2016. See current prospectus for more information. |
Invesco V.I. Core Equity Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–91.34% |
| |||||||
Air Freight & Logistics–0.73% | ||||||||
FedEx Corp. | 65,490 | $ | 9,913,876 | |||||
Apparel, Accessories & Luxury Goods–0.93% | ||||||||
Prada S.p.A. (Italy) | 1,779,800 | 12,595,741 | ||||||
Asset Management & Custody Banks–2.18% | ||||||||
Northern Trust Corp. | 460,721 | 29,582,895 | ||||||
Auto Parts & Equipment–1.16% | ||||||||
Johnson Controls, Inc. | 315,617 | 15,758,757 | ||||||
Automobile Manufacturers–1.03% | ||||||||
Daimler AG (Germany) | 149,637 | 14,015,019 | ||||||
Biotechnology–2.47% | ||||||||
Celgene Corp.(b) | 233,474 | 20,050,747 | ||||||
Gilead Sciences, Inc.(b) | 161,460 | 13,386,649 | ||||||
33,437,396 | ||||||||
Brewers–1.55% | ||||||||
Molson Coors Brewing Co.–Class B | 282,966 | 20,984,759 | ||||||
Casinos & Gaming–1.07% | ||||||||
Las Vegas Sands Corp. | 190,412 | 14,513,203 | ||||||
Communications Equipment–3.62% | ||||||||
Cisco Systems, Inc. | 584,320 | 14,520,352 | ||||||
F5 Networks, Inc.(b) | 122,471 | 13,648,168 | ||||||
QUALCOMM, Inc. | 263,258 | 20,850,034 | ||||||
49,018,554 | ||||||||
Construction Machinery & Heavy Trucks–0.79% | ||||||||
Caterpillar Inc. | 98,247 | 10,676,501 | ||||||
Construction Materials–0.31% | ||||||||
CRH PLC (Ireland) | 163,717 | 4,215,764 | ||||||
Consumer Finance–2.58% | ||||||||
American Express Co. | 368,363 | 34,946,598 | ||||||
Department Stores–1.91% | ||||||||
Macy’s, Inc. | 446,002 | 25,877,036 | ||||||
Diversified Banks–1.33% | ||||||||
U.S. Bancorp | 415,308 | 17,991,143 | ||||||
Diversified Chemicals–0.86% | ||||||||
Dow Chemical Co. (The) | 225,000 | 11,578,500 | ||||||
Electric Utilities–0.97% | ||||||||
Duke Energy Corp. | 177,824 | 13,192,763 | ||||||
Electrical Components & Equipment–1.02% | ||||||||
Eaton Corp. PLC | 179,554 | 13,857,978 | ||||||
Electronic Manufacturing Services–2.41% | ||||||||
TE Connectivity Ltd. (Switzerland) | 527,911 | 32,646,016 | ||||||
Fertilizers & Agricultural Chemicals–1.09% | ||||||||
Mosaic Co. (The) | 298,384 | 14,755,089 |
Shares | Value | |||||||
Food Retail–0.85% | ||||||||
Kroger Co. (The) | 234,227 | $ | 11,577,841 | |||||
Health Care Equipment–1.46% | ||||||||
Covidien PLC | 219,399 | 19,785,402 | ||||||
Health Care Facilities–1.76% | ||||||||
HCA Holdings, Inc.(b) | 421,656 | 23,772,965 | ||||||
Health Care Services–1.60% | ||||||||
Express Scripts Holding Co.(b) | 312,306 | 21,652,175 | ||||||
Heavy Electrical Equipment–0.88% | ||||||||
ABB Ltd. (Switzerland) | 518,750 | 11,971,095 | ||||||
Home Improvement Retail–1.02% | ||||||||
Lowe’s Cos., Inc. | 286,473 | 13,747,839 | ||||||
Industrial Conglomerates–1.66% | ||||||||
General Electric Co. | 855,546 | 22,483,749 | ||||||
Industrial Gases–1.26% | ||||||||
Praxair, Inc. | 127,968 | 16,999,269 | ||||||
Industrial Machinery–4.39% | ||||||||
Illinois Tool Works Inc. | 178,076 | 15,592,335 | ||||||
Parker Hannifin Corp. | 120,618 | 15,165,301 | ||||||
Sandvik AB (Sweden) | 1,182,196 | 16,136,105 | ||||||
SKF AB–Class B (Sweden) | 493,148 | 12,570,832 | ||||||
59,464,573 | ||||||||
Insurance Brokers–1.89% | ||||||||
Marsh & McLennan Cos., Inc. | 493,879 | 25,592,810 | ||||||
Integrated Oil & Gas–2.54% | ||||||||
Chevron Corp. | 152,988 | 19,972,583 | ||||||
Occidental Petroleum Corp. | 140,200 | 14,388,726 | ||||||
34,361,309 | ||||||||
Internet Software & Services–1.03% | ||||||||
eBay Inc.(b) | 277,888 | 13,911,073 | ||||||
Investment Banking & Brokerage–1.28% | ||||||||
Charles Schwab Corp. (The) | 641,912 | 17,286,690 | ||||||
IT Consulting & Other Services–0.99% | ||||||||
International Business Machines Corp. | 74,295 | 13,467,455 | ||||||
Life Sciences Tools & Services–3.42% | ||||||||
Agilent Technologies, Inc. | 291,185 | 16,725,666 | ||||||
Thermo Fisher Scientific, Inc. | 159,746 | 18,850,028 | ||||||
Waters Corp.(b) | 102,725 | 10,728,599 | ||||||
46,304,293 | ||||||||
Movies & Entertainment–0.75% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 290,845 | 10,223,202 | ||||||
Multi-Sector Holdings–2.20% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 157 | 29,814,378 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Shares | Value | |||||||
Oil & Gas Equipment & Services–5.75% | ||||||||
Cameron International Corp.(b) | 314,882 | $ | 21,320,660 | |||||
Halliburton Co. | 333,073 | 23,651,514 | ||||||
Schlumberger Ltd. | 103,485 | 12,206,056 | ||||||
Weatherford International PLC(b) | 901,380 | 20,731,740 | ||||||
77,909,970 | ||||||||
Oil & Gas Exploration & Production–4.96% | ||||||||
Anadarko Petroleum Corp. | 119,053 | 13,032,732 | ||||||
EOG Resources, Inc. | 150,822 | 17,625,059 | ||||||
Noble Energy, Inc. | 198,461 | 15,372,789 | ||||||
Pioneer Natural Resources Co. | 92,140 | 21,174,693 | ||||||
67,205,273 | ||||||||
Packaged Foods & Meats–1.11% | ||||||||
Danone S.A. (France) | 202,978 | 15,075,345 | ||||||
Paper Products–0.90% | ||||||||
International Paper Co. | 241,225 | 12,174,626 | ||||||
Pharmaceuticals–8.94% | ||||||||
Allergan, Inc. | 72,207 | 12,218,869 | ||||||
Bayer AG (Germany) | 97,314 | 13,744,950 | ||||||
Merck & Co., Inc. | 328,981 | 19,031,551 | ||||||
Pfizer Inc. | 396,259 | 11,760,967 | ||||||
Roche Holding AG (Switzerland) | 71,522 | 21,332,396 | ||||||
Sanofi–ADR (France) | 515,460 | 27,407,008 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 296,702 | 15,553,119 | ||||||
121,048,860 | ||||||||
Property & Casualty Insurance–1.81% | ||||||||
Progressive Corp. (The) | 965,472 | 24,484,370 | ||||||
Railroads–1.95% | ||||||||
Norfolk Southern Corp. | 110,365 | 11,370,906 |
Shares | Value | |||||||
Railroads–(continued) | ||||||||
Union Pacific Corp. | 151,326 | $ | 15,094,768 | |||||
26,465,674 | ||||||||
Restaurants–1.01% | ||||||||
Yum! Brands, Inc. | 167,675 | 13,615,210 | ||||||
Semiconductor Equipment–1.49% | ||||||||
Applied Materials, Inc. | 462,122 | 10,420,851 | ||||||
KLA-Tencor Corp. | 134,659 | 9,781,630 | ||||||
20,202,481 | ||||||||
Semiconductors–3.76% | ||||||||
Analog Devices, Inc. | 471,838 | 25,512,280 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,047,823 | 25,450,666 | ||||||
50,962,946 | ||||||||
Systems Software–1.32% | ||||||||
Microsoft Corp. | 429,635 | 17,915,779 | ||||||
Technology Hardware, Storage & Peripherals–1.35% | ||||||||
EMC Corp. | 694,137 | 18,283,569 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,237,317,809 | ||||||
Money Market Funds–7.03% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 47,634,936 | 47,634,936 | ||||||
Premier Portfolio– | 47,634,936 | 47,634,936 | ||||||
Total Money Market Funds |
| 95,269,872 | ||||||
TOTAL INVESTMENTS–98.37% |
| 1,332,587,681 | ||||||
OTHER ASSETS LESS LIABILITIES–1.63% |
| 21,996,561 | ||||||
NET ASSETS–100.00% |
| $ | 1,354,584,242 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Health Care | 19.6 | % | ||
Information Technology | 16.0 | |||
Financials | 13.3 | |||
Energy | 13.2 | |||
Industrials | 11.4 | |||
Consumer Discretionary | 8.9 | |||
Materials | 4.4 | |||
Consumer Staples | 3.5 | |||
Utilities | 1.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 8.7 |
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, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $800,847,093) | $ | 1,237,317,809 | ||
Investments in affiliated money market funds, at value and cost | 95,269,872 | |||
Total investments, at value (Cost $896,116,965) | 1,332,587,681 | |||
Foreign currencies, at value (Cost $1,470,298) | 1,448,167 | |||
Receivable for: | ||||
Investments sold | 21,672,614 | |||
Fund shares sold | 511,418 | |||
Dividends | 1,769,410 | |||
Investment for trustee deferred compensation and retirement plans | 457,686 | |||
Other assets | 191 | |||
Total assets | 1,358,447,167 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 414,895 | |||
Fund shares reacquired | 1,211,698 | |||
Accrued fees to affiliates | 1,685,595 | |||
Accrued trustees’ and officers’ fees and benefits | 941 | |||
Accrued other operating expenses | 19,233 | |||
Trustee deferred compensation and retirement plans | 530,563 | |||
Total liabilities | 3,862,925 | |||
Net assets applicable to shares outstanding | $ | 1,354,584,242 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 853,029,641 | ||
Undistributed net investment income | 18,030,835 | |||
Undistributed net realized gain | 47,044,579 | |||
Net unrealized appreciation | 436,479,187 | |||
$ | 1,354,584,242 | |||
Net Assets: | ||||
Series I | $ | 1,175,720,110 | ||
Series II | $ | 178,864,132 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 28,203,505 | |||
Series II | 4,341,926 | |||
Series I: | ||||
Net asset value per share | $ | 41.69 | ||
Series II: | ||||
Net asset value per share | $ | 41.19 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $690,085) | $ | 13,697,689 | ||
Dividends from affiliated money market funds | 28,431 | |||
Total investment income | 13,726,120 | |||
Expenses: | ||||
Advisory fees | 3,979,242 | |||
Administrative services fees | 1,739,950 | |||
Custodian fees | 43,623 | |||
Distribution fees — Series II | 205,708 | |||
Transfer agent fees | 31,917 | |||
Trustees’ and officers’ fees and benefits | 21,089 | |||
Other | 41,304 | |||
Total expenses | 6,062,833 | |||
Less: Fees waived | (108,903 | ) | ||
Net expenses | 5,953,930 | |||
Net investment income | 7,772,190 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 44,812,992 | |||
Foreign currencies | (35,707 | ) | ||
44,777,285 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 54,562,992 | |||
Foreign currencies | 6,923 | |||
54,569,915 | ||||
Net realized and unrealized gain | 99,347,200 | |||
Net increase in net assets resulting from operations | $ | 107,119,390 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 7,772,190 | $ | 10,753,222 | ||||
Net realized gain | 44,777,285 | 105,331,945 | ||||||
Change in net unrealized appreciation | 54,569,915 | 200,766,398 | ||||||
Net increase in net assets resulting from operations | 107,119,390 | 316,851,565 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (15,433,838 | ) | |||||
Series ll | — | (1,757,717 | ) | |||||
Total distributions from net investment income | — | (17,191,555 | ) | |||||
Share transactions–net: | ||||||||
Series l | (84,850,894 | ) | (134,770,231 | ) | ||||
Series ll | 6,593,275 | 17,964,440 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (78,257,619 | ) | (116,805,791 | ) | ||||
Net increase in net assets | 28,861,771 | 182,854,219 | ||||||
Net assets: | ||||||||
Beginning of period | 1,325,722,471 | 1,142,868,252 | ||||||
End of period (includes undistributed net investment income of $18,030,835 and $10,258,645, respectively) | $ | 1,354,584,242 | $ | 1,325,722,471 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Core Equity Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $108,903.
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
Invesco V.I. Core Equity Fund
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, 2014, Invesco was paid $152,641 for accounting and fund administrative services and reimbursed $1,587,309 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $1,328 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 1,262,243,219 | $ | 70,344,462 | $ | — | $ | 1,332,587,681 |
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Core Equity Fund
NOTE 6—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $160,113,076 and $155,097,548, 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 | $ | 435,576,794 | ||
Aggregate unrealized (depreciation) of investment securities | (3,040,795 | ) | ||
Net unrealized appreciation of investment securities | $ | 432,535,999 |
Cost of investments for tax purposes is $900,051,682.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 413,782 | $ | 16,597,925 | 1,238,342 | $ | 43,467,088 | ||||||||||
Series II | 468,626 | 18,310,667 | 1,014,754 | 35,054,079 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 428,004 | 15,433,838 | ||||||||||||
Series II | — | — | 49,236 | 1,757,717 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,574,738 | ) | (101,448,819 | ) | (5,596,646 | ) | (193,671,157 | ) | ||||||||
Series II | (300,061 | ) | (11,717,392 | ) | (548,495 | ) | (18,847,356 | ) | ||||||||
Net increase (decrease) in share activity | (1,992,391 | ) | $ | (78,257,619 | ) | (3,414,805 | ) | $ | (116,805,791 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 45% 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. Core Equity Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 38.43 | $ | 0.24 | $ | 3.02 | $ | 3.26 | $ | — | $ | 41.69 | 8.48 | % | $ | 1,175,720 | 0.88 | %(d) | 0.90 | %(d) | 1.22 | %(d) | 13 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 30.14 | 0.31 | 8.47 | 8.78 | (0.49 | ) | 38.43 | 29.25 | 1,167,023 | 0.88 | 0.90 | 0.89 | 25 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 26.72 | 0.37 | 3.34 | 3.71 | (0.29 | ) | 30.14 | 13.88 | 1,033,655 | 0.88 | 0.90 | 1.29 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 27.03 | 0.24 | (0.28 | ) | (0.04 | ) | (0.27 | ) | 26.72 | (0.06 | ) | 1,091,171 | 0.87 | 0.89 | 0.86 | 35 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 24.92 | 0.22 | 2.14 | 2.36 | (0.25 | ) | 27.03 | 9.56 | 1,345,658 | 0.87 | 0.89 | 0.87 | 47 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.75 | 0.19 | 5.39 | 5.58 | (0.41 | ) | 24.92 | 28.30 | 1,456,822 | 0.88 | 0.90 | 0.96 | 21 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 38.03 | 0.19 | 2.97 | 3.16 | — | 41.19 | 8.31 | 178,864 | 1.13 | (d) | 1.15 | (d) | 0.97 | (d) | 13 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 29.86 | 0.22 | 8.39 | 8.61 | (0.44 | ) | 38.03 | 28.94 | 158,700 | 1.13 | 1.15 | 0.64 | 25 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 26.51 | 0.30 | 3.31 | 3.61 | (0.26 | ) | 29.86 | 13.61 | 109,213 | 1.13 | 1.15 | 1.04 | 44 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 26.82 | 0.17 | (0.27 | ) | (0.10 | ) | (0.21 | ) | 26.51 | (0.29 | ) | 51,132 | 1.12 | 1.14 | 0.61 | 35 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 24.75 | 0.15 | 2.12 | 2.27 | (0.20 | ) | 26.82 | 9.25 | 35,025 | 1.12 | 1.14 | 0.62 | 47 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 19.62 | 0.14 | 5.34 | 5.48 | (0.35 | ) | 24.75 | 27.98 | 34,275 | 1.13 | 1.15 | 0.71 | 21 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $1,150,643 and $165,930 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,084.80 | $ | 4.55 | $ | 1,020.43 | $ | 4.41 | 0.88 | % | ||||||||||||
Series II | 1,000.00 | 1,083.10 | 5.84 | 1,019.19 | 5.66 | 1.13 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee
data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support
functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Large-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of its performance universe for the one and five year periods and the fourth quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers noted that changes to the portfolio management team had been made in February 2014. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Core Equity Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was the same as the rate of one mutual fund advised by Invesco Advisers using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more
comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational
structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Core Equity Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Diversified Dividend Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIDDI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.12 | % | |||
Series II Shares | 8.01 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 8.28 | ||||
Lipper VUF Large-Cap Value Funds Indexn (Peer Group Index) | 7.44 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (3/1/90) | 8.21 | % | |||
10 Years | 6.70 | ||||
5 Years | 17.77 | ||||
1 Year | 22.29 | ||||
Series II Shares | |||||
Inception (6/5/00) | 5.13 | % | |||
10 Years | 6.43 | ||||
5 Years | 17.48 | ||||
1 Year | 22.05 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley Variable Investment Dividend Growth Portfolio, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Dividend Growth Fund (renamed Invesco V.I. Diversified Dividend Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Diversified Dividend Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The 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 0.73% and 0.98%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Dividend Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the
variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
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, 2016. See current prospectus for more information. |
Invesco V.I. Diversified Dividend Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.12% |
| |||||||
Aerospace & Defense–3.71% | ||||||||
General Dynamics Corp. | 73,366 | $ | 8,550,807 | |||||
Raytheon Co. | 81,515 | 7,519,759 | ||||||
16,070,566 | ||||||||
Air Freight & Logistics–1.18% | ||||||||
United Parcel Service, Inc.–Class B | 49,828 | 5,115,342 | ||||||
Apparel Retail–0.97% | ||||||||
Guess?, Inc. | 62,569 | 1,689,363 | ||||||
TJX Cos., Inc. (The) | 47,086 | 2,502,621 | ||||||
4,191,984 | ||||||||
Apparel, Accessories & Luxury Goods–1.60% | ||||||||
Coach, Inc. | 111,317 | 3,805,928 | ||||||
Columbia Sportswear Co. | 37,739 | 3,119,129 | ||||||
6,925,057 | ||||||||
Asset Management & Custody Banks–2.99% | ||||||||
Federated Investors, Inc.–Class B | 225,943 | 6,986,158 | ||||||
Legg Mason, Inc. | 116,704 | 5,988,082 | ||||||
12,974,240 | ||||||||
Auto Parts & Equipment–1.03% | ||||||||
Johnson Controls, Inc. | 89,840 | 4,485,711 | ||||||
Brewers–2.66% | ||||||||
Heineken N.V. (Netherlands) | 160,567 | 11,527,490 | ||||||
Building Products–1.15% | ||||||||
Masco Corp. | 225,474 | 5,005,523 | ||||||
Data Processing & Outsourced Services–1.02% | ||||||||
Automatic Data Processing, Inc. | 55,577 | 4,406,145 | ||||||
Distillers & Vintners–0.20% | ||||||||
Treasury Wine Estates Ltd. (Australia) | 181,615 | 858,027 | ||||||
Drug Retail–2.10% | ||||||||
Walgreen Co. | 122,995 | 9,117,619 | ||||||
Electric Utilities–8.18% | ||||||||
American Electric Power Co., Inc. | 99,433 | 5,545,379 | ||||||
Duke Energy Corp. | 84,106 | 6,239,824 | ||||||
Entergy Corp. | 38,636 | 3,171,629 | ||||||
Exelon Corp. | 212,098 | 7,737,335 | ||||||
Pepco Holdings, Inc. | 260,708 | 7,164,256 | ||||||
PPL Corp. | 157,480 | 5,595,264 | ||||||
35,453,687 | ||||||||
Food Distributors–2.00% | ||||||||
Sysco Corp. | 231,491 | 8,669,338 | ||||||
Gas Utilities–1.01% | ||||||||
AGL Resources Inc. | 79,962 | 4,400,309 | ||||||
General Merchandise Stores–1.39% | ||||||||
Target Corp. | 103,816 | 6,016,137 | ||||||
Health Care Equipment–2.17% | ||||||||
Medtronic, Inc. | 45,106 | 2,875,959 |
Shares | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Stryker Corp. | 77,226 | $ | 6,511,696 | |||||
9,387,655 | ||||||||
Heavy Electrical Equipment–0.92% | ||||||||
ABB Ltd. (Switzerland) | 172,249 | 3,974,958 | ||||||
Hotels, Resorts & Cruise Lines–2.09% | ||||||||
Accor S.A. (France) | 94,041 | 4,886,922 | ||||||
Marriott International Inc.–Class A | 64,757 | 4,150,924 | ||||||
9,037,846 | ||||||||
Household Products–3.22% | ||||||||
Kimberly-Clark Corp. | 64,056 | 7,124,308 | ||||||
Procter & Gamble Co. (The) | 87,184 | 6,851,791 | ||||||
13,976,099 | ||||||||
Housewares & Specialties–1.47% | ||||||||
Newell Rubbermaid Inc. | 204,995 | 6,352,795 | ||||||
Industrial Machinery–0.92% | ||||||||
Pentair PLC (United Kingdom) | 55,119 | 3,975,182 | ||||||
Integrated Oil & Gas–3.49% | ||||||||
Royal Dutch Shell PLC–Class B (United Kingdom) | 189,389 | 8,241,241 | ||||||
Total S.A. (France) | 95,291 | 6,886,838 | ||||||
15,128,079 | ||||||||
Integrated Telecommunication Services–2.80% | ||||||||
AT&T Inc. | 215,189 | 7,609,083 | ||||||
Deutsche Telekom AG (Germany) | 257,198 | 4,507,920 | ||||||
12,117,003 | ||||||||
Investment Banking & Brokerage–1.47% | ||||||||
Charles Schwab Corp. (The) | 236,650 | 6,372,984 | ||||||
Life & Health Insurance–3.06% | ||||||||
Lincoln National Corp. | 117,640 | 6,051,402 | ||||||
Prudential Financial, Inc. | 26,326 | 2,336,959 | ||||||
StanCorp Financial Group, Inc. | 76,209 | 4,877,376 | ||||||
13,265,737 | ||||||||
Motorcycle Manufacturers–0.57% | ||||||||
Harley-Davidson, Inc. | 35,543 | 2,482,679 | ||||||
Movies & Entertainment–0.92% | ||||||||
Time Warner Inc. | 56,764 | 3,987,671 | ||||||
Multi-Utilities–2.79% | ||||||||
Consolidated Edison, Inc. | 84,219 | 4,862,805 | ||||||
Dominion Resources, Inc. | 41,924 | 2,998,404 | ||||||
Sempra Energy | 40,480 | 4,238,661 | ||||||
12,099,870 | ||||||||
Oil & Gas Drilling–1.96% | ||||||||
Nabors Industries Ltd. | 289,273 | 8,495,948 | ||||||
Oil & Gas Equipment & Services–1.51% | ||||||||
Baker Hughes Inc. | 87,807 | 6,537,231 | ||||||
Packaged Foods & Meats–9.09% | ||||||||
Campbell Soup Co. | 196,334 | 8,994,061 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Shares | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
General Mills, Inc. | 272,236 | $ | 14,303,279 | |||||
Kraft Foods Group, Inc. | 136,021 | 8,154,459 | ||||||
Mead Johnson Nutrition Co. | 31,449 | 2,930,103 | ||||||
Mondelez International Inc.–Class A | 133,706 | 5,028,683 | ||||||
39,410,585 | ||||||||
Paper Packaging–1.38% | ||||||||
Avery Dennison Corp. | 53,304 | 2,731,830 | ||||||
Sonoco Products Co. | 73,865 | 3,244,889 | ||||||
5,976,719 | ||||||||
Paper Products–0.66% | ||||||||
International Paper Co. | 57,051 | 2,879,364 | ||||||
Personal Products–0.77% | ||||||||
L’Oreal S.A. (France) | 19,251 | 3,319,493 | ||||||
Pharmaceuticals–4.30% | ||||||||
Bristol-Myers Squibb Co. | 47,592 | 2,308,688 | ||||||
Eli Lilly and Co. | 117,834 | 7,325,740 | ||||||
Johnson & Johnson | 59,484 | 6,223,216 | ||||||
Novartis AG (Switzerland) | 30,457 | 2,757,890 | ||||||
18,615,534 | ||||||||
Property & Casualty Insurance–0.87% | ||||||||
Travelers Cos., Inc. (The) | 40,298 | 3,790,833 | ||||||
Publishing–0.00% | ||||||||
Time Inc.(b) | 1 | 12 | ||||||
Regional Banks–7.93% | ||||||||
Cullen/Frost Bankers, Inc. | 30,587 | 2,429,219 | ||||||
Fifth Third Bancorp | 184,717 | 3,943,708 | ||||||
KeyCorp | 470,815 | 6,746,779 | ||||||
M&T Bank Corp. | 37,753 | 4,683,260 | ||||||
SunTrust Banks, Inc. | 169,672 | 6,797,060 | ||||||
Zions Bancorp. | 330,865 | 9,750,592 | ||||||
34,350,618 |
Shares | Value | |||||||
Restaurants–1.48% | ||||||||
Brinker International, Inc. | 44,809 | $ | 2,179,958 | |||||
Darden Restaurants, Inc. | 91,127 | 4,216,446 | ||||||
6,396,404 | ||||||||
Semiconductors–2.17% | ||||||||
Linear Technology Corp. | 102,434 | 4,821,568 | ||||||
Texas Instruments Inc. | 95,836 | 4,580,003 | ||||||
9,401,571 | ||||||||
Soft Drinks–2.32% | ||||||||
Coca-Cola Co. (The) | 237,560 | 10,063,042 | ||||||
Specialized REIT’s–0.47% | ||||||||
Weyerhaeuser Co. | 61,200 | 2,025,108 | ||||||
Systems Software–0.56% | ||||||||
Microsoft Corp. | 57,999 | 2,418,558 | ||||||
Thrifts & Mortgage Finance–1.64% | ||||||||
Hudson City Bancorp, Inc. | 723,424 | 7,111,258 | ||||||
Tobacco–1.93% | ||||||||
Altria Group, Inc. | 113,157 | 4,745,804 | ||||||
Philip Morris International Inc. | 43,125 | 3,635,869 | ||||||
8,381,673 | ||||||||
Total Common Stocks & Other Equity Interests |
| 416,549,684 | ||||||
Money Market Funds–3.75% |
| |||||||
Liquid Assets Portfolio– | 8,134,291 | 8,134,291 | ||||||
Premier Portfolio–Institutional Class(c) | 8,134,291 | 8,134,291 | ||||||
Total Money Market Funds |
| 16,268,582 | ||||||
TOTAL INVESTMENTS–99.87% |
| 432,818,266 | ||||||
OTHER ASSETS LESS LIABILITIES–0.13% |
| 569,725 | ||||||
NET ASSETS–100.00% |
| $ | 433,387,991 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Consumer Staples | 24.3 | % | ||
Financials | 18.4 | |||
Utilities | 12.0 | |||
Consumer Discretionary | 11.5 | |||
Industrials | 8.5 | |||
Energy | 7.0 | |||
Health Care | 6.5 | |||
Information Technology | 3.7 | |||
Telecommunication Services | 2.8 | |||
Materials | 1.4 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.9 |
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, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $296,536,128) | $ | 416,549,684 | ||
Investments in affiliated money market funds, at value and cost | 16,268,582 | |||
Total investments, at value (Cost $312,804,710) | 432,818,266 | |||
Foreign currencies, at value (Cost $88,764) | 89,780 | |||
Receivable for: | ||||
Investments sold | 828,347 | |||
Fund shares sold | 191,501 | |||
Dividends | 572,988 | |||
Forward foreign currency contracts outstanding | 6,945 | |||
Investment for trustee deferred compensation and retirement plans | 78,743 | |||
Total assets | 434,586,570 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 314,867 | |||
Fund shares reacquired | 344,817 | |||
Accrued fees to affiliates | 406,096 | |||
Accrued trustees’ and officers’ fees and benefits | 583 | |||
Accrued other operating expenses | 21,859 | |||
Trustee deferred compensation and retirement plans | 110,357 | |||
Total liabilities | 1,198,579 | |||
Net assets applicable to shares outstanding | $ | 433,387,991 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 350,128,394 | ||
Undistributed net investment income | 10,297,278 | |||
Undistributed net realized gain (loss) | (47,059,904 | ) | ||
Net unrealized appreciation | 120,022,223 | |||
$ | 433,387,991 | |||
Net Assets: | ||||
Series I | $ | 331,715,962 | ||
Series II | $ | 101,672,029 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 14,658,725 | |||
Series II | 4,515,448 | |||
Series I: | ||||
Net asset value per share | $ | 22.63 | ||
Series II: | ||||
Net asset value per share | $ | 22.52 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $82,254) | $ | 5,361,074 | ||
Dividends from affiliated money market funds | 2,864 | |||
Total investment income | 5,363,938 | |||
Expenses: | ||||
Advisory fees | 1,031,225 | |||
Administrative services fees | 397,592 | |||
Custodian fees | 11,407 | |||
Distribution fees — Series II | 122,328 | |||
Transfer agent fees | 12,525 | |||
Trustees’ and officers’ fees and benefits | 18,753 | |||
Other | 28,395 | |||
Total expenses | 1,622,225 | |||
Less: Fees waived | (9,471 | ) | ||
Net expenses | 1,612,754 | |||
Net investment income | 3,751,184 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 10,463,261 | |||
Foreign currencies | (1,896 | ) | ||
Forward foreign currency contracts | 41,680 | |||
Option contracts written | 32,388 | |||
10,535,433 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 18,557,692 | |||
Foreign currencies | 1,112 | |||
Forward foreign currency contracts | 18,400 | |||
18,577,204 | ||||
Net realized and unrealized gain | 29,112,637 | |||
Net increase in net assets resulting from operations | $ | 32,863,821 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 3,751,184 | $ | 6,615,506 | ||||
Net realized gain | 10,535,433 | 31,216,111 | ||||||
Change in net unrealized appreciation | 18,577,204 | 65,226,663 | ||||||
Net increase in net assets resulting from operations | 32,863,821 | 103,058,280 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (6,904,089 | ) | |||||
Series ll | — | (1,824,400 | ) | |||||
Total distributions from net investment income | — | (8,728,489 | ) | |||||
Share transactions–net: | ||||||||
Series l | (15,125,886 | ) | (23,555,974 | ) | ||||
Series ll | (3,558,447 | ) | 4,386,872 | |||||
Net increase (decrease) in net assets resulting from share transactions | (18,684,333 | ) | (19,169,102 | ) | ||||
Net increase in net assets | 14,179,488 | 75,160,689 | ||||||
Net assets: | ||||||||
Beginning of period | 419,208,503 | 344,047,814 | ||||||
End of period (includes undistributed net investment income of $10,297,278 and $6,546,094, respectively) | $ | 433,387,991 | $ | 419,208,503 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Dividend Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Diversified Dividend Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
K. | Call Options Written — The Fund may write covered call options. A covered call option gives the purchaser of such option the right to buy, and the writer (the Fund) the obligation to sell, the underlying security at the stated exercise price during the option period. Written call options are recorded as a liability in the Statement of Assets and Liabilities. The amount of the liability is subsequently “marked-to-market” to reflect the current market value of the option written. If a written covered call option expires on the stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written covered call option is exercised, the Fund realizes a gain or a loss from the sale of the underlying security and the proceeds of the sale are increased by the premium originally received. Realized gains and losses on these contracts are included in the Statement of Operations. A risk in writing a covered call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. |
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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed
Invesco V.I. Diversified Dividend Fund
below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $9,471.
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, 2014, Invesco was paid $50,465 for accounting and fund administrative services and reimbursed $347,127 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $42 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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, 2014 there were transfers from level 1 to level 2 of $3,319,493 and from level 2 to level 1 of $25,680,138, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 420,636,893 | $ | 12,181,373 | $ | — | $ | 432,818,266 | ||||||||
Forward Foreign Currency Contracts* | — | 6,945 | — | 6,945 | ||||||||||||
Total Investments | $ | 420,636,893 | $ | 12,188,318 | $ | — | $ | 432,825,211 |
* | Unrealized appreciation. |
Invesco V.I. Diversified Dividend Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | 6,945 | $ | — |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations | ||||||||
Forward Foreign Currency Contracts | Option Written | |||||||
Realized Gain | ||||||||
Currency risk | $ | 41,680 | $ | — | ||||
Equity risk | — | 32,388 | ||||||
Change in Unrealized Appreciation | ||||||||
Currency risk | 18,400 | — | ||||||
Total | $ | 60,080 | $ | 32,388 |
The table below summarizes the average notional value of forward foreign currency contracts and options written.
Forward Foreign Currency Contracts | Options Written | |||||||
Average notional value | $ | 14,121,481 | $ | 1,381,333 |
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/18/14 | Deutsche Bank Securities Inc. | EUR | 5,200,367 | USD | 7,124,867 | $ | 7,121,231 | $ | 3,636 | |||||||||||||||||
07/18/14 | Citibank Capital Inc. | EUR | 5,300,324 | USD | 7,261,418 | 7,258,109 | 3,309 | |||||||||||||||||||
Total open forward foreign currency contracts – Currency Risk | $ | 6,945 |
Currency Abbreviations:
EUR | – Euro | |
USD | – U.S. Dollar |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 642 | 32,388 | ||||||
Expired | (642 | ) | (32,388 | ) | ||||
End of period | — | $ | — |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Diversified Dividend Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Deutsche Bank Securities Inc. | $ | 3,636 | $ | — | $ | 3,636 | $ | — | $ | — | $ | 3,636 | ||||||||||||
Citibank Capital Inc. | 3,309 | — | 3,309 | — | — | 3,309 | ||||||||||||||||||
Total | $ | 6,945 | $ | — | $ | 6,945 | $ | — | $ | — | $ | 6,945 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 7,577,250 | $ | — | $ | 7,577,250 | ||||||
December 31, 2017 | 49,408,520 | — | 49,408,520 | |||||||||
$ | 56,985,770 | $ | — | $ | 56,985,770 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $6,552,338 and $25,220,932, 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 | $ | 124,792,338 | ||
Aggregate unrealized (depreciation) of investment securities | (5,399,804 | ) | ||
Net unrealized appreciation of investment securities | $ | 119,392,534 |
Cost of investments for tax purposes is $313,425,732.
Invesco V.I. Diversified Dividend Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 988,335 | $ | 21,481,529 | 2,000,631 | $ | 37,904,984 | ||||||||||
Series II | 414,807 | 8,878,308 | 1,107,260 | 21,023,400 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 357,170 | 6,904,089 | ||||||||||||
Series II | — | — | 94,676 | 1,824,400 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,695,522 | ) | (36,607,415 | ) | (3,605,314 | ) | (68,365,047 | ) | ||||||||
Series II | (581,837 | ) | (12,436,755 | ) | (980,095 | ) | (18,460,928 | ) | ||||||||
Net increase (decrease) in share activity | (874,217 | ) | $ | (18,684,333 | ) | (1,025,672 | ) | $ | (19,169,102 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 71% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 20.93 | $ | 0.20 | $ | 1.50 | $ | 1.70 | $ | — | $ | 22.63 | 8.12 | % | $ | 331,716 | 0.72 | %(d) | 0.72 | %(d) | 1.85 | %(d) | 2 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 16.34 | 0.33 | 4.70 | 5.03 | (0.44 | ) | 20.93 | 31.04 | 321,581 | 0.71 | 0.72 | 1.76 | 20 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 14.04 | 0.35 | 2.27 | 2.62 | (0.32 | ) | 16.34 | 18.72 | 271,407 | 0.67 | 0.68 | 2.29 | 11 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.24 | 0.31 | (0.27 | ) | 0.04 | (0.24 | ) | 14.04 | 0.20 | 253,850 | 0.66 | 0.67 | 2.24 | 38 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 13.13 | 0.21 | 1.14 | 1.35 | (0.24 | ) | 14.24 | 10.48 | 179,518 | 0.68 | 0.79 | 1.59 | 78 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.78 | 0.20 | 2.37 | 2.57 | (0.22 | ) | 13.13 | 24.30 | 192,279 | 0.67 | 0.67 | 1.80 | 44 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 20.85 | 0.17 | 1.50 | 1.67 | — | 22.52 | 8.01 | 101,672 | 0.97 | (d) | 0.97 | (d) | 1.60 | (d) | 2 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.28 | 0.29 | 4.69 | 4.98 | (0.41 | ) | 20.85 | 30.76 | 97,628 | 0.96 | 0.97 | 1.51 | 20 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 14.00 | 0.31 | 2.26 | 2.57 | (0.29 | ) | 16.28 | 18.37 | 72,641 | 0.92 | 0.93 | 2.04 | 11 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.20 | 0.28 | (0.28 | ) | 0.00 | (0.20 | ) | 14.00 | (0.06 | ) | 68,424 | 0.91 | 0.92 | 1.99 | 38 | |||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 13.09 | 0.19 | 1.12 | 1.31 | (0.20 | ) | 14.20 | 10.20 | 51,394 | 0.93 | 1.04 | 1.34 | 78 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.75 | 0.17 | 2.36 | 2.53 | (0.19 | ) | 13.09 | 23.94 | 64,463 | 0.92 | 0.92 | 1.55 | 44 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $134,975,378 and sold of $57,441,776 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Select Dimensions Dividend Growth Fund and Invesco V.I. Financial Services Fund into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $322,051 and $98,674 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,081.20 | $ | 3.72 | $ | 1,021.22 | $ | 3.61 | 0.72 | % | ||||||||||||
Series II | 1,000.00 | 1,080.10 | 5.00 | 1,019.98 | 4.86 | 0.97 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Diversified Dividend Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of 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, above the performance of the Index for the three year
Invesco V.I. Diversified Dividend Fund
period and at the same level as the performance of the Index for the five year period. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund and below the rate of an offshore fund advised by Invesco Advisers using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco
Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer
agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Diversified Dividend Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Diversified Income Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIDIN-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.74 | % | |||
Series II Shares | 6.79 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 3.93 | ||||
Barclays U.S. Credit Index‚ (Style-Specific Index) | 5.70 | ||||
Lipper VUF Corporate Debt BBB-Rated Funds Indexn (Peer Group Index) | 4.49 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered US corporate and specified foreign debentures and secured notes.
The Lipper VUF Corporate Debt BBB-Rated Funds Index is an unmanaged index considered representative of corporate debt BBB-rated variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/5/93) | 4.55 | % | |||
10 Years | 4.10 | ||||
5 Years | 8.75 | ||||
1 Year | 9.65 | ||||
Series II Shares | |||||
Inception (3/14/02) | 4.17 | % | |||
10 Years | 3.85 | ||||
5 Years | 8.49 | ||||
1 Year
| 9.37 |
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 1.76% and 2.01%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of
this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Diversified Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2015. See current prospectus for more information. |
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–84.83% |
| |||||||
Advertising–0.03% | ||||||||
Omnicom Group Inc., Sr. Unsec. Gtd. Global Notes, 3.63%, 05/01/22 | $ | 5,000 | $ | 5,154 | ||||
Aerospace & Defense–0.50% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 5.75%, 03/15/22(b) | 3,000 | 3,094 | ||||||
7.75%, 03/15/20(b) | 19,000 | 21,589 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Bonds, 5.25%, 02/01/21 | 6,000 | 5,970 | ||||||
GenCorp Inc., Sec. Gtd. Global Notes, 7.13%, 03/15/21 | 19,000 | 20,852 | ||||||
L-3 Communications Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 05/28/24 | 25,000 | 25,248 | ||||||
TransDigm Inc., | 10,000 | 10,200 | ||||||
7.50%, 07/15/21 | 5,000 | 5,575 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 6.00%, 07/15/22(b) | 3,000 | 3,086 | ||||||
6.50%, 07/15/24(b) | 3,000 | 3,124 | ||||||
98,738 | ||||||||
Agricultural & Farm Machinery–0.04% | ||||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 6.88%, 10/01/20 | 7,000 | 7,140 | ||||||
Airlines–0.98% | ||||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 19,478 | 21,328 | ||||||
Continental Airlines Pass Through Trust, Series 2009-1, Sr. Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 92,997 | 105,784 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 8,265 | 9,282 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-2, Class A, Sr. Sec. Pass Through Ctfs., 4.95%, 05/23/19 | 43,506 | 47,517 | ||||||
US Airways Pass Through Trust, Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 927 | 1,070 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 699 | 746 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class B, Sec. Gtd. Pass Through Ctfs., 6.00%, 10/23/20(b) | 6,699 | 7,001 | ||||||
192,728 | ||||||||
Alternative Carriers–0.14% | ||||||||
Level 3 Financing Inc., | 9,000 | 9,866 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 01/15/21(b) | 17,000 | 18,296 | ||||||
28,162 |
Principal Amount | Value | |||||||
Apparel Retail–0.18% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. Notes, 9.25%, 06/15/21(b) | $ | 15,000 | $ | 16,706 | ||||
Men’s Wearhouse Inc. (The), Sr. Unsec. Gtd. Notes, 7.00%, 07/01/22(b) | 14,000 | 14,700 | ||||||
Neiman Marcus Group LTD LLC., Sr. Unsec. Gtd. Notes, 8.00%, 10/15/21(b) | 4,000 | 4,330 | ||||||
35,736 | ||||||||
Apparel, Accessories & Luxury Goods–0.07% | ||||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 6.88%, 05/01/22 | 8,000 | 8,840 | ||||||
William Carter Co. (The), Sr. Unsec. Gtd. Notes, 5.25%, 08/15/21(b) | 4,000 | 4,180 | ||||||
13,020 | ||||||||
Application Software–0.06% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | 12,000 | 12,480 | ||||||
Asset Management & Custody Banks–2.15% | ||||||||
Affiliated Managers Group, Inc., Sr. Unsec. Global Notes, 4.25%, 02/15/24 | 100,000 | 103,568 | ||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(b) | 25,000 | 25,145 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/44(b) | 90,000 | 93,322 | ||||||
Carlyle Holdings II Finance LLC, Sr. Sec. Gtd. Notes, 5.63%, 03/30/43(b) | 125,000 | 140,120 | ||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(b) | 50,000 | 50,838 | ||||||
Signode Industrial Group Lux S.A./Signode Industrial Group U.S. Inc., Sr. Unsec. Notes, 6.38%, 05/01/22(b) | 9,000 | 9,157 | ||||||
422,150 | ||||||||
Auto Parts & Equipment–1.63% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/19(b) | 10,000 | 10,825 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 5.38%, 09/15/21 | 17,000 | 17,850 | ||||||
Johnson Controls, Inc., Sr. Unsec. Global Notes, | 135,000 | 135,409 | ||||||
4.95%, 07/02/64 | 37,000 | 37,580 | ||||||
Magna International Inc. (Canada), | 100,000 | 101,393 | ||||||
Stackpole International Intermediate Co. S.A./Stackpole International Powder Metal (Canada), Sr. Sec. Gtd. Notes, 7.75%, 10/15/21(b) | 15,000 | 15,750 | ||||||
318,807 | ||||||||
Automobile Manufacturers–0.66% | ||||||||
General Motors Co., Sr. Unsec. Notes, 3.50%, 10/02/18(b) | 80,000 | 82,000 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Automobile Manufacturers–(continued) | ||||||||
Hyundai Capital America (South Korea), | $ | 47,000 | $ | 47,971 | ||||
129,971 | ||||||||
Automotive Retail–0.11% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 12,000 | 13,763 | ||||||
CST Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/23 | 8,000 | 8,000 | ||||||
21,763 | ||||||||
Biotechnology–0.93% | ||||||||
Celgene Corp., Sr. Unsec. Global Notes, 3.63%, 05/15/24 | 50,000 | 50,192 | ||||||
4.63%, 05/15/44 | 85,000 | 85,533 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Bonds, 3.70%, 04/01/24 | 45,000 | 46,229 | ||||||
181,954 | ||||||||
Broadcasting–0.44% | ||||||||
Central European Media Enterprises Ltd. (Czech Republic), Sr. Sec. Gtd. PIK Global Notes, 15.00%, 12/01/17(l) | 1,000 | 1,095 | ||||||
Clear Channel Worldwide Holdings Inc., | 9,000 | 9,743 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | 3,000 | 3,251 | ||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 4.88%, 04/01/43 | 70,000 | 70,744 | ||||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 2,000 | 2,090 | ||||||
86,923 | ||||||||
Building Products–0.62% | ||||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 25,000 | 26,750 | ||||||
Building Materials Holding Corp., Sr. Sec. Notes, 9.00%, 09/15/18(b) | 14,000 | 15,190 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/21 | 19,000 | 19,855 | ||||||
Norbord Inc. (Canada), Sr. Sec. Notes, 5.38%, 12/01/20(b) | 5,000 | 5,097 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 25,000 | 27,812 | ||||||
USG Corp., | 2,000 | 2,135 | ||||||
7.88%, 03/30/20(b) | 12,000 | 13,350 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 10,000 | 12,000 | ||||||
122,189 | ||||||||
Cable & Satellite–3.43% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 14,000 | 14,490 | ||||||
Clear Channel Communications, Inc., | 8,000 | 7,780 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 4.25%, 01/15/33 | 80,000 | 82,219 |
Principal Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
COX Communications Inc., Sr. Unsec. Notes, 8.38%, 03/01/39(b) | $ | 75,000 | $ | 105,654 | ||||
9.38%, 01/15/19(b) | 140,000 | 181,334 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., | 50,000 | 52,694 | ||||||
Sr. Unsec. Gtd. Notes, | 40,000 | 40,105 | ||||||
4.45%, 04/01/24 | 30,000 | 31,829 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 05/01/20 | 33,000 | 34,856 | ||||||
Hughes Satellite Systems Corp., | 4,000 | 4,475 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 8,000 | 9,190 | ||||||
Time Warner Cable, Inc., | 55,000 | 65,044 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 38,000 | 42,678 | ||||||
672,348 | ||||||||
Casinos & Gaming–0.41% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/20 | 17,000 | 18,827 | ||||||
Caesars Entertainment Operating Co. Inc., Sec. Global Notes, 10.00%, 12/15/15 | 4,000 | 4,080 | ||||||
Sr. Sec. Global Notes, 11.25%, 06/01/17 | 4,000 | 3,670 | ||||||
Caesars Entertainment Resort Properties LLC, Sr. Sec. Gtd. Notes, 8.00%, 10/01/20(b) | 6,000 | 6,285 | ||||||
Caesars Growth Properties Holdings LLC/Caesars Growth Properties Finance Inc., Sec. Gtd. Notes, 9.38%, 05/01/22(b) | 2,000 | 2,045 | ||||||
MGM Resorts International, | 5,000 | 5,600 | ||||||
6.75%, 10/01/20 | 5,000 | 5,600 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 12,000 | 14,130 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Unsec. Global Notes, 5.38%, 03/15/22 | 20,000 | 20,900 | ||||||
81,137 | ||||||||
Catalog Retail–0.35% | ||||||||
QVC Inc., Sr. Sec. Gtd. Global Notes, 4.85%, 04/01/24 | 65,000 | 68,143 | ||||||
Coal & Consumable Fuels–0.24% | ||||||||
Alpha Natural Resources Inc., Sec. Gtd. Notes, 7.50%, 08/01/20(b) | 2,000 | 1,950 | ||||||
Arch Coal Inc., Sec. Gtd. Notes, 8.00%, 01/15/19(b) | 12,000 | 11,940 | ||||||
CONSOL Energy Inc., | 6,000 | 6,420 | ||||||
Sr. Unsec. Gtd. Notes, | 10,000 | 10,575 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Coal & Consumable Fuels–(continued) | ||||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | $ | 16,000 | $ | 16,220 | ||||
47,105 | ||||||||
Commercial Printing–0.06% | ||||||||
RR Donnelley & Sons Co., Sr. Unsec. Global Notes, 7.88%, 03/15/21 | 10,000 | 11,475 | ||||||
Commodity Chemicals–0.01% | ||||||||
Eagle Spinco Inc., Sr. Unsec. Gtd. Global Notes, 4.63%, 02/15/21 | 2,000 | 2,005 | ||||||
Communications Equipment–0.30% | ||||||||
Avaya Inc., | 4,000 | 3,715 | ||||||
Sr. Sec. Gtd. Notes, | 15,000 | 15,131 | ||||||
9.00%, 04/01/19(b) | 13,000 | 13,569 | ||||||
Juniper Networks Inc., Sr. Unsec. Global Notes, 4.50%, 03/15/24 | 25,000 | 26,163 | ||||||
58,578 | ||||||||
Computer & Electronics Retail–0.03% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 5,000 | 5,231 | ||||||
Construction & Engineering–0.38% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 15,000 | 16,162 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 25,000 | 26,344 | ||||||
URS Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 04/01/22 | 32,000 | 32,720 | ||||||
75,226 | ||||||||
Construction Machinery & Heavy Trucks–0.40% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, 8.50%, 11/01/19(b) | 13,000 | 13,975 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 15,000 | 15,675 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Global Notes, 5.88%, 10/15/22 | 5,000 | 5,475 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, 6.25%, 02/15/24 | 9,000 | 9,405 | ||||||
6.75%, 06/15/21 | 3,000 | 3,247 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 10,000 | 10,525 | ||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 03/01/22 | 15,000 | 15,375 | ||||||
Terex Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | 4,000 | 4,330 | ||||||
78,007 | ||||||||
Construction Materials–0.04% | ||||||||
CPG Merger Sub LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/01/21(b) | 3,000 | 3,180 | ||||||
US Concrete, Inc., Sr. Sec. Gtd. Notes, 8.50%, 12/01/18(b) | 4,000 | 4,340 | ||||||
7,520 |
Principal Amount | Value | |||||||
Consumer Finance–0.43% | ||||||||
First Cash Financial Services, Inc., Sr. Unsec. Gtd. Notes, | $ | 4,000 | $ | 4,275 | ||||
Navient Corp., Sr. Unsec. Medium-Term Global Notes, 6.25%, 01/25/16 | 75,000 | 80,113 | ||||||
84,388 | ||||||||
Data Processing & Outsourced Services–0.47% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | 30,000 | 31,516 | ||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | 19,000 | 20,662 | ||||||
First Data Corp., | 10,000 | 10,988 | ||||||
Sr. Unsec. Gtd. Global Notes, 12.63%, 01/15/21 | 14,000 | 17,290 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 11.75%, 08/15/21 | 10,000 | 11,850 | ||||||
92,306 | ||||||||
Distillers & Vintners–0.01% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Global Notes, 10.00%, 04/30/18(c) | 2,000 | 1,900 | ||||||
Diversified Banks–7.09% | ||||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(b) | 200,000 | 197,220 | ||||||
Bank of America Corp., | 130,000 | 144,079 | ||||||
Sr. Unsec. Notes, 5.88%, 01/05/21 | 35,000 | 40,911 | ||||||
Bank of Montreal (Canada), Sr. Unsec. Medium-Term Notes, 0.80%, 11/06/15 | 75,000 | 75,370 | ||||||
HSBC Holdings PLC (United Kingdom), | 45,000 | 48,173 | ||||||
Intesa Sanpaolo SpA (Italy), Sr. Unsec. Gtd. Notes, 3.88%, 01/15/19 | 200,000 | 210,283 | ||||||
JPMorgan Chase & Co, | 40,000 | 43,100 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(d) | 40,000 | 39,950 | ||||||
PNC Bank, N.A., Unsec. Sub. Global Notes, 3.80%, 07/25/23 | 45,000 | 46,648 | ||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 5.13%, 05/28/24 | 140,000 | 142,490 | ||||||
6.13%, 12/15/22 | 12,000 | 13,196 | ||||||
Societe Generale S.A. (France), Jr. Unsec. Sub. Notes, 6.00%(b)(d) | 200,000 | 200,916 | ||||||
Wells Fargo & Co., Unsec. Sub. Global Notes, 5.38%, 11/02/43 | 170,000 | 187,116 | ||||||
1,389,452 | ||||||||
Diversified Chemicals–1.07% | ||||||||
OCP S.A. (Morocco), Sr. Unsec. Notes, 5.63%, 04/25/24(b) | 200,000 | 210,500 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Diversified Metals & Mining–2.64% | ||||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.88%, 04/01/22(b) | $ | 22,000 | $ | 23,650 | ||||
Glencore Finance Canada Ltd. (Canada), | 102,000 | 104,867 | ||||||
Glencore Funding LLC (Switzerland), | 73,000 | 73,577 | ||||||
4.63%, 04/29/24(b) | 107,000 | 110,552 | ||||||
HudBay Minerals Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 9.50%, 10/01/20 | 10,000 | 11,050 | ||||||
Imperial Metals Corp. (Canada), Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 7,000 | 7,182 | ||||||
Magnetation LLC/ Mag Finance Corp., | 13,000 | 14,268 | ||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 7.13%, 07/15/28 | 20,000 | 26,210 | ||||||
Rio Tinto Finance USA PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 3.50%, 03/22/22 | 80,000 | 82,189 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, 5.25%, 11/08/42 | 70,000 | 64,501 | ||||||
518,046 | ||||||||
Diversified Support Services–0.45% | ||||||||
Envision Healthcare Corp., Sr. Unsec. Gtd. Notes, 5.13%, 07/01/22(b) | 2,000 | 2,028 | ||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 3.85%, 11/15/24(b) | 85,000 | 85,372 | ||||||
87,400 | ||||||||
Drug Retail–0.92% | ||||||||
CVS Pass Through Trust, Sr. Sec. Mortgage Pass Through Ctfs., 5.77%, 01/10/33(b) | 160,077 | 179,560 | ||||||
Electric Utilities–1.57% | ||||||||
Electricite de France S.A. (France), | 145,000 | 164,044 | ||||||
Jr. Unsec. Sub. Notes, 5.63%(b)(d) | 100,000 | 104,970 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(e) | 25,000 | 0 | ||||||
Mississippi Power Co., Series 12, Class A, | 40,000 | 39,257 | ||||||
308,271 | ||||||||
Electronic Components–0.03% | ||||||||
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | 5,000 | 5,163 | ||||||
Electronic Manufacturing Services–0.01% | ||||||||
Sanmina Corp., Sr. Sec. Gtd. Notes, 4.38%, 06/01/19(b) | 1,000 | 1,008 | ||||||
Environmental & Facilities Services–0.04% | ||||||||
ADS Waste Holdings, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/20 | 4,000 | 4,350 |
Principal Amount | Value | |||||||
Environmental & Facilities Services–(continued) | ||||||||
Darling Ingredients Inc., Sr. Unsec. Gtd. Notes, 5.38%, 01/15/22(b) | $ | 4,000 | $ | 4,170 | ||||
8,520 | ||||||||
Fertilizers & Agricultural Chemicals–0.18% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 4.70%, 07/15/64 | 30,000 | 30,197 | ||||||
Rentech Nitrogen Partners L.P./Rentech Nitrogen Finance Corp., Sec. Gtd. Notes, 6.50%, 04/15/21(b) | 5,000 | 5,075 | ||||||
35,272 | ||||||||
Gas Utilities–0.07% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., | 5,000 | 5,244 | ||||||
Sr. Unsec. Notes, 6.75%, 01/15/22(b) | 3,000 | 3,165 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Global Notes, 7.38%, 08/01/21 | 4,000 | 4,390 | ||||||
12,799 | ||||||||
General Merchandise Stores–0.30% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/23 | 62,000 | 58,723 | ||||||
Gold–2.78% | ||||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 4.40%, 05/30/21 | 130,000 | 136,079 | ||||||
5.70%, 05/30/41 | 50,000 | 51,860 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(b) | 200,000 | 184,000 | ||||||
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Global Notes, 6.88%, 09/01/41 | 75,000 | 77,149 | ||||||
New Gold Inc. (Canada), | 2,000 | 2,137 | ||||||
Sr. Unsec. Notes, 6.25%, 11/15/22(b) | 16,000 | 16,653 | ||||||
Newcrest Finance Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.75%, 11/15/41(b) | 35,000 | 31,569 | ||||||
Yamana Gold Inc. (Canada), Sr. Unsec. Notes, 4.95%, 07/15/24(b) | 45,000 | 45,158 | ||||||
544,605 | ||||||||
Health Care Distributors–1.14% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Bonds, 3.40%, 05/15/24 | 60,000 | 59,759 | ||||||
McKesson Corp., Sr. Unsec. Global Notes, 3.80%, 03/15/24 | 80,000 | 81,942 | ||||||
4.88%, 03/15/44 | 78,000 | 81,473 | ||||||
223,174 | ||||||||
Health Care Equipment–0.84% | ||||||||
CareFusion Corp., Sr. Unsec. Global Notes, 3.88%, 05/15/24 | 40,000 | 40,447 | ||||||
4.88%, 05/15/44 | 45,000 | 45,488 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Medtronic Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/44 | $ | 65,000 | $ | 68,172 | ||||
Universal Hospital Services Inc., Sec. Gtd. Global Notes, 7.63%, 08/15/20 | 10,000 | 10,525 | ||||||
164,632 | ||||||||
Health Care Facilities–0.47% | ||||||||
CHS/Community Health Systems Inc., | 3,000 | 3,098 | ||||||
Sr. Unsec. Gtd. Notes, 6.88%, 02/01/22(b) | 15,917 | 16,971 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/21 | 18,000 | 19,395 | ||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 15,000 | 16,312 | ||||||
LifePoint Hospitals, Inc., Sr. Unsec. Gtd. Notes, 5.50%, 12/01/21(b) | 2,000 | 2,110 | ||||||
Tenet Healthcare Corp., | 9,000 | 9,855 | ||||||
Sr. Unsec. Global Notes, 6.75%, 02/01/20 | 10,000 | 10,925 | ||||||
8.13%, 04/01/22 | 11,000 | 12,829 | ||||||
91,495 | ||||||||
Health Care REIT’s–1.15% | ||||||||
Aviv Healthcare Properties L.P./Aviv Healthcare Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 10/15/21 | 2,000 | 2,140 | ||||||
HCP, Inc., | 45,000 | 46,804 | ||||||
Sr. Unsec. Notes, 3.75%, 02/01/16 | 25,000 | 26,144 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | 7,000 | 7,683 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 75,000 | 77,859 | ||||||
Ventas Realty L.P./Ventas Capital Corp., | 65,000 | 65,696 | ||||||
226,326 | ||||||||
Health Care Services–0.90% | ||||||||
DaVita HealthCare Partners Inc, Sr. Unsec. Gtd. Global Notes, 5.13%, 07/15/24 | 7,000 | 7,079 | ||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 3.50%, 06/15/24 | 85,000 | 84,234 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, 6.63%, 04/01/22(b) | 8,000 | 8,420 | ||||||
Orlando Lutheran Towers Inc., Unsec. Bonds, 8.00%, 07/01/17 | 75,000 | 75,698 | ||||||
175,431 | ||||||||
Health Care Supplies–0.02% | ||||||||
Crimson Merger Sub, Inc., Sr. Unsec. Notes, 6.63%, 05/15/22(b) | 4,000 | 4,000 |
Principal Amount | Value | |||||||
Home Improvement Retail–0.03% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Notes, 6.38%, 07/15/22(b) | $ | 5,000 | $ | 5,000 | ||||
Homebuilding–1.21% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/21(b) | 18,000 | 18,067 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/21 | 12,000 | 12,780 | ||||||
K. Hovnanian Enterprises Inc., | 11,000 | 11,935 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 01/15/19(b) | 10,000 | 10,225 | ||||||
7.50%, 05/15/16 | 3,000 | 3,214 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, 7.00%, 12/15/21 | 4,000 | 4,380 | ||||||
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 10,000 | 11,325 | ||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 165,000 | 159,835 | ||||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 5,000 | 4,988 | ||||||
236,749 | ||||||||
Hotels, Resorts & Cruise Lines–0.35% | ||||||||
Carnival Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 10/15/20 | 60,000 | 63,461 | ||||||
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | 4,000 | 4,323 | ||||||
67,784 | ||||||||
Household Products–0.09% | ||||||||
Reynolds Group Issuer Inc./LLC, Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 17,000 | 17,977 | ||||||
Hypermarkets & Super Centers–0.15% | ||||||||
Wal-Mart Stores Inc., Sr. Unsec. Global Bonds, 4.30%, 04/22/44 | 30,000 | 30,044 | ||||||
Independent Power Producers & Energy Traders–0.15% | ||||||||
AES Corp., Sr. Unsec. Global Notes, 8.00%, 10/15/17 | 1,000 | 1,174 | ||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, | 4,000 | 4,610 | ||||||
7.88%, 05/15/21 | 22,000 | 24,585 | ||||||
30,369 | ||||||||
Industrial Conglomerates–1.46% | ||||||||
Hutchison Whampoa International (09) Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, 7.63%, 04/09/19(b) | 130,000 | 159,080 | ||||||
Hutchison Whampoa International (09/19) Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, 5.75%, 09/11/19(b) | 100,000 | 115,334 | ||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, 7.50%, 02/15/19(b) | 12,000 | 12,615 | ||||||
287,029 |
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–0.09% | ||||||||
Waterjet Holdings, Inc., Sr. Sec. Gtd. Notes, 7.63%, 02/01/20(b) | $ | 16,000 | $ | 17,000 | ||||
Industrial REIT’s–0.26% | ||||||||
ProLogis L.P., Sr. Unsec. Gtd. Global Notes, 4.25%, 08/15/23 | 49,000 | 51,191 | ||||||
Insurance Brokers–0.67% | ||||||||
Marsh & McLennan Cos. Inc., Sr. Unsec. Notes, 9.25%, 04/15/19 | 100,000 | 131,128 | ||||||
Integrated Oil & Gas–2.01% | ||||||||
BP Capital Markets PLC (United Kingdom), | 91,000 | 94,379 | ||||||
Ecopetrol S.A. (Colombia), Sr. Unsec. Global Notes, 5.88%, 05/28/45 | 135,000 | 139,914 | ||||||
Petrobras Global Finance B.V. (Brazil), | 155,000 | 159,195 | ||||||
393,488 | ||||||||
Integrated Telecommunication Services–4.90% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, 1.70%, 06/01/17 | 60,000 | 60,830 | ||||||
2.95%, 05/15/16 | 35,000 | 36,381 | ||||||
4.80%, 06/15/44 | 40,000 | 40,925 | ||||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, | 90,000 | 102,065 | ||||||
7.05%, 06/20/36 | 95,000 | 120,349 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, | 30,000 | 30,432 | ||||||
5.05%, 03/15/34 | 95,000 | 101,182 | ||||||
5.15%, 09/15/23 | 120,000 | 133,971 | ||||||
6.40%, 09/15/33 | 165,000 | 202,685 | ||||||
6.55%, 09/15/43 | 105,000 | 132,597 | ||||||
961,417 | ||||||||
Internet Software & Services–0.15% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/22 | 28,000 | 30,345 | ||||||
Investment Banking & Brokerage–3.57% | ||||||||
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(d) | 45,000 | 52,875 | ||||||
Goldman Sachs Group, Inc. (The), | 100,000 | 115,848 | ||||||
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | 45,000 | 46,434 | ||||||
Sr. Unsec. Medium-Term Notes, 4.80%, 07/08/44 | 85,000 | 84,585 | ||||||
Series L, Jr. Unsec. Sub. Notes, 5.70%(d) | 60,000 | 62,400 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(b) | 105,000 | 119,148 |
Principal Amount | Value | |||||||
Investment Banking & Brokerage–(continued) | ||||||||
Morgan Stanley, | $ | 130,000 | $ | 149,918 | ||||
Series H, Jr. Unsec. Sub. Global Bonds, 5.45%(d) | 30,000 | 30,600 | ||||||
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | 35,000 | 37,011 | ||||||
698,819 | ||||||||
Leisure Facilities–0.03% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 5,000 | 5,175 | ||||||
Life & Health Insurance–3.18% | ||||||||
MetLife Inc., | 110,000 | 106,769 | ||||||
Sr. Unsec. Notes, 6.75%, 06/01/16 | 55,000 | 61,154 | ||||||
Nationwide Financial Services, Inc., | 165,000 | 184,147 | ||||||
Prudential Financial, Inc., | 130,000 | 159,413 | ||||||
Series D, Sr. Unsec. Medium-Term Notes, 7.38%, 06/15/19 | 90,000 | 111,570 | ||||||
623,053 | ||||||||
Managed Health Care–0.25% | ||||||||
Cigna Corp., Sr. Unsec. Notes, 4.50%, 03/15/21 | 45,000 | 49,273 | ||||||
Marine–0.06% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Notes, | 12,000 | 12,615 | ||||||
Metal & Glass Containers–0.09% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/22 | 7,000 | 7,219 | ||||||
Berry Plastics Corp., Sec. Gtd. Notes, 5.50%, 05/15/22 | 11,000 | 11,137 | ||||||
18,356 | ||||||||
Movies & Entertainment–0.84% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.88%, 02/15/22 | 6,000 | 6,285 | ||||||
DreamWorks Animation SKG, Inc., Sr. Unsec. Gtd. Notes, 6.88%, 08/15/20(b) | 12,000 | 13,140 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Global Notes, 5.35%, 12/15/43 | 75,000 | 82,019 | ||||||
Viacom Inc., Sr. Unsec. Global Notes, 5.85%, 09/01/43 | 55,000 | 63,287 | ||||||
164,731 | ||||||||
Multi-Line Insurance–1.99% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 234,756 | ||||||
Genworth Holdings Inc., Sr. Unsec. Gtd. Global Notes, 4.90%, 08/15/23 | 50,000 | 53,791 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Multi-Line Insurance–(continued) | ||||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 4.95%, 04/22/44(b) | $ | 100,000 | $ | 102,103 | ||||
390,650 | ||||||||
Multi-Utilities–0.38% | ||||||||
Enable Midstream Partners L.P., Sr. Unsec. Notes, 3.90%, 05/15/24(b) | 75,000 | 75,315 | ||||||
Office REIT’s–0.23% | ||||||||
Piedmont Operating Partnership L.P., | 45,000 | 46,037 | ||||||
Office Services & Supplies–0.19% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/24 | 35,000 | 36,291 | ||||||
Oil & Gas Drilling–0.91% | ||||||||
Parker Drilling Co., Sr. Unsec. Gtd. Notes, 6.75%, 07/15/22(b) | 2,000 | 2,090 | ||||||
Pioneer Energy Services Corp., Sr. Unsec. Gtd. Notes, 6.13%, 03/15/22(b) | 5,000 | 5,206 | ||||||
Rowan Cos. Inc., Sr. Unsec. Gtd. Notes, 4.75%, 01/15/24 | 60,000 | 63,644 | ||||||
5.85%, 01/15/44 | 100,000 | 108,225 | ||||||
179,165 | ||||||||
Oil & Gas Equipment & Services–0.14% | ||||||||
Exterran Partners L.P./EXLP Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 04/01/21 | 8,000 | 8,120 | ||||||
Gulfmark Offshore Inc., Sr. Unsec. Global Notes, 6.38%, 03/15/22 | 13,000 | 13,585 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 5,000 | 5,237 | ||||||
26,942 | ||||||||
Oil & Gas Exploration & Production–1.03% | ||||||||
Antero Resources Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 12/01/20 | 3,000 | 3,225 | ||||||
Berry Petroleum Co. LLC, Sr. Unsec. Notes, 6.38%, 09/15/22 | 7,000 | 7,490 | ||||||
Bonanza Creek Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 04/15/21 | 12,000 | 12,885 | ||||||
Chesapeake Energy Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 5,000 | 5,825 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 4.38%, 06/01/24 | 55,000 | 56,306 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/22 | 60,000 | 65,390 | ||||||
Halcon Resources Corp., Sr. Unsec. Gtd. Global Notes, 9.75%, 07/15/20 | 7,000 | 7,700 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | 2,000 | 2,242 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 2,000 | 2,138 | ||||||
Rice Energy Inc., Sr. Unsec. Gtd. Notes, 6.25%, 05/01/22(b) | 10,000 | 10,350 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Rosetta Resources, Inc., | $ | 4,000 | $ | 4,135 | ||||
Sr. Unsec. Gtd. Notes, 5.88%, 06/01/22 | 5,000 | 5,275 | ||||||
Sanchez Energy Corp., Sr. Unsec. Gtd. Notes, 6.13%, 01/15/23(b) | 5,000 | 5,175 | ||||||
SandRidge Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 03/15/21 | 13,000 | 14,170 | ||||||
202,306 | ||||||||
Oil & Gas Refining & Marketing–0.66% | ||||||||
Calumet Specialty Products Partners L.P./Calumet Finance Corp., Sr. Unsec. Gtd. Notes, 6.50%, 04/15/21(b) | 15,000 | 15,375 | ||||||
Petronas Capital Ltd. (Malaysia), Sr. Unsec. Gtd. Notes, 5.25%, 08/12/19(b) | 100,000 | 113,719 | ||||||
129,094 | ||||||||
Oil & Gas Storage & Transportation–1.60% | ||||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/20 | 18,000 | 19,305 | ||||||
Crestwood Midstream Partners L.P./ | 18,000 | 18,990 | ||||||
El Paso Pipeline Partners Operating Co. LLC, Sr. Unsec. Gtd. Notes, 4.70%, 11/01/42 | 35,000 | 32,684 | ||||||
Energy Transfer Partners L.P., Sr. Unsec. Global Notes, 6.05%, 06/01/41 | 60,000 | 68,138 | ||||||
Enterprise Products Operating LLC, | 57,000 | 58,996 | ||||||
6.45%, 09/01/40 | 12,000 | 15,193 | ||||||
Penn Virginia Resource Partners L.P./Penn Virginia Resource Finance Corp., | 7,000 | 7,700 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | 2,000 | 2,180 | ||||||
6.88%, 02/01/21 | 5,000 | 5,437 | ||||||
Teekay Corp. (Bermuda), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 5,000 | 5,800 | ||||||
Teekay Offshore Partners L.P./Teekay Offshore Finance Corp. (Bermuda), | 3,000 | 2,999 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., | 3,000 | 3,218 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 10/01/20(b) | 6,000 | 6,330 | ||||||
Western Gas Partners L.P., Sr. Unsec. Notes, 5.45%, 04/01/44 | 60,000 | 66,179 | ||||||
313,149 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Other Diversified Financial Services–3.00% | ||||||||
Citigroup Inc., | $ | 65,000 | $ | 74,971 | ||||
Unsec. Sub. Global Notes, 3.50%, 05/15/23 | 95,000 | 92,741 | ||||||
5.50%, 09/13/25 | 65,000 | 72,616 | ||||||
Series A, Jr. Unsec. Sub. Global Notes, 5.95%(d) | 60,000 | 60,750 | ||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 108,873 | ||||||
JPMorgan Chase & Co., Series R, Jr. Unsec. Sub. Global Notes, 6.00%(d) | 120,000 | 122,850 | ||||||
Voya Financial, Inc., Jr. Unsec. Gtd. Sub. Global Notes, 5.65%, 05/15/53 | 55,000 | 56,100 | ||||||
588,901 | ||||||||
Packaged Foods & Meats–0.85% | ||||||||
Diamond Foods Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 21,000 | 21,945 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.60%, 06/01/44 | 117,000 | 117,829 | ||||||
Post Holdings Inc., | 12,000 | 13,035 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 12/15/22(b) | 6,000 | 6,135 | ||||||
6.75%, 12/01/21(b) | 3,000 | 3,191 | ||||||
Smithfield Foods Inc., Sr. Unsec. Notes, 5.25%, 08/01/18(b) | 2,000 | 2,090 | ||||||
5.88%, 08/01/21(b) | 2,000 | 2,125 | ||||||
166,350 | ||||||||
Paper Packaging–0.23% | ||||||||
Beverage Packaging Holdings Luxembourg II S.A., | 2,000 | 2,065 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 6.00%, 06/15/17(b) | 7,000 | 7,227 | ||||||
Rock-Tenn Co., Sr. Unsec. Gtd. Global Notes, 4.00%, 03/01/23 | 35,000 | 36,011 | ||||||
45,303 | ||||||||
Paper Products–0.11% | ||||||||
Neenah Paper Inc., Sr. Unsec. Gtd. Notes, 5.25%, 05/15/21(b) | 2,000 | 2,040 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 19,000 | 19,902 | ||||||
21,942 | ||||||||
Personal Products–0.67% | ||||||||
Avon Products Inc., Sr. Unsec. Global Notes, 5.00%, 03/15/23 | 75,000 | 76,382 | ||||||
Estee Lauder Cos. Inc. (The), Sr. Unsec. Global Notes, 3.70%, 08/15/42 | 60,000 | 54,467 | ||||||
130,849 | ||||||||
Pharmaceuticals–1.71% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Notes, 3.85%, 06/15/24(b) | 105,000 | 105,793 | ||||||
4.85%, 06/15/44(b) | 60,000 | 60,427 |
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Bristol-Myers Squibb Co., Sr. Unsec. Deb., 6.88%, 08/01/97 | $ | 52,000 | $ | 72,354 | ||||
Perrigo Co. PLC, Sr. Unsec. Gtd. Notes, 4.00%, 11/15/23(b) | 50,000 | 50,827 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/21(b) | 5,000 | 5,450 | ||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, 5.63%, 12/01/21(b) | 14,000 | 14,403 | ||||||
6.38%, 10/15/20(b) | 15,000 | 16,012 | ||||||
6.75%, 08/15/21(b) | 4,000 | 4,280 | ||||||
7.50%, 07/15/21(b) | 5,000 | 5,594 | ||||||
335,140 | ||||||||
Property & Casualty Insurance–1.94% | ||||||||
Allstate Corp. (The), Unsec. Sub. Global Notes, 5.75%, 08/15/53 | 75,000 | 80,906 | ||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 160,000 | 197,805 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 45,000 | 53,269 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | 40,000 | 48,941 | ||||||
380,921 | ||||||||
Real Estate Development–0.03% | ||||||||
AV Homes, Inc., Sr. Unsec. Notes, 8.50%, 07/01/19(b) | 5,000 | 5,094 | ||||||
Regional Banks–1.16% | ||||||||
Fifth Third Bancorp, | 70,000 | 72,300 | ||||||
Unsec. Sub. Notes, 4.30%, 01/16/24 | 55,000 | 57,413 | ||||||
Series J, Jr. Unsec. Sub. Bonds, 4.90%(d) | 45,000 | 45,112 | ||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/21 | 35,000 | 40,286 | ||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 10,000 | 11,500 | ||||||
226,611 | ||||||||
Reinsurance–0.33% | ||||||||
Reinsurance Group of America Inc., | 60,000 | 64,625 | ||||||
Renewable Electricity–0.19% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 36,000 | 36,497 | ||||||
Residential REIT’s–0.59% | ||||||||
Essex Portfolio L.P., Sr. Unsec. Gtd. Global Notes, 3.63%, 08/15/22 | 115,000 | 115,777 | ||||||
Retail REIT’s–0.46% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/18 | 90,000 | 90,450 | ||||||
Security & Alarm Services–0.04% | ||||||||
ADT Corp. (The), Sr. Unsec. Global Notes, 6.25%, 10/15/21 | 7,000 | 7,437 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Semiconductor Equipment–0.22% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, | $ | 18,000 | $ | 19,327 | ||||
6.63%, 06/01/21 | 11,000 | 11,825 | ||||||
Entegris Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/22(b) | 11,000 | 11,358 | ||||||
42,510 | ||||||||
Semiconductors–0.27% | ||||||||
Advanced Micro Devices, Inc., | 10,000 | 10,675 | ||||||
7.00%, 07/01/24(b) | 2,000 | 2,050 | ||||||
Freescale Semiconductor Inc., | 13,000 | 13,943 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.05%, 02/01/20 | 10,000 | 10,900 | ||||||
Micron Technology Inc., Sr. Unsec. Notes, 5.88%, 02/15/22(b) | 15,000 | 16,237 | ||||||
53,805 | ||||||||
Sovereign Debt–0.35% | ||||||||
Uruguay Government International Bond (Uruguay), Sr. Unsec. Bonds, 5.10%, 06/18/50 | 70,000 | 69,300 | ||||||
Specialized Finance–1.94% | ||||||||
Aircastle Ltd., Sr. Unsec. Global Notes, 7.63%, 04/15/20 | 18,000 | 20,970 | ||||||
CIT Group Inc., Sr. Unsec. Notes, 5.50%, 02/15/19(b) | 12,000 | 13,080 | ||||||
CME Group Inc., Sr. Unsec. Global Notes, 5.30%, 09/15/43 | 45,000 | 51,776 | ||||||
Moody’s Corp., | 110,000 | 125,139 | ||||||
Sr. Unsec. Global Notes, 4.88%, 02/15/24 | 158,000 | 169,486 | ||||||
380,451 | ||||||||
Specialized REIT’s–2.50% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 3.50%, 01/31/23 | 50,000 | 49,163 | ||||||
Crown Castle International Corp., Sr. Unsec. Notes, 4.88%, 04/15/22 | 7,000 | 7,263 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | 120,000 | 133,968 | ||||||
EPR Properties, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | 245,000 | 294,057 | ||||||
Weyerhaeuser Real Estate Co., Sr. Unsec. Notes, 5.88%, 06/15/24(b) | 5,000 | 5,156 | ||||||
489,607 | ||||||||
Specialty Chemicals–0.08% | ||||||||
Chemtura Corp., Sr. Unsec. Gtd. Notes, 5.75%, 07/15/21 | 5,000 | 5,225 | ||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/23 | 10,000 | 10,350 | ||||||
15,575 |
Principal Amount | Value | |||||||
Specialty Stores–0.19% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Sub. Notes, 5.88%, 12/15/20(b) | $ | 20,000 | $ | 20,500 | ||||
Outerwall, Inc., Sr. Unsec. Gtd. Global Notes, 6.00%, 03/15/19 | 11,000 | 11,495 | ||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Bonds, 5.50%, 11/01/23 | 6,000 | 6,210 | ||||||
38,205 | ||||||||
Steel–1.08% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | 24,000 | 26,040 | ||||||
6.75%, 02/25/22 | 13,000 | 14,609 | ||||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 08/15/22 | 3,000 | 3,270 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, | 3,000 | 3,206 | ||||||
7.38%, 02/01/20(b) | 18,000 | 19,238 | ||||||
United States Steel Corp., | 5,000 | 5,475 | ||||||
Sr. Unsec. Notes, 7.38%, 04/01/20 | 4,000 | 4,420 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | 55,000 | 59,155 | ||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | 65,000 | 63,027 | ||||||
Walter Energy, Inc., | 8,000 | 8,180 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 8,000 | 4,640 | ||||||
211,260 | ||||||||
Technology Distributors–0.01% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 2,000 | 2,160 | ||||||
Technology Hardware, Storage & Peripherals–0.46% | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(b) | 90,000 | 89,437 | ||||||
Tobacco–0.54% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/05/21 | 95,000 | 104,909 | ||||||
Trading Companies & Distributors–0.75% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, 3.88%, 04/01/21 | 85,000 | 86,780 | ||||||
Aircastle Ltd., Sr. Unsec. Notes, 5.13%, 03/15/21 | 6,000 | 6,225 | ||||||
International Lease Finance Corp., | 10,000 | 10,950 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 30,000 | 37,162 | ||||||
United Rentals North America Inc., Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 5,000 | 5,588 | ||||||
146,705 |
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–1.69% | ||||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Bonds, 6.63%, 12/15/22 | $ | 10,000 | $ | 10,487 | ||||
Intelsat Luxembourg S.A. (Luxembourg), | 19,000 | 20,235 | ||||||
8.13%, 06/01/23 | 6,000 | 6,510 | ||||||
Rogers Communications Inc. (Canada), | 50,000 | 48,290 | ||||||
4.50%, 03/15/43 | 30,000 | 29,267 | ||||||
Rogers Communications Inc. (Canada), | 100,000 | 104,972 | ||||||
SBA Communications Corp., | 4,000 | 4,255 | ||||||
Sr. Unsec. Notes, 4.88%, 07/15/22(b) | 9,000 | 8,977 | ||||||
Sprint Communications Inc., | 12,000 | 12,270 | ||||||
7.00%, 08/15/20 | 10,000 | 11,050 | ||||||
11.50%, 11/15/21 | 2,000 | 2,720 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | 8,000 | 9,260 | ||||||
9.00%, 11/15/18(b) | 7,000 | 8,523 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Notes, 7.25%, 09/15/21(b) | 6,000 | 6,630 | ||||||
7.88%, 09/15/23(b) | 4,000 | 4,470 | ||||||
T-Mobile USA, Inc., | 12,000 | 12,825 | ||||||
6.63%, 04/01/23 | 12,000 | 13,050 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/28/21 | 6,000 | 6,510 | ||||||
6.84%, 04/28/23 | 10,000 | 10,912 | ||||||
331,213 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes |
| 16,628,187 | ||||||
U.S. Treasury Securities–11.36% |
| |||||||
U.S. Treasury Bills–0.15% | ||||||||
0.04%, 11/13/14(f)(g) | 30,000 | 29,995 | ||||||
U.S. Treasury Notes–10.97% | ||||||||
1.63%, 06/30/19 | 546,000 | 545,980 | ||||||
2.50%, 05/15/24 | 1,606,000 | 1,603,086 | ||||||
2,149,066 | ||||||||
U.S. Treasury Bonds–0.24% | ||||||||
3.63%, 02/15/44 | 45,000 | 47,402 | ||||||
Total U.S. Treasury Securities |
| 2,226,463 | ||||||
Shares | ||||||||
Preferred Stocks–1.00% |
| |||||||
Diversified Banks–0.03% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 200 | 5,188 | ||||||
Investment Banking & Brokerage–0.69% | ||||||||
Morgan Stanley, 6.88% Pfd. | 5,000 | 135,850 |
Shares | Value | |||||||
Reinsurance–0.28% | ||||||||
Reinsurance Group of America, Inc., 6.20% Sr. Unsec. Sub. Pfd. | 2,000 | $ | 54,880 | |||||
Total Preferred Stocks |
| 195,918 | ||||||
Principal Amount | ||||||||
Municipal Obligations–0.81% |
| |||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17 (e) | $ | 65,000 | 41,603 | |||||
Florida Hurricane Catastrophe Fund Finance Corp.; Series 2013 A, RB, | 55,000 | 55,589 | ||||||
Georgia (State of) Municipal Electric Authority (Plant Vogtle Units 3 & 4 Project J); Series 2010 A, Taxable Build America RB, 6.64%, 04/01/57 | 50,000 | 61,270 | ||||||
Total Municipal Obligations |
| 158,462 | ||||||
Asset-Backed Securities–0.67% |
| |||||||
Credit Suisse Mortgage Trust, Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.62%, 09/26/34(b)(h) | 28,430 | 28,972 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.61%, 12/25/34(h) | 100,987 | 103,221 | ||||||
Total Asset-Backed Securities |
| 132,193 | ||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.51% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.24% | ||||||||
Pass Through Ctfs., | 3,751 | 4,203 | ||||||
6.00%, 05/01/17 to 12/01/31 | 32,258 | 35,968 | ||||||
5.50%, 09/01/17 | 7,331 | 7,784 | ||||||
47,955 | ||||||||
Federal National Mortgage Association (FNMA)–0.20% | ||||||||
Pass Through Ctfs., 7.00%, 02/01/16 to 09/01/32 | 12,925 | 13,794 | ||||||
6.50%, 05/01/16 to 09/01/31 | 2,750 | 3,040 | ||||||
5.00%, 11/01/18 | 10,191 | 10,848 | ||||||
7.50%, 04/01/29 | 3,905 | 4,425 | ||||||
8.00%, 04/01/32 | 5,564 | 6,119 | ||||||
38,226 | ||||||||
Government National Mortgage Association (GNMA)–0.07% | ||||||||
Pass Through Ctfs., | 4,579 | 5,054 | ||||||
8.50%, 11/15/24 | 1,331 | 1,337 | ||||||
7.00%, 07/15/31 to 08/15/31 | 1,488 | 1,708 | ||||||
6.50%, 11/15/31 to 03/15/32 | 3,842 | 4,381 | ||||||
6.00%, 11/15/32 | 1,516 | 1,745 | ||||||
14,225 | ||||||||
Total U.S. Government Sponsored Agency Mortgage- |
| 100,406 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Non-U.S. Dollar Denominated Bonds & Notes–0.04%(i) |
| |||||||
Casinos & Gaming–0.04% | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22 (Cost $7,389)(b) | CAD | 7,000 | $ | 7,028 | ||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.02% |
| |||||||
Broadcasting–0.01% | ||||||||
Adelphia Communications Corp.(j) | 900 | 702 | ||||||
Adelphia Recovery Trust– | 87,412 | 874 | ||||||
1,576 |
Shares | Value | |||||||
Paper Products–0.01% | ||||||||
NewPage Holdings Inc. | 28 | $ | 1,960 | |||||
Total Common Stocks & Other Equity Interests |
| 3,536 | ||||||
TOTAL INVESTMENTS–99.24% |
| 19,452,193 | ||||||
OTHER ASSETS LESS LIABILITIES–0.76% |
| 149,339 | ||||||
NET ASSETS–100.00% |
| $ | 19,601,532 |
Investment Abbreviations:
CAD | – Canadian Dollar | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
PIK | – Payment in Kind |
RB | – Revenue Bonds | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $4,789,360, which represented 24.43% of the Fund’s Net Assets. |
(c) | Step coupon bond. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(d) | Perpetual bond with no specified maturity date. |
(e) | 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, 2014 was $41,603, which represented less than 1% of the Fund’s Net Assets. |
(f) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(g) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
(h) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2014. |
(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) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
(l) | All or a portion of this security is Payment-in-Kind. |
Issuer | Cash Rate | PIK Rate | ||||||
Central European Media Enterprises Ltd. | 0.00 | % | 15 | % |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2014
U.S. Dollar Denominated Bonds and Notes | 84.8 | % | ||
U.S. Treasury Securities | 11.4 | |||
Preferred Stocks | 1.0 | |||
Security Types Each Less Than 1% of Portfolio | 2.0 | |||
Other Assets Less Liabilities | 0.8 |
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, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $18,358,610) | $ | 19,452,193 | ||
Foreign currencies, at value (Cost $13,018) | 13,048 | |||
Receivable for: | ||||
Investments sold | 1,040,988 | |||
Fund shares sold | 724 | |||
Dividends and interest | 227,036 | |||
Premiums paid on swap agreements | 11,820 | |||
Investment for trustee deferred compensation and retirement plans | 68,340 | |||
Other assets | 369 | |||
Total assets | 20,814,518 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 910,338 | |||
Fund shares reacquired | 31,340 | |||
Amount due custodian | 121,957 | |||
Swaps agreements | 76 | |||
Variation margin — futures | 3,836 | |||
Accrued fees to affiliates | 19,063 | |||
Accrued trustees’ and officers’ fees and benefits | 480 | |||
Accrued other operating expenses | 39,176 | |||
Trustee deferred compensation and retirement plans | 70,411 | |||
Unrealized depreciation on swap transactions — OTC | 16,309 | |||
Total liabilities | 1,212,986 | |||
Net assets applicable to shares outstanding | $ | 19,601,532 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 25,576,571 | ||
Undistributed net investment income | 1,209,499 | |||
Undistributed net realized gain (loss) | (8,274,598 | ) | ||
Net unrealized appreciation | 1,090,060 | |||
$ | 19,601,532 | |||
Net Assets: |
| |||
Series I | $ | 19,426,760 | ||
Series II | $ | 174,772 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,920,520 | |||
Series II | 26,455 | |||
Series I: | ||||
Net asset value per share | $ | 6.65 | ||
Series II: | ||||
Net asset value per share | $ | 6.61 |
Investment income: |
| |||
Interest | $ | 450,560 | ||
Dividends | 17,775 | |||
Dividends from affiliated money market funds | 160 | |||
Total investment income | 468,495 | |||
Expenses: | ||||
Advisory fees | 58,575 | |||
Administrative services fees | 44,742 | |||
Custodian fees | 8,478 | |||
Distribution fees — Series II | 204 | |||
Transfer agent fees | 4,305 | |||
Trustees’ and officers’ fees and benefits | 12,497 | |||
Professional services fees | 24,599 | |||
Other | 26,744 | |||
Total expenses | 180,144 | |||
Less: Fees waived and expenses reimbursed | (107,289 | ) | ||
Net expenses | 72,855 | |||
Net investment income | 395,640 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 337,366 | |||
Foreign currencies | 25 | |||
Futures contracts | (47,188 | ) | ||
Swap agreements | (3,138 | ) | ||
287,065 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 612,750 | |||
Foreign currencies | (15 | ) | ||
Futures contracts | 2,348 | |||
Swap agreements | 1,952 | |||
617,035 | ||||
Net realized and unrealized gain | 904,100 | |||
Net increase in net assets resulting from operations | $ | 1,299,740 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 395,640 | $ | 889,582 | ||||
Net realized gain | 287,065 | 510,812 | ||||||
Change in net unrealized appreciation (depreciation) | 617,035 | (1,412,429 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 1,299,740 | (12,035 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (966,718 | ) | |||||
Series ll | — | (9,476 | ) | |||||
Total distributions from net investment income | — | (976,194 | ) | |||||
Share transactions–net: | ||||||||
Series l | (1,533,542 | ) | (2,091,881 | ) | ||||
Series ll | (7,660 | ) | (94,274 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (1,541,202 | ) | (2,186,155 | ) | ||||
Net increase (decrease) in net assets | (241,462 | ) | (3,174,384 | ) | ||||
Net assets: | ||||||||
Beginning of period | 19,842,994 | 23,017,378 | ||||||
End of period (includes undistributed net investment income of $1,209,499 and $813,859, respectively) | $ | 19,601,532 | $ | 19,842,994 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Diversified Income Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Diversified Income Fund
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Invesco V.I. Diversified Income Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
L. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have |
Invesco V.I. Diversified Income Fund
open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate or return of an underlying asset, in a particular foreign currency, or in a “basket” of securities representing a particular index.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
N. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
O. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.60% | |||
Over $250 million | 0.55% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least April 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed
Invesco V.I. Diversified Income Fund
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 Invesco continues the fee waiver agreement, it will terminate on April 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $58,575 and reimbursed Fund expenses of $48,714.
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, 2014, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $19,947 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, 2014, 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, 2014, 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, 2014. 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 | $ | 195,918 | $ | 3,536 | $ | — | $ | 199,454 | ||||||||
U.S. Treasury Securities | — | 2,226,463 | — | 2,226,463 | ||||||||||||
Corporate Debt Securities | — | 16,635,215 | 0 | 16,635,215 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 100,406 | — | 100,406 | ||||||||||||
Asset-Backed Securities | — | 132,193 | — | 132,193 | ||||||||||||
Municipal Obligations | — | 158,462 | — | 158,462 | ||||||||||||
195,918 | 19,256,275 | 0 | 19,452,193 | |||||||||||||
Futures* | 12,749 | — | — | 12,749 | ||||||||||||
Swap Agreements* | — | (16,309 | ) | — | (16,309 | ) | ||||||||||
Total Investments | $ | 208,667 | $ | 19,239,966 | $ | 0 | $ | 19,448,633 |
* | Unrealized appreciation (depreciation). |
Invesco V.I. Diversified Income Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk | ||||||||
Swap agreements(a) | $ | — | $ | (16,309 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | 13,146 | (397 | ) | |||||
Total | $ | 13,146 | $ | (16,706 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized depreciation on swap transactions-OTC. |
(b) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||
Futures | Swap Agreements | |||||||
Realized Gain (Loss) | ||||||||
Credit risk | $ | — | $ | (3,138 | ) | |||
Interest rate risk | (47,188 | ) | — | |||||
Change in Unrealized Appreciation | ||||||||
Credit risk | $ | — | $ | 1,952 | ||||
Interest rate risk | 2,348 | — | ||||||
Total | $ | (44,840 | ) | $ | (1,186 | ) |
The table below summarizes the average notional value of futures contracts and swap agreements outstanding during the period.
Futures | Swap Agreements | |||||||
Average notional value | $ | 2,971,872 | $ | 250,000 |
Open Futures Contracts at Period-End — Interest Risk | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
U.S. Treasury 5 Year Notes | Long | 3 | September-2014 | $ | 358,383 | $ | (54 | ) | ||||||||||||
U.S. Treasury Long Bonds | Long | 5 | September-2014 | 685,938 | 5,263 | |||||||||||||||
U.S. Ultra Bond | Short | 7 | September-2014 | (1,049,563 | ) | (343 | ) | |||||||||||||
U.S. Treasury 10 Year Notes | Short | 11 | September-2014 | (1,376,891 | ) | 7,883 | ||||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | 12,749 |
Open Credit Default Swap Agreements at Period-End | ||||||||||||||||||||||||||||||
Counterparty | Reference Entity | Buy/Sell Protection | (Pay)/Receive Fixed Rate | Expiration Date | Implied Credit | Notional Value | Upfront Payments | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Bank of America Securities LLC | Citigroup Inc. | Buy | (1.00 | )% | 06/20/17 | 0.39 | % | $ | 250,000 | $ | 11,820 | $ | (16,309 | ) |
(a) | Implied credit spreads represent the current level as of June 30, 2014 at which protection could be bought or sold given the terms of the existing credit default swap contract and serve as an indicator of the current status of the payment/performance risk of the credit default swap contract. An implied credit spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets generally. |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Diversified Income Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities(a) | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of America Securities LLC | $ | 11,820 | $ | (11,820 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Merrill Lynch & Co., Inc. | 13,146 | (397 | ) | 12,749 | — | — | 12,749 | |||||||||||||||||
Total | $ | 24,966 | $ | (12,217 | ) | $ | 12,749 | $ | — | $ | — | $ | 12,749 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities(a) | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of America Securities LLC | $ | 16,385 | $ | (11,820 | ) | $ | 4,565 | $ | — | $ | — | $ | 4,565 | |||||||||||
Merrill Lynch & Co., Inc. | 397 | (397 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 16,782 | $ | (12,217 | ) | $ | 4,565 | $ | — | $ | — | $ | 4,565 |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. |
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 1,183,108 | $ | — | $ | 1,183,108 | ||||||
December 31, 2017 | 7,359,092 | — | 7,359,092 | |||||||||
$ | 8,542,200 | $ | — | $ | 8,542,200 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Diversified Income Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2014 was $11,329,352 and $13,736,431, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $15,408,012 and $14,073,899, 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 | $ | 1,198,576 | ||
Aggregate unrealized (depreciation) of investment securities | (111,645 | ) | ||
Net unrealized appreciation of investment securities | $ | 1,086,931 |
Cost of investments for tax purposes is $18,365,262.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 60,327 | $ | 388,810 | 132,970 | $ | 858,712 | ||||||||||
Series II | 1,534 | 10,003 | 551 | 3,523 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 157,960 | 966,718 | ||||||||||||
Series II | — | — | 1,556 | 9,476 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (298,874 | ) | (1,922,352 | ) | (608,755 | ) | (3,917,311 | ) | ||||||||
Series II | (2,824 | ) | (17,663 | ) | (16,908 | ) | (107,273 | ) | ||||||||
Net increase (decrease) in share activity | (239,837 | ) | $ | (1,541,202 | ) | (332,626 | ) | $ | (2,186,155 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 85% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net Investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 6.23 | $ | 0.13 | $ | 0.29 | $ | 0.42 | $ | — | $ | 6.65 | 6.74 | % | $ | 19,427 | 0.74 | %(d) | 1.84 | %(d) | 4.06 | %(d) | 141 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 6.54 | 0.27 | (0.27 | ) | 0.00 | (0.31 | ) | 6.23 | 0.05 | 19,671 | 0.75 | 1.76 | 4.18 | 150 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.19 | 0.27 | 0.39 | 0.66 | (0.31 | ) | 6.54 | 10.71 | 22,741 | 0.75 | 1.49 | 4.19 | 66 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 6.10 | 0.29 | 0.13 | 0.42 | (0.33 | ) | 6.19 | 7.02 | 22,333 | 0.75 | 1.46 | 4.71 | 59 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.88 | 0.31 | 0.28 | 0.59 | (0.37 | ) | 6.10 | 10.05 | 23,229 | 0.75 | 1.36 | 5.03 | 87 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.87 | 0.35 | 0.29 | 0.64 | (0.63 | ) | 5.88 | 10.89 | 24,299 | 0.74 | 1.48 | 5.91 | 200 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 6.19 | 0.12 | 0.30 | 0.42 | — | 6.61 | 6.79 | 175 | 0.99 | (d) | 2.09 | (d) | 3.81 | (d) | 141 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 6.50 | 0.25 | (0.27 | ) | (0.02 | ) | (0.29 | ) | 6.19 | (0.26 | ) | 172 | 1.00 | 2.01 | 3.93 | 150 | ||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.16 | 0.25 | 0.38 | 0.63 | (0.29 | ) | 6.50 | 10.38 | 277 | 1.00 | 1.74 | 3.94 | 66 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 6.07 | 0.28 | 0.13 | 0.41 | (0.32 | ) | 6.16 | 6.72 | 227 | 1.00 | 1.71 | 4.46 | 59 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.85 | 0.29 | 0.28 | 0.57 | (0.35 | ) | 6.07 | 9.70 | 232 | 1.00 | 1.61 | 4.78 | 87 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 5.83 | 0.34 | 0.29 | 0.63 | (0.61 | ) | 5.85 | 10.70 | 291 | 0.99 | 1.73 | 5.66 | 200 |
(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 $19,522 and $165 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,067.40 | $ | 3.79 | $ | 1,021.12 | $ | 3.71 | 0.74 | % | ||||||||||||
Series II | 1,000.00 | 1,067.90 | 5.08 | 1,019.89 | 4.96 | 0.99 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Diversified Income Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide
advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Corporate Debt BBB-Rated Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period, the first quintile for the three year period and the third quintile for the five year period (the first quintile being the best
Invesco V.I. Diversified Income Fund
performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three, and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was the same as the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund and one off-shore fund. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from
economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of 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 transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not
execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
Invesco V.I. Diversified Income Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Equally-Weighted S&P 500 Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. MS-VIEWSP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.36 | % | |||
Series II Shares | 8.21 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
S&P 500 Equal Weight Index‚ (Style-Specific Index) | 8.66 | ||||
Lipper VUF Multi-Cap Core Funds Indexn (Peer Group Index) | 5.15 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500® Equal Weight Index is the equally weighted version of the S&P 500 Index.
The Lipper VUF Multi-Cap Core Funds Index is an unmanaged index considered representative of multi-cap core variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (11/9/94) | 11.16 | % | |||
10 Years | 9.69 | ||||
5 Years | 21.81 | ||||
1 Year | 26.65 | ||||
Series II Shares | |||||
Inception (7/24/00) | 8.78 | % | |||
10 Years | 9.42 | ||||
5 Years | 21.52 | ||||
1 Year | 26.31 |
Effective June 1, 2010, Class X and Class Y shares of the predecessor fund, Morgan Stanley V.I. Select Dimensions Equally-Weighted S&P 500 Fund, advised by Morgan Stanley Investment Advisors Inc. were reorganized into Series I and Series II shares, respectively, of Invesco V.I. Select Dimensions Equally-Weighted S&P 500 Fund (renamed Invesco V.I. Equally-Weighted S&P 500 Fund on April 30, 2012). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Equally-Weighted S&P 500 Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.59% and 0.84%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Equally-Weighted S&P 500 Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Equally-Weighted S&P 500 Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.35% |
| |||||||
Advertising–0.39% | ||||||||
Interpublic Group of Cos., Inc. (The) | 7,451 | $ | 145,369 | |||||
Omnicom Group Inc. | 2,075 | 147,782 | ||||||
293,151 | ||||||||
Aerospace & Defense–2.09% | ||||||||
Boeing Co. (The) | 1,101 | 140,080 | ||||||
General Dynamics Corp. | 1,222 | 142,424 | ||||||
Honeywell International Inc. | 1,553 | 144,351 | ||||||
L-3 Communications Holdings, Inc. | 1,160 | 140,070 | ||||||
Lockheed Martin Corp. | 888 | 142,728 | ||||||
Northrop Grumman Corp. | 1,206 | 144,274 | ||||||
Precision Castparts Corp. | 551 | 139,073 | ||||||
Raytheon Co. | 1,508 | 139,113 | ||||||
Rockwell Collins, Inc. | 1,844 | 144,090 | ||||||
Textron Inc. | 3,683 | 141,022 | ||||||
United Technologies Corp. | 1,247 | 143,966 | ||||||
1,561,191 | ||||||||
Agricultural & Farm Machinery–0.20% | ||||||||
Deere & Co. | 1,610 | 145,786 | ||||||
Agricultural Products–0.20% | ||||||||
Archer-Daniels-Midland Co. | 3,324 | 146,622 | ||||||
Air Freight & Logistics–0.80% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,350 | 149,907 | ||||||
Expeditors International of Washington, Inc. | 3,262 | 144,050 | ||||||
FedEx Corp. | 1,038 | 157,132 | ||||||
United Parcel Service, Inc.–Class B | 1,443 | 148,138 | ||||||
599,227 | ||||||||
Airlines–0.39% | ||||||||
Delta Air Lines, Inc. | 3,714 | 143,806 | ||||||
Southwest Airlines Co. | 5,541 | 148,831 | ||||||
292,637 | ||||||||
Aluminum–0.20% | ||||||||
Alcoa Inc. | 10,039 | 149,481 | ||||||
Apparel Retail–0.98% | ||||||||
Gap, Inc. (The) | 3,546 | 147,407 | ||||||
L Brands, Inc. | 2,543 | 149,173 | ||||||
Ross Stores, Inc. | 2,171 | 143,568 | ||||||
TJX Cos., Inc. (The) | 2,660 | 141,379 | ||||||
Urban Outfitters, Inc.(b) | 4,348 | 147,223 | ||||||
728,750 | ||||||||
Apparel, Accessories & Luxury Goods–1.35% | ||||||||
Coach, Inc. | 3,701 | 126,537 | ||||||
Fossil Group, Inc.(b) | 1,368 | 142,983 | ||||||
Michael Kors Holdings Ltd.(b) | 1,551 | 137,496 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–(continued) | ||||||||
PVH Corp. | 1,250 | $ | 145,750 | |||||
Ralph Lauren Corp. | 948 | 152,334 | ||||||
Under Armour, Inc.–Class A(b) | 2,534 | 150,748 | ||||||
VF Corp. | 2,364 | 148,932 | ||||||
1,004,780 | ||||||||
Application Software–1.01% | ||||||||
Adobe Systems Inc.(b) | 2,181 | 157,817 | ||||||
Autodesk, Inc.(b) | 2,686 | 151,437 | ||||||
Citrix Systems, Inc.(b) | 2,289 | 143,177 | ||||||
Intuit Inc. | 1,844 | 148,497 | ||||||
Salesforce.com, Inc.(b) | 2,683 | 155,829 | ||||||
756,757 | ||||||||
Asset Management & Custody Banks–2.02% | ||||||||
Affiliated Managers Group, Inc.(b) | 748 | 153,639 | ||||||
Ameriprise Financial, Inc. | 1,255 | 150,600 | ||||||
Bank of New York Mellon Corp. (The) | 4,122 | 154,493 | ||||||
BlackRock, Inc. | 469 | 149,892 | ||||||
Franklin Resources, Inc. | 2,619 | 151,483 | ||||||
Invesco Ltd.(c) | 3,914 | 147,753 | ||||||
Legg Mason, Inc. | 2,935 | 150,595 | ||||||
Northern Trust Corp. | 2,343 | 150,444 | ||||||
State Street Corp. | 2,199 | 147,905 | ||||||
T. Rowe Price Group Inc. | 1,780 | 150,250 | ||||||
1,507,054 | ||||||||
Auto Parts & Equipment–0.59% | ||||||||
BorgWarner, Inc. | 2,238 | 145,895 | ||||||
Delphi Automotive PLC (United Kingdom) | 2,139 | 147,035 | ||||||
Johnson Controls, Inc. | 2,934 | 146,495 | ||||||
439,425 | ||||||||
Automobile Manufacturers–0.40% | ||||||||
Ford Motor Co. | 8,802 | 151,747 | ||||||
General Motors Co. | 4,078 | 148,031 | ||||||
299,778 | ||||||||
Automotive Retail–0.84% | ||||||||
AutoNation, Inc.(b) | 2,634 | 157,197 | ||||||
AutoZone, Inc.(b) | 278 | 149,075 | ||||||
CarMax, Inc.(b) | 3,298 | 171,529 | ||||||
O’Reilly Automotive, Inc.(b) | 974 | 146,684 | ||||||
624,485 | ||||||||
Biotechnology–1.43% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 889 | 138,906 | ||||||
Amgen Inc. | 1,255 | 148,554 | ||||||
Biogen Idec Inc.(b) | 470 | 148,196 | ||||||
Celgene Corp.(b) | 1,820 | 156,302 | ||||||
Gilead Sciences, Inc.(b) | 1,805 | 149,653 |
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) | ||||||||
Regeneron Pharmaceuticals, Inc.(b) | 475 | $ | 134,173 | |||||
Vertex Pharmaceuticals Inc.(b) | 1,983 | 187,750 | ||||||
1,063,534 | ||||||||
Brewers–0.20% | ||||||||
Molson Coors Brewing Co.–Class B | 2,046 | 151,731 | ||||||
Broadcasting–0.59% | ||||||||
CBS Corp.–Class B | 2,411 | 149,819 | ||||||
Discovery Communications, Inc.–Class A(b) | 1,874 | 139,201 | ||||||
Scripps Networks Interactive Inc.–Class A | 1,883 | 152,787 | ||||||
441,807 | ||||||||
Building Products–0.40% | ||||||||
Allegion PLC | 2,608 | 147,822 | ||||||
Masco Corp. | 6,671 | 148,096 | ||||||
295,918 | ||||||||
Cable & Satellite–0.80% | ||||||||
Cablevision Systems Corp.–Class A | 8,564 | 151,155 | ||||||
Comcast Corp.–Class A | 2,777 | 149,069 | ||||||
DIRECTV(b) | 1,753 | 149,023 | ||||||
Time Warner Cable Inc. | 1,024 | 150,835 | ||||||
600,082 | ||||||||
Casinos & Gaming–0.20% | ||||||||
Wynn Resorts Ltd. | 724 | 150,273 | ||||||
Coal & Consumable Fuels–0.39% | ||||||||
CONSOL Energy Inc. | 3,162 | 145,673 | ||||||
Peabody Energy Corp. | 8,681 | 141,935 | ||||||
287,608 | ||||||||
Commodity Chemicals–0.19% | ||||||||
LyondellBasell Industries N.V.–Class A | 1,472 | 143,741 | ||||||
Communications Equipment–1.17% | ||||||||
Cisco Systems, Inc. | 5,901 | 146,640 | ||||||
F5 Networks, Inc.(b) | 1,293 | 144,092 | ||||||
Harris Corp. | 1,916 | 145,137 | ||||||
Juniper Networks, Inc.(b) | 5,928 | 145,473 | ||||||
Motorola Solutions, Inc. | 2,183 | 145,322 | ||||||
QUALCOMM, Inc. | 1,841 | 145,807 | ||||||
872,471 | ||||||||
Computer & Electronics Retail–0.43% | ||||||||
Best Buy Co., Inc. | 5,089 | 157,810 | ||||||
GameStop Corp.–Class A | 3,940 | 159,452 | ||||||
317,262 | ||||||||
Construction & Engineering–0.58% | ||||||||
Fluor Corp. | 1,870 | 143,803 | ||||||
Jacobs Engineering Group, Inc.(b) | 2,662 | 141,831 | ||||||
Quanta Services, Inc.(b) | 4,298 | 148,625 | ||||||
434,259 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.78% | ||||||||
Caterpillar Inc. | 1,364 | $ | 148,226 | |||||
Cummins Inc. | 933 | 143,953 | ||||||
Joy Global Inc. | 2,386 | 146,930 | ||||||
PACCAR Inc. | 2,303 | 144,697 | ||||||
583,806 | ||||||||
Construction Materials–0.19% | ||||||||
Vulcan Materials Co. | 2,251 | 143,501 | ||||||
Consumer Electronics–0.40% | ||||||||
Garmin Ltd. | 2,459 | 149,753 | ||||||
Harman International Industries, Inc. | 1,414 | 151,906 | ||||||
301,659 | ||||||||
Consumer Finance–0.80% | ||||||||
American Express Co. | 1,541 | 146,195 | ||||||
Capital One Financial Corp. | 1,810 | 149,506 | ||||||
Discover Financial Services | 2,388 | 148,008 | ||||||
Navient Corp. | 8,744 | 154,856 | ||||||
598,565 | ||||||||
Data Processing & Outsourced Services–2.18% | ||||||||
Alliance Data Systems Corp.(b) | 539 | 151,594 | ||||||
Automatic Data Processing, Inc. | 1,848 | 146,509 | ||||||
Computer Sciences Corp. | 2,303 | 145,550 | ||||||
Fidelity National Information Services, Inc. | 2,706 | 148,127 | ||||||
Fiserv, Inc.(b) | 2,428 | 146,457 | ||||||
MasterCard, Inc.–Class A | 1,922 | 141,209 | ||||||
Paychex, Inc. | 3,546 | 147,372 | ||||||
Total System Services, Inc. | 4,780 | 150,140 | ||||||
Visa Inc.–Class A | 689 | 145,179 | ||||||
Western Union Co. (The) | 9,059 | 157,083 | ||||||
Xerox Corp. | 11,560 | 143,806 | ||||||
1,623,026 | ||||||||
Department Stores–0.59% | ||||||||
Kohl’s Corp. | 2,796 | 147,293 | ||||||
Macy’s, Inc. | 2,539 | 147,313 | ||||||
Nordstrom, Inc. | 2,147 | 145,846 | ||||||
440,452 | ||||||||
Distillers & Vintners–0.40% | ||||||||
Brown-Forman Corp.–Class B | 1,555 | 146,435 | ||||||
Constellation Brands, Inc.–Class A(b) | 1,764 | 155,461 | ||||||
301,896 | ||||||||
Distributors–0.20% | ||||||||
Genuine Parts Co. | 1,712 | 150,314 | ||||||
Diversified Banks–0.98% | ||||||||
Bank of America Corp. | 9,441 | 145,108 | ||||||
Comerica Inc. | 2,909 | 145,915 | ||||||
JPMorgan Chase & Co. | 2,555 | 147,219 | ||||||
U.S. Bancorp | 3,384 | 146,595 | ||||||
Wells Fargo & Co. | 2,808 | 147,589 | ||||||
732,426 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Diversified Chemicals–0.75% | ||||||||
Dow Chemical Co. (The) | 2,781 | $ | 143,110 | |||||
E. I. du Pont de Nemours and Co. | 2,134 | 139,649 | ||||||
Eastman Chemical Co. | 1,640 | 143,254 | ||||||
FMC Corp. | 1,887 | 134,336 | ||||||
560,349 | ||||||||
Diversified Metals & Mining–0.21% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 4,291 | 156,622 | ||||||
Diversified REIT’s–0.20% | ||||||||
Vornado Realty Trust | 1,394 | 148,782 | ||||||
Diversified Support Services–0.42% | ||||||||
Cintas Corp. | 2,309 | 146,714 | ||||||
Iron Mountain Inc. | 4,702 | 166,686 | ||||||
313,400 | ||||||||
Drug Retail–0.39% | ||||||||
CVS Caremark Corp. | 1,911 | 144,032 | ||||||
Walgreen Co. | 1,995 | 147,889 | ||||||
291,921 | ||||||||
Education Services–0.20% | ||||||||
Graham Holdings Co.–Class B | 208 | 149,367 | ||||||
Electric Utilities–2.65% | ||||||||
American Electric Power Co., Inc. | 2,774 | 154,706 | ||||||
Duke Energy Corp. | 2,067 | 153,351 | ||||||
Edison International | 2,655 | 154,282 | ||||||
Entergy Corp. | 1,863 | 152,934 | ||||||
Exelon Corp. | 4,080 | 148,838 | ||||||
FirstEnergy Corp. | 4,264 | 148,046 | ||||||
NextEra Energy, Inc. | 1,505 | 154,232 | ||||||
Northeast Utilities | 3,213 | 151,879 | ||||||
Pepco Holdings, Inc. | 5,327 | 146,386 | ||||||
Pinnacle West Capital Corp. | 2,688 | 155,474 | ||||||
PPL Corp. | 4,283 | 152,175 | ||||||
Southern Co. (The) | 3,348 | 151,932 | ||||||
Xcel Energy, Inc. | 4,749 | 153,060 | ||||||
1,977,295 | ||||||||
Electrical Components & Equipment–0.78% | ||||||||
AMETEK, Inc. | 2,743 | 143,404 | ||||||
Eaton Corp. PLC | 1,939 | 149,652 | ||||||
Emerson Electric Co. | 2,192 | 145,461 | ||||||
Rockwell Automation, Inc. | 1,158 | 144,935 | ||||||
583,452 | ||||||||
Electronic Components–0.40% | ||||||||
Amphenol Corp.–Class A | 1,504 | 144,896 | ||||||
Corning Inc. | 6,875 | 150,906 | ||||||
295,802 | ||||||||
Electronic Equipment & Instruments–0.19% | ||||||||
FLIR Systems, Inc. | 4,073 | 141,455 |
Shares | Value | |||||||
Electronic Manufacturing Services–0.40% | ||||||||
Jabil Circuit, Inc. | 7,365 | $ | 153,928 | |||||
TE Connectivity Ltd. (Switzerland) | 2,371 | 146,623 | ||||||
300,551 | ||||||||
Environmental & Facilities Services–0.60% | ||||||||
Republic Services, Inc. | 3,970 | 150,741 | ||||||
Stericycle, Inc.(b) | 1,229 | 145,538 | ||||||
Waste Management, Inc. | 3,306 | 147,877 | ||||||
444,156 | ||||||||
Fertilizers & Agricultural Chemicals–0.60% | ||||||||
CF Industries Holdings, Inc. | 619 | 148,888 | ||||||
Monsanto Co. | 1,217 | 151,809 | ||||||
Mosaic Co. (The) | 3,003 | 148,498 | ||||||
449,195 | ||||||||
Food Distributors–0.20% | ||||||||
Sysco Corp. | 3,947 | 147,815 | ||||||
Food Retail–0.58% | ||||||||
Kroger Co. (The) | 3,091 | 152,788 | ||||||
Safeway Inc. | 4,276 | 146,838 | ||||||
Whole Foods Market, Inc. | 3,460 | 133,660 | ||||||
433,286 | ||||||||
Footwear–0.20% | ||||||||
NIKE, Inc.–Class B | 1,953 | 151,455 | ||||||
Gas Utilities–0.20% | ||||||||
AGL Resources Inc. | 2,740 | 150,782 | ||||||
General Merchandise Stores–0.77% | ||||||||
Dollar General Corp.(b) | 2,401 | 137,721 | ||||||
Dollar Tree, Inc.(b) | 2,703 | 147,205 | ||||||
Family Dollar Stores, Inc. | 2,186 | 144,582 | ||||||
Target Corp. | 2,546 | 147,541 | ||||||
577,049 | ||||||||
Gold–0.21% | ||||||||
Newmont Mining Corp. | 6,229 | 158,466 | ||||||
Health Care Distributors–0.79% | ||||||||
AmerisourceBergen Corp. | 2,030 | 147,500 | ||||||
Cardinal Health, Inc. | 2,151 | 147,472 | ||||||
McKesson Corp. | 797 | 148,409 | ||||||
Patterson Cos. Inc. | 3,764 | 148,716 | ||||||
592,097 | ||||||||
Health Care Equipment–2.85% | ||||||||
Abbott Laboratories | 3,669 | 150,062 | ||||||
Baxter International Inc. | 1,991 | 143,949 | ||||||
Becton, Dickinson and Co. | 1,238 | 146,455 | ||||||
Boston Scientific Corp.(b) | 11,388 | 145,425 | ||||||
C.R. Bard, Inc. | 1,060 | 151,591 | ||||||
CareFusion Corp.(b) | 3,411 | 151,278 | ||||||
Covidien PLC | 2,024 | 182,524 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Health Care Equipment–(continued) | ||||||||
Edwards Lifesciences Corp.(b) | 1,859 | $ | 159,576 | |||||
Intuitive Surgical, Inc.(b) | 367 | 151,131 | ||||||
Medtronic, Inc. | 2,401 | 153,088 | ||||||
St. Jude Medical, Inc. | 2,239 | 155,051 | ||||||
Stryker Corp. | 1,746 | 147,223 | ||||||
Varian Medical Systems, Inc.(b) | 1,780 | 147,989 | ||||||
Zimmer Holdings, Inc. | 1,376 | 142,911 | ||||||
2,128,253 | ||||||||
Health Care Facilities–0.20% | ||||||||
Tenet Healthcare Corp.(b) | 3,102 | 145,608 | ||||||
Health Care REIT’s–0.59% | ||||||||
HCP, Inc. | 3,512 | 145,326 | ||||||
Health Care REIT, Inc. | 2,307 | 144,580 | ||||||
Ventas, Inc. | 2,288 | 146,661 | ||||||
436,567 | ||||||||
Health Care Services–0.78% | ||||||||
DaVita HealthCare Partners Inc.(b) | 2,059 | 148,907 | ||||||
Express Scripts Holding Co.(b) | 2,036 | 141,156 | ||||||
Laboratory Corp. of America Holdings(b) | 1,431 | 146,534 | ||||||
Quest Diagnostics Inc. | 2,461 | 144,436 | ||||||
581,033 | ||||||||
Health Care Supplies–0.19% | ||||||||
DENTSPLY International Inc. | 3,049 | 144,370 | ||||||
Health Care Technology–0.19% | ||||||||
Cerner Corp.(b) | 2,752 | 141,948 | ||||||
Home Entertainment Software–0.20% | ||||||||
Electronic Arts Inc.(b) | 4,085 | 146,529 | ||||||
Home Furnishings–0.40% | ||||||||
Leggett & Platt, Inc. | 4,355 | 149,289 | ||||||
Mohawk Industries, Inc.(b) | 1,102 | 152,451 | ||||||
301,740 | ||||||||
Home Improvement Retail–0.41% | ||||||||
Home Depot, Inc. (The) | 1,866 | 151,071 | ||||||
Lowe’s Cos., Inc. | 3,206 | 153,856 | ||||||
304,927 | ||||||||
Homebuilding–0.61% | ||||||||
D.R. Horton, Inc. | 6,218 | 152,838 | ||||||
Lennar Corp.–Class A | 3,627 | 152,262 | ||||||
PulteGroup Inc. | 7,505 | 151,301 | ||||||
456,401 | ||||||||
Homefurnishing Retail–0.19% | ||||||||
Bed Bath & Beyond Inc.(b) | 2,420 | 138,860 | ||||||
Hotel and Resort REIT’s–0.19% | ||||||||
Host Hotels & Resorts Inc. | 6,569 | 144,584 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.80% | ||||||||
Carnival Corp. | 3,744 | $ | 140,962 | |||||
Marriott International Inc.–Class A | 2,374 | 152,173 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,842 | 148,870 | ||||||
Wyndham Worldwide Corp. | 2,011 | 152,273 | ||||||
594,278 | ||||||||
Household Appliances–0.20% | ||||||||
Whirlpool Corp. | 1,054 | 146,738 | ||||||
Household Products–0.78% | ||||||||
Clorox Co. (The) | 1,617 | 147,794 | ||||||
Colgate-Palmolive Co. | 2,148 | 146,451 | ||||||
Kimberly-Clark Corp. | 1,316 | 146,365 | ||||||
Procter & Gamble Co. (The) | 1,829 | 143,741 | ||||||
584,351 | ||||||||
Housewares & Specialties–0.20% | ||||||||
Newell Rubbermaid Inc. | 4,741 | 146,924 | ||||||
Human Resource & Employment Services–0.20% | ||||||||
Robert Half International, Inc. | 3,076 | 146,848 | ||||||
Hypermarkets & Super Centers–0.39% | ||||||||
Costco Wholesale Corp. | 1,263 | 145,447 | ||||||
Wal-Mart Stores, Inc. | 1,936 | 145,336 | ||||||
290,783 | ||||||||
Independent Power Producers & Energy Traders–0.41% | ||||||||
AES Corp. (The) | 10,265 | 159,621 | ||||||
NRG Energy, Inc. | 3,970 | 147,684 | ||||||
307,305 | ||||||||
Industrial Conglomerates–0.77% | ||||||||
3M Co. | 1,016 | 145,532 | ||||||
Danaher Corp. | 1,815 | 142,895 | ||||||
General Electric Co.(d) | 5,390 | 141,649 | ||||||
Roper Industries, Inc. | 996 | 145,426 | ||||||
575,502 | ||||||||
Industrial Gases–0.60% | ||||||||
Air Products and Chemicals, Inc. | 1,202 | 154,601 | ||||||
Airgas, Inc. | 1,373 | 149,534 | ||||||
Praxair, Inc. | 1,107 | 147,054 | ||||||
451,189 | ||||||||
Industrial Machinery–1.95% | ||||||||
Dover Corp. | 1,634 | 148,612 | ||||||
Flowserve Corp. | 1,886 | 140,224 | ||||||
Illinois Tool Works Inc. | 1,652 | 144,649 | ||||||
Ingersoll-Rand PLC | 2,339 | 146,211 | ||||||
Pall Corp. | 1,734 | 148,066 | ||||||
Parker Hannifin Corp. | 1,145 | 143,961 | ||||||
Pentair PLC (United Kingdom) | 1,939 | 139,841 | ||||||
Snap-on Inc. | 1,251 | 148,269 | ||||||
Stanley Black & Decker Inc. | 1,671 | 146,747 |
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 | |||||||
Industrial Machinery–(continued) | ||||||||
Xylem, Inc. | 3,779 | $ | 147,683 | |||||
1,454,263 | ||||||||
Industrial REIT’s–0.20% | ||||||||
Prologis, Inc. | 3,562 | 146,363 | ||||||
Insurance Brokers–0.39% | ||||||||
Aon PLC | 1,620 | 145,946 | ||||||
Marsh & McLennan Cos., Inc. | 2,867 | 148,568 | ||||||
294,514 | ||||||||
Integrated Oil & Gas–0.79% | ||||||||
Chevron Corp. | 1,144 | 149,349 | ||||||
Exxon Mobil Corp. | 1,419 | 142,865 | ||||||
Hess Corp. | 1,518 | 150,115 | ||||||
Occidental Petroleum Corp. | 1,411 | 144,811 | ||||||
587,140 | ||||||||
Integrated Telecommunication Services–0.98% | ||||||||
AT&T Inc. | 4,161 | 147,133 | ||||||
CenturyLink Inc. | 3,945 | 142,809 | ||||||
Frontier Communications Corp. | 25,846 | 150,941 | ||||||
Verizon Communications Inc. | 2,963 | 144,979 | ||||||
Windstream Holdings Inc. | 14,874 | 148,145 | ||||||
734,007 | ||||||||
Internet Retail–1.01% | ||||||||
Amazon.com, Inc.(b) | 446 | 144,852 | ||||||
Expedia, Inc. | 1,963 | 154,606 | ||||||
Netflix Inc.(b) | 340 | 149,804 | ||||||
Priceline Group Inc. (The)(b) | 122 | 146,766 | ||||||
TripAdvisor Inc.(b) | 1,428 | 155,166 | ||||||
751,194 | ||||||||
Internet Software & Services–1.18% | ||||||||
Akamai Technologies, Inc.(b) | 2,477 | 151,246 | ||||||
eBay Inc.(b) | 2,972 | 148,778 | ||||||
Facebook Inc.–Class A(b) | 2,259 | 152,008 | ||||||
Google Inc.–Class A(b) | 131 | 76,592 | ||||||
Google Inc.–Class C(b) | 131 | 75,362 | ||||||
VeriSign, Inc.(b) | 2,868 | 139,987 | ||||||
Yahoo! Inc.(b) | 3,946 | 138,623 | ||||||
882,596 | ||||||||
Investment Banking & Brokerage–0.81% | ||||||||
Charles Schwab Corp. (The) | 5,603 | 150,889 | ||||||
E*TRADE Financial Corp.(b) | 7,226 | 153,625 | ||||||
Goldman Sachs Group, Inc. (The) | 878 | 147,012 | ||||||
Morgan Stanley | 4,614 | 149,170 | ||||||
600,696 | ||||||||
IT Consulting & Other Services–0.77% | ||||||||
Accenture PLC–Class A | 1,761 | 142,359 | ||||||
Cognizant Technology Solutions Corp.– | 3,074 | 150,349 | ||||||
International Business Machines Corp. | 798 | 144,654 |
Shares | Value | |||||||
IT Consulting & Other Services–(continued) | ||||||||
Teradata Corp.(b) | 3,356 | $ | 134,911 | |||||
572,273 | ||||||||
Leisure Products–0.40% | ||||||||
Hasbro, Inc. | 2,782 | 147,585 | ||||||
Mattel, Inc. | 3,789 | 147,657 | ||||||
295,242 | ||||||||
Life & Health Insurance–1.39% | ||||||||
Aflac, Inc. | 2,352 | 146,412 | ||||||
Lincoln National Corp. | 2,883 | 148,302 | ||||||
MetLife, Inc. | 2,688 | 149,345 | ||||||
Principal Financial Group, Inc. | 2,989 | 150,885 | ||||||
Prudential Financial, Inc. | 1,659 | 147,269 | ||||||
Torchmark Corp. | 1,782 | 145,981 | ||||||
Unum Group | 4,179 | 145,262 | ||||||
1,033,456 | ||||||||
Life Sciences Tools & Services–0.78% | ||||||||
Agilent Technologies, Inc. | 2,491 | 143,083 | ||||||
PerkinElmer, Inc. | 3,140 | 147,078 | ||||||
Thermo Fisher Scientific, Inc. | 1,222 | 144,196 | ||||||
Waters Corp.(b) | 1,389 | 145,067 | ||||||
579,424 | ||||||||
Managed Health Care–0.99% | ||||||||
Aetna Inc. | 1,800 | 145,944 | ||||||
Cigna Corp. | 1,600 | 147,152 | ||||||
Humana Inc. | 1,168 | 149,177 | ||||||
UnitedHealth Group Inc. | 1,836 | 150,093 | ||||||
WellPoint, Inc. | 1,363 | 146,672 | ||||||
739,038 | ||||||||
Metal & Glass Containers–0.40% | ||||||||
Ball Corp. | 2,394 | 150,056 | ||||||
Owens-Illinois, Inc.(b) | 4,380 | 151,723 | ||||||
301,779 | ||||||||
Motorcycle Manufacturers–0.20% | ||||||||
Harley-Davidson, Inc. | 2,109 | 147,314 | ||||||
Movies & Entertainment–0.79% | ||||||||
Time Warner Inc. | 2,148 | 150,897 | ||||||
Twenty-First Century Fox, Inc.–Class A | 4,103 | 144,220 | ||||||
Viacom Inc.–Class B | 1,695 | 147,007 | ||||||
Walt Disney Co. (The) | 1,759 | 150,817 | ||||||
592,941 | ||||||||
Multi-Line Insurance–0.97% | ||||||||
American International Group, Inc. | 2,664 | 145,401 | ||||||
Assurant, Inc. | 2,158 | 141,457 | ||||||
Genworth Financial Inc.–Class A(b) | 8,365 | 145,551 | ||||||
Hartford Financial Services Group, Inc. (The) | 4,079 | 146,069 | ||||||
Loews Corp. | 3,348 | 147,345 | ||||||
725,823 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Multi-Sector Holdings–0.39% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 1,151 | $ | 145,671 | |||||
Leucadia National Corp. | 5,656 | 148,300 | ||||||
293,971 | ||||||||
Multi-Utilities–2.92% | ||||||||
Ameren Corp. | 3,796 | 155,180 | ||||||
CenterPoint Energy, Inc. | 6,071 | 155,053 | ||||||
CMS Energy Corp. | 4,930 | 153,570 | ||||||
Consolidated Edison, Inc. | 2,644 | 152,665 | ||||||
Dominion Resources, Inc. | 2,129 | 152,266 | ||||||
DTE Energy Co. | 1,957 | 152,392 | ||||||
Integrys Energy Group, Inc. | 2,526 | 179,674 | ||||||
NiSource Inc. | 3,937 | 154,882 | ||||||
PG&E Corp. | 3,134 | 150,495 | ||||||
Public Service Enterprise Group Inc. | 3,852 | 157,123 | ||||||
SCANA Corp. | 2,875 | 154,704 | ||||||
Sempra Energy | 1,448 | 151,620 | ||||||
TECO Energy, Inc. | 8,382 | 154,899 | ||||||
Wisconsin Energy Corp. | 3,233 | 151,692 | ||||||
2,176,215 | ||||||||
Office REIT’s–0.20% | ||||||||
Boston Properties, Inc. | 1,242 | 146,780 | ||||||
Office Services & Supplies–0.20% | ||||||||
Pitney Bowes Inc. | 5,305 | 146,524 | ||||||
Oil & Gas Drilling–1.40% | ||||||||
Diamond Offshore Drilling, Inc. | 2,939 | 145,862 | ||||||
Ensco PLC–Class A | 2,735 | 151,984 | ||||||
Helmerich & Payne, Inc. | 1,288 | 149,550 | ||||||
Nabors Industries Ltd. | 5,300 | 155,661 | ||||||
Noble Corp. PLC | 4,394 | 147,463 | ||||||
Rowan Cos. PLC–Class A | 4,498 | 143,621 | ||||||
Transocean Ltd. | 3,287 | 148,014 | ||||||
1,042,155 | ||||||||
Oil & Gas Equipment & Services–1.24% | ||||||||
Baker Hughes Inc. | 2,048 | 152,474 | ||||||
Cameron International Corp.(b) | 2,245 | 152,009 | ||||||
FMC Technologies, Inc.(b) | 2,476 | 151,209 | ||||||
Halliburton Co. | 2,156 | 153,097 | ||||||
National Oilwell Varco Inc. | 1,879 | 154,736 | ||||||
Schlumberger Ltd. | 1,345 | 158,643 | ||||||
922,168 | ||||||||
Oil & Gas Exploration & Production–3.60% | ||||||||
Anadarko Petroleum Corp. | 1,332 | 145,814 | ||||||
Apache Corp. | 1,491 | 150,025 | ||||||
Cabot Oil & Gas Corp. | 4,204 | 143,525 | ||||||
Chesapeake Energy Corp.(b) | 5,065 | 150,076 | ||||||
Cimarex Energy Co. | 1,049 | 150,490 | ||||||
ConocoPhillips | 1,753 | 150,285 | ||||||
Denbury Resources Inc. | 8,244 | 152,184 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Devon Energy Corp. | 1,867 | $ | 148,240 | |||||
EOG Resources, Inc. | 1,277 | 149,230 | ||||||
EQT Corp. | 1,376 | 147,094 | ||||||
Marathon Oil Corp. | 3,729 | 148,862 | ||||||
Murphy Oil Corp. | 2,232 | 148,383 | ||||||
Newfield Exploration Co.(b) | 3,602 | 159,208 | ||||||
Noble Energy, Inc. | 1,913 | 148,181 | ||||||
Pioneer Natural Resources Co. | 641 | 147,308 | ||||||
QEP Resources Inc. | 4,508 | 155,526 | ||||||
Range Resources Corp. | 1,652 | 143,641 | ||||||
Seventy Seven Energy Inc.(b) | 1 | 15 | ||||||
Southwestern Energy Co.(b) | 3,181 | 144,704 | ||||||
2,682,791 | ||||||||
Oil & Gas Refining & Marketing–0.74% | ||||||||
Marathon Petroleum Corp. | 1,685 | 131,548 | ||||||
Phillips 66 | 1,745 | 140,351 | ||||||
Tesoro Corp. | 2,512 | 147,379 | ||||||
Valero Energy Corp. | 2,712 | 135,871 | ||||||
555,149 | ||||||||
Oil & Gas Storage & Transportation–0.85% | ||||||||
Kinder Morgan Inc. | 4,142 | 150,189 | ||||||
ONEOK, Inc. | 2,237 | 152,295 | ||||||
Spectra Energy Corp. | 3,540 | 150,379 | ||||||
Williams Cos., Inc. (The) | 3,089 | 179,811 | ||||||
632,674 | ||||||||
Other Diversified Financial Services–0.19% | ||||||||
Citigroup Inc. | 3,066 | 144,409 | ||||||
Packaged Foods & Meats–2.56% | ||||||||
Campbell Soup Co. | 3,215 | 147,279 | ||||||
ConAgra Foods, Inc. | 4,485 | 133,115 | ||||||
General Mills, Inc. | 2,683 | 140,965 | ||||||
Hershey Co. (The) | 1,492 | 145,276 | ||||||
Hormel Foods Corp. | 3,027 | 149,382 | ||||||
JM Smucker Co. (The) | 1,384 | 147,493 | ||||||
Kellogg Co. | 2,168 | 142,438 | ||||||
Keurig Green Mountain Inc. | 1,216 | 151,526 | ||||||
Kraft Foods Group, Inc. | 2,470 | 148,076 | ||||||
McCormick & Co., Inc. | 2,032 | 145,471 | ||||||
Mead Johnson Nutrition Co. | 1,666 | 155,221 | ||||||
Mondelez International Inc.–Class A | 3,892 | 146,378 | ||||||
Tyson Foods, Inc.–Class A | 4,114 | 154,440 | ||||||
1,907,060 | ||||||||
Paper Packaging–0.80% | ||||||||
Avery Dennison Corp. | 2,930 | 150,163 | ||||||
Bemis Co., Inc. | 3,561 | 144,790 | ||||||
MeadWestvaco Corp. | 3,365 | 148,935 | ||||||
Sealed Air Corp. | 4,378 | 149,596 | ||||||
593,484 |
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 | |||||||
Paper Products–0.21% | ||||||||
International Paper Co. | 3,031 | $ | 152,975 | |||||
Personal Products–0.38% | ||||||||
Avon Products, Inc. | 9,923 | 144,975 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,905 | 141,465 | ||||||
286,440 | ||||||||
Pharmaceuticals–2.41% | ||||||||
AbbVie Inc. | 2,691 | 151,880 | ||||||
Actavis PLC(b) | 697 | 155,466 | ||||||
Allergan, Inc. | 900 | 152,298 | ||||||
Bristol-Myers Squibb Co. | 3,095 | 150,138 | ||||||
Eli Lilly and Co. | 2,474 | 153,809 | ||||||
Hospira, Inc.(b) | 2,869 | 147,380 | ||||||
Johnson & Johnson | 1,421 | 148,665 | ||||||
Merck & Co., Inc. | 2,495 | 144,336 | ||||||
Mylan Inc.(b) | 2,903 | 149,679 | ||||||
Perrigo Co. PLC | 1,037 | 151,153 | ||||||
Pfizer Inc. | 4,935 | 146,471 | ||||||
Zoetis Inc. | 4,538 | 146,441 | ||||||
1,797,716 | ||||||||
Property & Casualty Insurance–1.36% | ||||||||
ACE Ltd. | 1,402 | 145,387 | ||||||
Allstate Corp. (The) | 2,470 | 145,038 | ||||||
Chubb Corp. (The) | 1,558 | 143,601 | ||||||
Cincinnati Financial Corp. | 2,981 | 143,207 | ||||||
Progressive Corp. (The) | 5,764 | 146,175 | ||||||
Travelers Cos., Inc. (The) | 1,527 | 143,645 | ||||||
XL Group PLC | 4,442 | 145,387 | ||||||
1,012,440 | ||||||||
Publishing–0.42% | ||||||||
Gannett Co., Inc. | 5,074 | 158,867 | ||||||
News Corp.–Class A(b) | 8,460 | 151,772 | ||||||
Time Inc.(b) | 1 | 3 | ||||||
310,642 | ||||||||
Railroads–0.79% | ||||||||
CSX Corp. | 4,798 | 147,827 | ||||||
Kansas City Southern | 1,392 | 149,654 | ||||||
Norfolk Southern Corp. | 1,440 | 148,363 | ||||||
Union Pacific Corp. | 1,444 | 144,039 | ||||||
589,883 | ||||||||
Real Estate Services–0.20% | ||||||||
CBRE Group, Inc.–Class A(b) | 4,772 | 152,895 | ||||||
Regional Banks–1.77% | ||||||||
BB&T Corp. | 3,797 | 149,716 | ||||||
Fifth Third Bancorp | 6,821 | 145,628 | ||||||
Huntington Bancshares Inc. | 15,442 | 147,317 | ||||||
KeyCorp | 10,243 | 146,782 | ||||||
M&T Bank Corp. | 1,183 | 146,751 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
PNC Financial Services Group, Inc. (The) | 1,659 | $ | 147,734 | |||||
Regions Financial Corp. | 13,611 | 144,549 | ||||||
SunTrust Banks, Inc. | 3,619 | 144,977 | ||||||
Zions Bancorp. | 4,920 | 144,992 | ||||||
1,318,446 | ||||||||
Research & Consulting Services–0.61% | ||||||||
Dun & Bradstreet Corp. (The) | 1,401 | 154,390 | ||||||
Equifax Inc. | 2,033 | 147,474 | ||||||
Nielsen N.V. | 3,141 | 152,056 | ||||||
453,920 | ||||||||
Residential REIT’s–0.80% | ||||||||
Apartment Investment & Management Co.–Class A | 4,545 | 146,667 | ||||||
AvalonBay Communities, Inc. | 1,040 | 147,878 | ||||||
Equity Residential | 2,360 | 148,680 | ||||||
Essex Property Trust, Inc. | 812 | 150,147 | ||||||
593,372 | ||||||||
Restaurants–0.98% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 247 | 146,350 | ||||||
Darden Restaurants, Inc. | 2,933 | 135,710 | ||||||
McDonald’s Corp. | 1,449 | 145,972 | ||||||
Starbucks Corp. | 1,951 | 150,968 | ||||||
Yum! Brands, Inc. | 1,838 | 149,246 | ||||||
728,246 | ||||||||
Retail REIT’s–0.79% | ||||||||
General Growth Properties, Inc. | 6,200 | 146,072 | ||||||
Kimco Realty Corp. | 6,434 | 147,853 | ||||||
Macerich Co. (The) | 2,218 | 148,052 | ||||||
Simon Property Group, Inc. | 887 | 147,490 | ||||||
589,467 | ||||||||
Security & Alarm Services–0.40% | ||||||||
ADT Corp. (The) | 4,292 | 149,962 | ||||||
Tyco International Ltd. | 3,241 | 147,790 | ||||||
297,752 | ||||||||
Semiconductor Equipment–0.60% | ||||||||
Applied Materials, Inc. | 6,516 | 146,936 | ||||||
KLA-Tencor Corp. | 2,125 | 154,360 | ||||||
Lam Research Corp. | 2,218 | 149,892 | ||||||
451,188 | ||||||||
Semiconductors–2.37% | ||||||||
Altera Corp. | 4,287 | 149,016 | ||||||
Analog Devices, Inc. | 2,620 | 141,663 | ||||||
Avago Technologies Ltd. (Singapore) | 2,041 | 147,095 | ||||||
Broadcom Corp.–Class A | 3,801 | 141,093 | ||||||
First Solar, Inc.(b) | 2,260 | 160,596 | ||||||
Intel Corp. | 4,879 | 150,761 | ||||||
Linear Technology Corp. | 3,093 | 145,588 | ||||||
Microchip Technology Inc. | 2,966 | 144,770 |
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 | |||||||
Semiconductors–(continued) | ||||||||
Micron Technology, Inc.(b) | 4,676 | $ | 154,074 | |||||
NVIDIA Corp. | 7,459 | 138,290 | ||||||
Texas Instruments Inc. | 3,015 | 144,087 | ||||||
Xilinx, Inc. | 3,116 | 147,418 | ||||||
1,764,451 | ||||||||
Soft Drinks–1.01% | ||||||||
Coca-Cola Co. (The) | 3,610 | 152,920 | ||||||
Coca-Cola Enterprises, Inc. | 3,269 | 156,193 | ||||||
Dr Pepper Snapple Group, Inc. | 2,522 | 147,739 | ||||||
Monster Beverage Corp.(b) | 2,116 | 150,299 | ||||||
PepsiCo, Inc. | 1,671 | 149,287 | ||||||
756,438 | ||||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 4,486 | 150,371 | ||||||
Specialized Finance–0.98% | ||||||||
CME Group Inc.–Class A | 2,040 | 144,738 | ||||||
Intercontinental Exchange, Inc. | 753 | 142,242 | ||||||
McGraw Hill Financial, Inc. | 1,747 | 145,053 | ||||||
Moody’s Corp. | 1,698 | 148,847 | ||||||
NASDAQ OMX Group, Inc. (The) | 3,968 | 153,244 | ||||||
734,124 | ||||||||
Specialized REIT’s–1.00% | ||||||||
American Tower Corp. | 1,647 | 148,197 | ||||||
Crown Castle International Corp. | 1,975 | 146,664 | ||||||
Plum Creek Timber Co., Inc. | 3,302 | 148,920 | ||||||
Public Storage | 859 | 147,190 | ||||||
Weyerhaeuser Co. | 4,726 | 156,383 | ||||||
747,354 | ||||||||
Specialty Chemicals–1.00% | ||||||||
Ecolab Inc. | 1,347 | 149,975 | ||||||
International Flavors & Fragrances Inc. | 1,445 | 150,685 | ||||||
PPG Industries, Inc. | 714 | 150,047 | ||||||
Sherwin-Williams Co. (The) | 718 | 148,561 | ||||||
Sigma-Aldrich Corp. | 1,461 | 148,262 | ||||||
747,530 | ||||||||
Specialty Stores–0.77% | ||||||||
PetSmart, Inc. | 2,503 | 149,679 | ||||||
Staples, Inc. | 13,264 | 143,782 | ||||||
Tiffany & Co. | 1,471 | 147,468 | ||||||
Tractor Supply Co. | 2,242 | 135,417 | ||||||
576,346 | ||||||||
Steel–0.61% | ||||||||
Allegheny Technologies, Inc. | 3,505 | 158,075 | ||||||
Nucor Corp. | 2,866 | 141,151 | ||||||
United States Steel Corp. | 6,086 | 158,479 | ||||||
457,705 |
Shares | Value | |||||||
Systems Software–0.99% | ||||||||
CA, Inc. | 5,036 | $ | 144,734 | |||||
Microsoft Corp. | 3,534 | 147,368 | ||||||
Oracle Corp. | 3,458 | 140,153 | ||||||
Red Hat, Inc.(b) | 2,807 | 155,143 | ||||||
Symantec Corp. | 6,717 | 153,819 | ||||||
741,217 | ||||||||
Technology Hardware, Storage & Peripherals–1.38% | ||||||||
Apple Inc. | 1,596 | 148,316 | ||||||
EMC Corp. | 5,475 | 144,212 | ||||||
Hewlett-Packard Co. | 4,145 | 139,604 | ||||||
NetApp, Inc. | 4,087 | 149,257 | ||||||
SanDisk Corp. | 1,479 | 154,452 | ||||||
Seagate Technology PLC | 2,632 | 149,550 | ||||||
Western Digital Corp. | 1,581 | 145,926 | ||||||
1,031,317 | ||||||||
Thrifts & Mortgage Finance–0.40% | ||||||||
Hudson City Bancorp, Inc. | 14,798 | 145,464 | ||||||
People’s United Financial Inc. | 9,836 | 149,212 | ||||||
294,676 | ||||||||
Tires & Rubber–0.21% | ||||||||
Goodyear Tire & Rubber Co. (The) | 5,554 | 154,290 | ||||||
Tobacco–0.78% | ||||||||
Altria Group, Inc. | 3,516 | 147,461 | ||||||
Lorillard, Inc. | 2,384 | 145,353 | ||||||
Philip Morris International Inc. | 1,640 | 138,268 | ||||||
Reynolds American Inc. | 2,439 | 147,194 | ||||||
578,276 | ||||||||
Trading Companies & Distributors–0.39% | ||||||||
Fastenal Co. | 2,940 | 145,500 | ||||||
NOW Inc.(b) | 1 | 18 | ||||||
W.W. Grainger, Inc. | 562 | 142,900 | ||||||
288,418 | ||||||||
Trucking–0.20% | ||||||||
Ryder System, Inc. | 1,681 | 148,079 | ||||||
Total Common Stocks & Other Equity Interests |
| 74,108,907 | ||||||
Money Market Funds–0.91% |
| |||||||
Liquid Assets Portfolio–Institutional Class(e) | 341,203 | 341,203 | ||||||
Premier Portfolio–Institutional Class(e) | 341,204 | 341,204 | ||||||
Total Money Market Funds |
| 682,407 | ||||||
TOTAL INVESTMENTS–100.26% |
| 74,791,314 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.26)% |
| (196,536 | ) | |||||
NET ASSETS–100.00% |
| $ | 74,594,778 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 4. |
(d) | All or a portion of 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. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Consumer Discretionary | 17.1 | % | ||
Financials | 16.2 | |||
Industrials | 12.8 | |||
Information Technology | 12.6 | |||
Health Care | 10.6 | |||
Energy | 8.8 | |||
Consumer Staples | 7.9 | |||
Utilities | 6.4 | |||
Materials | 5.8 | |||
Telecommunication Services | 1.2 | |||
Money Market Funds Plus Other Assets Less Liabilities | 0.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $27,739,555) | $ | 73,961,154 | ||
Investments in affiliates, at value (Cost $743,167) | 830,160 | |||
Total investments, at value (Cost $28,482,722) | 74,791,314 | |||
Receivable for: | ||||
Investments sold | 160,527 | |||
Variation margin — futures contracts | 313 | |||
Dividends | 79,543 | |||
Investment for trustee deferred compensation and retirement plans | 24,918 | |||
Other assets | 8,160 | |||
Total assets | 75,064,775 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 161,904 | |||
Fund shares reacquired | 148,093 | |||
Accrued fees to affiliates | 96,198 | |||
Accrued trustees’ and officers’ fees and benefits | 664 | |||
Accrued other operating expenses | 36,616 | |||
Trustee deferred compensation and retirement plans | 26,522 | |||
Total liabilities | 469,997 | |||
Net assets applicable to shares outstanding | $ | 74,594,778 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 11,144,387 | ||
Undistributed net investment income | 1,265,579 | |||
Undistributed net realized gain | 15,869,444 | |||
Net unrealized appreciation | 46,315,368 | |||
$ | 74,594,778 | |||
Net Assets: |
| |||
Series I | $ | 36,502,140 | ||
Series II | $ | 38,092,638 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 1,590,625 | |||
Series II | 1,689,095 | |||
Series I: | ||||
Net asset value per share | $ | 22.95 | ||
Series II: | ||||
Net asset value per share | $ | 22.55 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $213) | $ | 676,139 | ||
Dividends from affiliates | 2,052 | |||
Total investment income | 678,191 | |||
Expenses: | ||||
Advisory fees | 44,253 | |||
Administrative services fees | 97,376 | |||
Custodian fees | 26,630 | |||
Distribution fees — Series II | 46,796 | |||
Transfer agent fees | 1,443 | |||
Trustees’ and officers’ fees and benefits | 13,033 | |||
Professional services fees | 22,743 | |||
Other | 18,152 | |||
Total expenses | 270,426 | |||
Less: Fees waived | (330 | ) | ||
Net expenses | 270,096 | |||
Net investment income | 408,095 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 5,833,561 | |||
Futures contracts | 54,719 | |||
5,888,280 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (437,888 | ) | ||
Futures contracts | (1,688 | ) | ||
(439,576 | ) | |||
Net realized and unrealized gain | 5,448,704 | |||
Net increase in net assets resulting from operations | $ | 5,856,799 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 408,095 | $ | 784,423 | ||||
Net realized gain | 5,888,280 | 11,722,514 | ||||||
Change in net unrealized appreciation (depreciation) | (439,576 | ) | 10,263,102 | |||||
Net increase in net assets resulting from operations | 5,856,799 | 22,770,039 | ||||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | — | (621,458 | ) | |||||
Series ll | — | (536,809 | ) | |||||
Total distributions from net investment income | — | (1,158,267 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (4,709,760 | ) | |||||
Series ll | — | (4,814,561 | ) | |||||
Total distributions from net realized gains | — | (9,524,321 | ) | |||||
Share transactions–net: | ||||||||
Series l | (4,536,707 | ) | (2,701,510 | ) | ||||
Series ll | (3,728,401 | ) | (3,659,148 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (8,265,108 | ) | (6,360,658 | ) | ||||
Net increase (decrease) in net assets | (2,408,309 | ) | 5,726,793 | |||||
Net assets: | ||||||||
Beginning of period | 77,003,087 | 71,276,294 | ||||||
End of period (includes undistributed net investment income of $1,265,579 and $857,484, respectively) | $ | 74,594,778 | $ | 77,003,087 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Equally-Weighted S&P 500 Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Equally-Weighted S&P 500 Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. Equally-Weighted S&P 500 Fund
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 recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | 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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. The Adviser did not waive fees and/or reimburse expenses during the period under this expense limitation.
Invesco V.I. Equally-Weighted S&P 500 Fund
Further, the Adviser has contractually agreed, through at least June 30, 2016, 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, 2014, the Adviser waived advisory fees of $330.
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, 2014, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $72,581 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, 2014, 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, 2014, 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, 2014. 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 | $ | 74,791,314 | $ | — | $ | — | $ | 74,791,314 | ||||||||
Futures Contracts* | 6,776 | — | — | 6,776 | ||||||||||||
Total Investments | $ | 74,798,090 | $ | — | $ | — | $ | 74,798,090 |
* | 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, 2014.
Value 12/31/13 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain | Value 06/30/14 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 153,863 | $ | 7,988 | $ | (19,014 | ) | $ | 379 | $ | 4,537 | $ | 147,753 | $ | 1,953 |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 5—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | 6,776 | $ | — |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Futures Contracts | ||||
Realized Gain | ||||
Equity risk | $ | 54,719 | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Equity risk | (1,688 | ) | ||
Total | $ | 53,031 |
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures Contracts | ||||
Average notional value | $ | 551,657 |
Open Futures Contracts at Period-End | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation | |||||||||||||||
E-Mini S&P 500 Index | Long | 7 | September-2014 | $ | 683,340 | $ | 6,776 | |||||||||||||
Total Futures Contracts — Equity Risk | $ | 6,776 |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities(a) | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets & Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | 6,776 | $ | — | $ | 6,776 | $ | — | $ | — | $ | 6,776 |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. |
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 were eligible to participate in a retirement plan that provided 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. Equally-Weighted S&P 500 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $6,291,939 and $13,782,177, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 45,144,137 | ||
Aggregate unrealized (depreciation) of investment securities | (97,793 | ) | ||
Net unrealized appreciation of investment securities | $ | 45,046,344 |
Cost of investments for tax purposes is $29,744,970.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 7,667 | $ | 168,198 | 86,261 | $ | 1,732,320 | ||||||||||
Series II | 8,009 | 169,256 | 94,261 | 1,879,565 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 273,536 | 5,331,218 | ||||||||||||
Series II | — | — | 278,863 | 5,351,370 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (217,964 | ) | (4,704,905 | ) | (473,906 | ) | (9,765,048 | ) | ||||||||
Series II | (183,557 | ) | (3,897,657 | ) | (531,180 | ) | (10,890,083 | ) | ||||||||
Net increase (decrease) in share activity | (385,845 | ) | $ | (8,265,108 | ) | (272,165 | ) | $ | (6,360,658 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 99% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
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.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 21.18 | $ | 0.13 | $ | 1.64 | $ | 1.77 | $ | — | $ | — | $ | — | $ | 22.95 | 8.36 | % | $ | 36,502 | 0.61 | %(d) | 0.61 | %(d) | 1.23 | %(d) | 8 | % | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 18.23 | 0.24 | 5.94 | 6.18 | (0.38 | ) | (2.85 | ) | (3.23 | ) | 21.18 | 35.42 | 38,144 | 0.59 | 0.59 | 1.16 | 18 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 18.33 | 0.33 | 2.73 | 3.06 | (0.37 | ) | (2.79 | ) | (3.16 | ) | 18.23 | 17.09 | 34,914 | 0.46 | 0.59 | 1.69 | 23 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 18.78 | 0.29 | (0.40 | ) | (0.11 | ) | (0.34 | ) | — | (0.34 | ) | 18.33 | (0.36 | ) | 35,998 | 0.37 | 0.51 | 1.50 | 21 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.69 | 0.26 | 3.07 | 3.33 | (0.24 | ) | — | (0.24 | ) | 18.78 | 21.51 | 43,669 | 0.35 | 0.40 | 1.59 | 21 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.61 | 0.22 | 4.75 | 4.97 | (0.34 | ) | (0.55 | ) | (0.89 | ) | 15.69 | 45.08 | 43,553 | 0.37 | (e) | 0.37 | (e) | 1.72 | (e) | 13 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 20.84 | 0.10 | 1.61 | 1.71 | — | — | — | 22.55 | 8.21 | 38,093 | 0.86 | (d) | 0.86 | (d) | 0.98 | (d) | 8 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 17.98 | 0.19 | 5.84 | 6.03 | (0.32 | ) | (2.85 | ) | (3.17 | ) | 20.84 | 35.04 | 38,860 | 0.84 | 0.84 | 0.91 | 18 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 18.09 | 0.27 | 2.71 | 2.98 | (0.30 | ) | (2.79 | ) | (3.09 | ) | 17.98 | 16.88 | 36,362 | 0.71 | 0.84 | 1.44 | 23 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 18.53 | 0.23 | (0.38 | ) | (0.15 | ) | (0.29 | ) | — | (0.29 | ) | 18.09 | (0.66 | ) | 41,523 | 0.62 | 0.76 | 1.25 | 21 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.49 | 0.22 | 3.03 | 3.25 | (0.21 | ) | — | (0.21 | ) | 18.53 | 21.19 | 55,646 | 0.60 | 0.65 | 1.34 | 21 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 11.45 | 0.19 | 4.69 | 4.88 | (0.29 | ) | (0.55 | ) | (0.84 | ) | 15.49 | 44.79 | 57,578 | 0.62 | (e) | 0.62 | (e) | 1.47 | (e) | 13 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $36,618 and $37,747 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 year ended December 31, 2009. |
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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,083.60 | $ | 3.15 | $ | 1,021.77 | $ | 3.06 | 0.61 | % | ||||||||||||
Series II | 1,000.00 | 1,082.10 | 4.44 | 1,020.53 | 4.31 | 0.86 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equally-Weighted S&P 500 Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide
advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Multi-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of the performance universe for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board
Invesco V.I. Equally-Weighted S&P 500 Fund
noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was the same as the effective advisory fee rate of one mutual fund with a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using a similar investment process.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual
breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that although Invesco Advisers received a minimal amount of revenues from advising the Fund, Invesco Advisers and its subsidiaries did not make a profit from managing 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 transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research
services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Equally-Weighted S&P 500 Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Equity and Income Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIEQI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.14 | % | |||
Series II Shares | 5.94 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 8.28 | ||||
Barclays U.S. Government/Credit Index‚ (Style-Specific Index) | 3.94 | ||||
Source(s): ‚FactSet Research Systems Inc. |
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays U.S. Government/Credit Index includes Treasuries and agencies that represent the government portion of the index, and includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
10 Years | 7.82 | % | |||
5 Years | 14.71 | ||||
1 Year | 17.65 | ||||
Series II Shares | |||||
Inception (4/30/03) | 8.72 | % | |||
10 Years | 7.74 | ||||
5 Years | 14.54 | ||||
1 Year | 17.34 |
Effective June 1, 2010, Class II shares of the predecessor fund, Universal Institutional Funds Equity and Income Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series II shares of Invesco Van Kampen V.I. Equity and Income Fund (renamed Invesco V.I. Equity and Income Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco V.I. Equity and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I shares performance shown prior to that date is that of the predecessor fund’s Class II shares and includes the 12b-1 fees applicable to the predecessor fund’s Class II shares. Class II shares performance reflects any applicable fee waivers or expense reimbursements. The inception date of the predecessor fund’s Class II shares is April 30, 2003.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable
product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.67% and 0.92%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.68% and 0.93%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Equity and Income Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–62.72% |
| |||||||
Aerospace & Defense–0.70% | ||||||||
General Dynamics Corp. | 81,636 | $ | 9,514,676 | |||||
Agricultural Products–0.63% | ||||||||
Archer-Daniels-Midland Co. | 194,904 | 8,597,215 | ||||||
Apparel Retail–0.77% | ||||||||
Abercrombie & Fitch Co.–Class A | 240,134 | 10,385,796 | ||||||
Application Software–1.66% | ||||||||
Adobe Systems Inc.(b) | 228,301 | 16,519,861 | ||||||
Citrix Systems, Inc.(b) | 94,953 | 5,939,310 | ||||||
22,459,171 | ||||||||
Asset Management & Custody Banks–1.36% | ||||||||
Northern Trust Corp. | 133,887 | 8,596,884 | ||||||
State Street Corp. | 146,276 | 9,838,524 | ||||||
18,435,408 | ||||||||
Automobile Manufacturers–0.87% | ||||||||
General Motors Co. | 325,527 | 11,816,630 | ||||||
Biotechnology–0.69% | ||||||||
Amgen Inc. | 78,467 | 9,288,139 | ||||||
Cable & Satellite–2.08% | ||||||||
Comcast Corp.–Class A | 261,322 | 14,027,765 | ||||||
Time Warner Cable Inc. | 96,448 | 14,206,790 | ||||||
28,234,555 | ||||||||
Construction Machinery & Heavy Trucks–1.02% | ||||||||
Caterpillar Inc. | 127,472 | 13,852,382 | ||||||
Diversified Banks–4.91% | ||||||||
Bank of America Corp. | 652,020 | 10,021,548 | ||||||
Comerica Inc. | 172,883 | 8,671,811 | ||||||
JPMorgan Chase & Co. | 638,157 | 36,770,606 | ||||||
Wells Fargo & Co. | 211,196 | 11,100,462 | ||||||
66,564,427 | ||||||||
Diversified Chemicals–0.79% | ||||||||
Dow Chemical Co. (The) | 208,057 | 10,706,613 | ||||||
Diversified Metals & Mining–0.59% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 219,279 | 8,003,684 | ||||||
Electric Utilities–0.82% | ||||||||
Edison International | 74,110 | 4,306,532 | ||||||
Pinnacle West Capital Corp. | 118,064 | 6,828,822 | ||||||
11,135,354 | ||||||||
Electronic Components–0.85% | ||||||||
Corning Inc. | 523,573 | 11,492,427 | ||||||
Health Care Equipment–0.53% | ||||||||
Medtronic, Inc. | 112,844 | 7,194,933 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.89% | ||||||||
Carnival Corp. | 319,435 | $ | 12,026,728 | |||||
Household Products–0.59% | ||||||||
Procter & Gamble Co. (The) | 101,451 | 7,973,034 | ||||||
Industrial Conglomerates–1.64% | ||||||||
General Electric Co. | 843,396 | 22,164,447 | ||||||
Industrial Machinery–0.80% | ||||||||
Ingersoll-Rand PLC | 172,425 | 10,778,287 | ||||||
Insurance Brokers–2.11% | ||||||||
Aon PLC | 90,880 | 8,187,379 | ||||||
Marsh & McLennan Cos., Inc. | 272,943 | 14,143,906 | ||||||
Willis Group Holdings PLC | 143,960 | 6,233,468 | ||||||
28,564,753 | ||||||||
Integrated Oil & Gas–4.30% | ||||||||
Exxon Mobil Corp. | 87,054 | 8,764,597 | ||||||
Occidental Petroleum Corp. | 100,162 | 10,279,626 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 574,823 | 23,793,434 | ||||||
Total S.A. (France) | 213,156 | 15,405,137 | ||||||
58,242,794 | ||||||||
Integrated Telecommunication Services–1.07% | ||||||||
Koninklijke (Royal) KPN N.V. | 365,229 | 1,330,788 | ||||||
Orange S.A. (France) | 105,589 | 1,664,048 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 978,712 | 1,239,639 | ||||||
Telefonica S.A. (Spain) | 97,379 | 1,669,430 | ||||||
Verizon Communications Inc. | 174,601 | 8,543,227 | ||||||
14,447,132 | ||||||||
Internet Software & Services–1.17% | ||||||||
eBay Inc.(b) | 316,724 | 15,855,203 | ||||||
Investment Banking & Brokerage–3.02% | ||||||||
Charles Schwab Corp. (The) | 488,118 | 13,145,018 | ||||||
Goldman Sachs Group, Inc. (The) | 51,691 | 8,655,141 | ||||||
Morgan Stanley | 591,726 | 19,130,501 | ||||||
40,930,660 | ||||||||
IT Consulting & Other Services–0.62% | ||||||||
Amdocs Ltd. | 180,129 | 8,345,377 | ||||||
Managed Health Care–2.00% | ||||||||
Cigna Corp. | 80,339 | 7,388,778 | ||||||
UnitedHealth Group Inc. | 105,219 | 8,601,653 | ||||||
WellPoint, Inc. | 103,561 | 11,144,199 | ||||||
27,134,630 | ||||||||
Movies & Entertainment–1.61% | ||||||||
Time Warner Inc. | 74,471 | 5,231,588 | ||||||
Viacom Inc.–Class B | 191,979 | 16,650,338 | ||||||
21,881,926 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Multi-Utilities–0.46% | ||||||||
PG&E Corp. | 130,103 | $ | 6,247,546 | |||||
Oil & Gas Equipment & Services–1.07% | ||||||||
Baker Hughes Inc. | 195,064 | 14,522,515 | ||||||
Oil & Gas Exploration & Production–2.45% | ||||||||
Anadarko Petroleum Corp. | 87,682 | 9,598,548 | ||||||
Apache Corp. | 107,689 | 10,835,667 | ||||||
Canadian Natural Resources Ltd. (Canada) | 277,322 | 12,743,297 | ||||||
33,177,512 | ||||||||
Other Diversified Financial Services–3.10% | ||||||||
Citigroup Inc. | 718,245 | 33,829,340 | ||||||
Voya Financial, Inc. | 225,009 | 8,176,827 | ||||||
42,006,167 | ||||||||
Packaged Foods & Meats–1.28% | ||||||||
Mondelez International Inc.–Class A | 293,937 | 11,054,971 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 142,537 | 6,237,419 | ||||||
17,292,390 | ||||||||
Personal Products–1.12% | ||||||||
Avon Products, Inc. | 1,035,897 | 15,134,455 | ||||||
Pharmaceuticals–5.07% | ||||||||
Bristol-Myers Squibb Co. | 95,031 | 4,609,954 | ||||||
Eli Lilly and Co. | 178,007 | 11,066,695 | ||||||
Hospira, Inc.(b) | 32,580 | 1,673,635 | ||||||
Merck & Co., Inc. | 237,339 | 13,730,061 | ||||||
Novartis AG (Switzerland) | 129,580 | 11,733,507 | ||||||
Novartis AG–ADR (Switzerland) | 10,208 | 924,130 | ||||||
Pfizer Inc. | 218,417 | 6,482,616 | ||||||
Sanofi (France) | 67,955 | 7,227,896 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 214,180 | 11,227,316 | ||||||
68,675,810 | ||||||||
Property & Casualty Insurance–0.02% | ||||||||
Chubb Corp. (The) | 2,692 | 248,122 | ||||||
Publishing–0.52% | ||||||||
Thomson Reuters Corp. | 193,533 | 7,046,633 | ||||||
Railroads–0.68% | ||||||||
CSX Corp. | 300,253 | 9,250,795 | ||||||
Regional Banks–2.30% | ||||||||
BB&T Corp. | 200,548 | 7,907,608 | ||||||
Fifth Third Bancorp | 358,584 | 7,655,768 | ||||||
PNC Financial Services Group, Inc. (The) | 175,767 | 15,652,051 | ||||||
31,215,427 | ||||||||
Security & Alarm Services–1.11% | ||||||||
Tyco International Ltd. | 331,127 | 15,099,391 | ||||||
Semiconductor Equipment–1.34% | ||||||||
Applied Materials, Inc. | 807,408 | 18,207,050 |
Shares | Value | |||||||
Semiconductors–1.27% | ||||||||
Broadcom Corp.–Class A | 200,231 | $ | 7,432,575 | |||||
Intel Corp. | 74,328 | 2,296,735 | ||||||
Texas Instruments Inc. | 155,073 | 7,410,939 | ||||||
17,140,249 | ||||||||
Specialized Finance–0.50% | ||||||||
CME Group Inc.–Class A | 95,189 | 6,753,660 | ||||||
Specialty Chemicals–0.31% | ||||||||
PPG Industries, Inc. | 20,280 | 4,261,842 | ||||||
Systems Software–1.53% | ||||||||
Microsoft Corp. | 234,238 | 9,767,724 | ||||||
Symantec Corp. | 478,211 | 10,951,032 | ||||||
20,718,756 | ||||||||
Wireless Telecommunication Services–0.50% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 203,082 | 6,780,908 | ||||||
Total Common Stocks & Other Equity Interests |
| 849,805,609 | ||||||
Principal Amount | ||||||||
Bonds and Notes–20.29% |
| |||||||
Advertising–0.06% | ||||||||
Interpublic Group of Cos., Inc. (The), Sr. Unsec. Global Notes, | $ | 370,000 | 376,328 | |||||
4.20%, 04/15/24 | 360,000 | 371,706 | ||||||
748,034 | ||||||||
Aerospace & Defense–0.06% | ||||||||
L-3 Communications Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 05/28/24 | 435,000 | 439,321 | ||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, 2.50%, 01/15/23 | 365,000 | 350,863 | ||||||
790,184 | ||||||||
Agricultural & Farm Machinery–0.09% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/22 | 1,275,000 | 1,248,222 | ||||||
Agricultural Products–0.02% | ||||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 255,000 | 315,519 | ||||||
Air Freight & Logistics–0.32% | ||||||||
FedEx Corp., | 440,000 | 474,284 | ||||||
Sr. Unsec. Gtd. Notes, 5.10%, 01/15/44 | 910,000 | 988,367 | ||||||
United Parcel Service Inc., Sr. Unsec. Global Notes, 2.45%, 10/01/22 | 295,000 | 286,522 | ||||||
UTi Worldwide Inc., Sr. Unsec. Conv. Notes, 4.50%, 03/01/19(c) | 2,471,000 | 2,640,881 | ||||||
4,390,054 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Airlines–0.10% | ||||||||
Continental Airlines Pass Through Trust, | $ | 271,059 | $ | 294,607 | ||||
Series 2012-1, Class A, Sr. Sec. Pass Through Ctfs., 4.15%, 04/11/24 | 484,898 | 508,840 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sr. Sec. Pass Through Ctfs., 6.20%, 07/02/18 | 177,703 | 199,361 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 10/23/23(c) | 318,609 | 337,251 | ||||||
1,340,059 | ||||||||
Airport Services–0.04% | ||||||||
Heathrow Funding Ltd. (United Kingdom), Sr. Sec. Notes, 2.50%, 06/25/15(c) | 535,000 | 544,027 | ||||||
Application Software–0.19% | ||||||||
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | 185,000 | 206,000 | ||||||
Citrix Systems Inc., Sr. Unsec. Conv. Notes, 0.50%, 04/15/19(c) | 2,171,000 | 2,301,260 | ||||||
2,507,260 | ||||||||
Asset Management & Custody Banks–0.09% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(c) | 425,000 | 427,473 | ||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(c) | 725,000 | 737,146 | ||||||
1,164,619 | ||||||||
Automobile Manufacturers–0.17% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 09/15/14(c) | 320,000 | 320,814 | ||||||
1.88%, 01/11/18(c) | 555,000 | 560,621 | ||||||
Ford Motor Co., Sr. Unsec. Global Notes, 4.75%, 01/15/43 | 1,000,000 | 1,016,343 | ||||||
Ford Motor Credit Co. LLC., Sr. Unsec. Global Notes, 2.50%, 01/15/16 | 450,000 | 461,178 | ||||||
2,358,956 | ||||||||
Automotive Retail–0.09% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, | 660,000 | 696,881 | ||||||
5.75%, 05/01/20 | 399,000 | 457,634 | ||||||
1,154,515 | ||||||||
Biotechnology–0.72% | ||||||||
Celgene Corp., Sr. Unsec. Global Notes, | 485,000 | 504,228 | ||||||
4.63%, 05/15/44 | 1,390,000 | 1,398,716 | ||||||
Cubist Pharmaceuticals Inc., | 1,815,000 | 2,073,637 | ||||||
Sr. Unsec. Conv. Notes, 1.13%, 09/01/18(c) | 1,109,000 | 1,250,398 |
Principal Amount | Value | |||||||
Biotechnology–(continued) | ||||||||
Gilead Sciences, Inc., | $ | 645,000 | $ | 645,474 | ||||
Series D, Sr. Unsec. Conv. Notes, 1.63%, 05/01/16 | 1,059,000 | 3,862,046 | ||||||
9,734,499 | ||||||||
Brewers–0.08% | ||||||||
Anheuser-Busch InBev Worldwide, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | 325,000 | 326,555 | ||||||
3.63%, 04/15/15 | 395,000 | 405,344 | ||||||
FBG Finance Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(c) | 325,000 | 338,511 | ||||||
1,070,410 | ||||||||
Broadcasting–0.43% | ||||||||
Grupo Televisa S.A.B. (Mexico), Sr. Unsec. Global Notes, 5.00%, 05/13/45 | 350,000 | 348,079 | ||||||
Liberty Media Corp., Sr. Unsec. Conv. Notes, 1.38%, 10/15/23(c) | 5,441,000 | 5,529,416 | ||||||
5,877,495 | ||||||||
Cable & Satellite–0.29% | ||||||||
Comcast Corp., | 755,000 | 775,939 | ||||||
5.70%, 05/15/18 | 445,000 | 513,077 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 03/15/37 | 305,000 | 390,244 | ||||||
COX Communications Inc., | 142,000 | 145,180 | ||||||
Sr. Unsec. Notes, | 440,000 | 428,145 | ||||||
8.38%, 03/01/39(c) | 80,000 | 112,697 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., | 90,000 | 94,850 | ||||||
Sr. Unsec. Gtd. Notes, 1.75%, 01/15/18 | 390,000 | 391,022 | ||||||
NBCUniversal Media LLC, Sr. Unsec. Gtd. Global Notes, 5.15%, 04/30/20 | 175,000 | 200,977 | ||||||
5.95%, 04/01/41 | 215,000 | 264,115 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Deb., 5.88%, 11/15/40 | 470,000 | 550,896 | ||||||
3,867,142 | ||||||||
Casinos & Gaming–0.35% | ||||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 3,219,000 | 4,733,942 | ||||||
Catalog Retail–0.15% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Bonds, 0.75%, 03/30/23(d) | 1,498,000 | 2,014,810 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Commodity Chemicals–0.07% | ||||||||
Basell Finance Co. B.V. (Netherlands), Sr. Unsec. Gtd. Deb., 8.10%, 03/15/27(c) | $ | 745,000 | $ | 1,003,088 | ||||
Communications Equipment–0.51% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(c) | 3,177,000 | 4,418,016 | ||||||
JDS Uniphase Corp., Sr. Unsec. Conv. Deb., 0.63%, 08/15/18(c)(d) | 2,083,000 | 2,093,415 | ||||||
Juniper Networks Inc., Sr. Unsec. Global Notes, 4.50%, 03/15/24 | 345,000 | 361,047 | ||||||
6,872,478 | ||||||||
Construction Machinery & Heavy Trucks–0.06% | ||||||||
Greenbrier Cos., Inc. (The), Sr. Unsec. Conv. Notes, 3.50%, 04/01/18 | 499,000 | 838,944 | ||||||
Construction Materials–0.49% | ||||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | 5,300,000 | 6,648,188 | ||||||
Data Processing & Outsourced Services–0.04% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | 490,000 | 514,768 | ||||||
Xerox Corp., Sr. Unsec. Notes, 4.25%, 02/15/15 | 40,000 | 40,928 | ||||||
555,696 | ||||||||
Distillers & Vintners–0.02% | ||||||||
Brown-Forman Corp., Sr. Unsec. Notes, 2.25%, 01/15/23 | 310,000 | 287,537 | ||||||
Diversified Banks–1.28% | ||||||||
Abbey National Treasury Services PLC (United Kingdom), Sr. Unsec. Gtd. Medium-Term Euro Notes, 3.88%, 11/10/14(c) | 675,000 | 681,942 | ||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(c) | 480,000 | 473,328 | ||||||
Bank of America Corp., | 975,000 | 1,101,689 | ||||||
Sr. Unsec. Medium-Term Notes, 1.25%, 01/11/16 | 600,000 | 604,754 | ||||||
4.13%, 01/22/24 | 375,000 | 386,252 | ||||||
5.00%, 01/21/44 | 240,000 | 252,383 | ||||||
6.88%, 04/25/18 | 410,000 | 482,923 | ||||||
Series L, Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | 350,000 | 396,932 | ||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 2.75%, 02/23/15 | 200,000 | 202,837 | ||||||
6.75%, 05/22/19 | 510,000 | 615,529 | ||||||
Unsec. Sub. Global Notes, 5.14%, 10/14/20 | 275,000 | 302,605 | ||||||
BBVA Bancomer S.A. (Mexico), Sr. Unsec. Notes, 4.38%, 04/10/24(c) | 700,000 | 712,609 |
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | $ | 340,000 | $ | 403,879 | ||||
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(c) | 565,000 | 593,840 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/18(c) | 325,000 | 374,719 | ||||||
HSBC Bank PLC (United Kingdom), Sr. Unsec. Notes, 4.13%, 08/12/20(c) | 565,000 | 609,938 | ||||||
HSBC Holdings PLC (United Kingdom), Unsec. Sub. Global Notes, 4.25%, 03/14/24 | 235,000 | 243,341 | ||||||
JPMorgan Chase & Co., | 400,000 | 438,124 | ||||||
4.50%, 01/24/22 | 80,000 | 87,448 | ||||||
Sr. Unsec. Notes, 6.00%, 01/15/18 | 615,000 | 703,871 | ||||||
Series S, Jr. Unsec. Sub. Notes, 6.75%(e) | 585,000 | 630,338 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 640,000 | 639,200 | ||||||
Korea Development Bank (The) (South Korea), Sr. Unsec. Global Notes, 4.38%, 08/10/15 | 200,000 | 207,679 | ||||||
Lloyds Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.30%, 11/27/18 | 550,000 | 558,697 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, 4.60%, 03/27/24(c) | 490,000 | 516,749 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(c) | 190,000 | 193,948 | ||||||
Nordea Bank AB (Sweden), Sr. Unsec. Notes, 4.88%, 01/27/20(c) | 245,000 | 274,744 | ||||||
Rabobank Nederland N.V. (Netherlands), Sr. Unsec. Medium-Term Global Notes, 4.75%, 01/15/20(c) | 490,000 | 546,284 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(c) | 200,000 | 202,852 | ||||||
Societe Generale S.A. (France), Unsec. Sub. Notes, 5.00%, 01/17/24(c) | 735,000 | 763,339 | ||||||
Standard Chartered PLC (United Kingdom), | 255,000 | 261,707 | ||||||
5.50%, 11/18/14(c) | 100,000 | 101,857 | ||||||
Unsec. Sub. Notes, 5.70%, 03/26/44(c) | 420,000 | 446,614 | ||||||
U.S. Bank N.A., Unsec. Sub. Notes, 3.78%, 04/29/20 | 450,000 | 460,279 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Diversified Banks–(continued) | ||||||||
Wells Fargo & Co., | $ | 180,000 | $ | 179,826 | ||||
3.63%, 04/15/15 | 50,000 | 51,287 | ||||||
Unsec. Sub. Global Notes, 4.13%, 08/15/23 | 1,194,000 | 1,245,316 | ||||||
Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/26 | 450,000 | 455,577 | ||||||
17,405,236 | ||||||||
Diversified Capital Markets–0.07% | ||||||||
Credit Suisse AG (Switzerland), Unsec. Sub. Notes, 6.50%, 08/08/23(c) | 686,000 | 779,333 | ||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Global Bank Notes, 5.75%, 04/25/18 | 103,000 | 118,541 | ||||||
897,874 | ||||||||
Diversified Chemicals–0.03% | ||||||||
Dow Chemical Co. (The), Sr. Unsec. Global Notes, 4.38%, 11/15/42 | 370,000 | 355,397 | ||||||
Diversified Metals & Mining–0.33% | ||||||||
Anglo American Capital PLC (United Kingdom), Sr. Unsec. Gtd. Notes, | 535,000 | 548,596 | ||||||
9.38%, 04/08/19(c) | 200,000 | 257,659 | ||||||
Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Global Notes, 1.40%, 02/13/15 | 455,000 | 456,839 | ||||||
Glencore Finance Canada Ltd. (Canada), Sr. Unsec. Gtd. Notes, | 420,000 | 425,352 | ||||||
2.70%, 10/25/17(c) | 420,000 | 433,215 | ||||||
Glencore Funding LLC (Switzerland), Sr. Unsec. Gtd. Notes, 3.13%, 04/29/19(c) | 1,055,000 | 1,077,364 | ||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, | 200,000 | 262,099 | ||||||
9.00%, 05/01/19 | 295,000 | 386,969 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, | 645,000 | 594,332 | ||||||
5.38%, 04/16/20 | 5,000 | 5,543 | ||||||
6.75%, 04/16/40 | 10,000 | 10,928 | ||||||
4,458,896 | ||||||||
Diversified REIT’s–0.10% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(c) | 1,155,000 | 1,305,438 | ||||||
Diversified Support Services–0.03% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | 380,000 | 392,938 | ||||||
Drug Retail–0.08% | ||||||||
CVS Pass Through Trust, Sr. Sec. Global Pass Through Ctfs., 6.04%, 12/10/28 | 969,675 | 1,113,641 |
Principal Amount | Value | |||||||
Electric Utilities–0.28% | ||||||||
Baltimore Gas & Electric Co., Sr. Unsec. Notes, 3.35%, 07/01/23 | $ | 615,000 | $ | 625,139 | ||||
Electricite de France S.A. (France), | 965,000 | 1,012,961 | ||||||
Sr. Unsec. Notes, | 150,000 | 166,493 | ||||||
4.88%, 01/22/44(c) | 930,000 | 994,624 | ||||||
Iberdrola Finance Ireland Ltd. (Spain), Sr. Unsec. Gtd. Notes, 3.80%, 09/11/14(c) | 200,000 | 201,171 | ||||||
Louisville Gas & Electric Co., Sr. Sec. First Mortgage Global Bonds, 1.63%, 11/15/15 | 405,000 | 411,221 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 200,000 | 233,859 | ||||||
PPL Electric Utilities Corp., Sr. Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 65,295 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 17,056 | ||||||
3,727,819 | ||||||||
Electrical Components & Equipment–0.06% | ||||||||
Eaton Corp., Sr. Unsec. Gtd. Global Notes, 0.95%, 11/02/15 | 740,000 | 743,567 | ||||||
Fertilizers & Agricultural Chemicals–0.06% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, 2.13%, 07/15/19 | 305,000 | 306,040 | ||||||
3.38%, 07/15/24 | 210,000 | 211,724 | ||||||
3.60%, 07/15/42 | 365,000 | 323,283 | ||||||
841,047 | ||||||||
Food Retail–0.10% | ||||||||
Kroger Co. (The), Sr. Unsec. Global Notes, 3.30%, 01/15/21 | 1,295,000 | 1,327,311 | ||||||
General Merchandise Stores–0.06% | ||||||||
Target Corp., Sr. Unsec. Global Notes, 2.90%, 01/15/22 | 760,000 | 763,162 | ||||||
Gold–0.11% | ||||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | 500,000 | 518,603 | ||||||
Gold Fields Orogen Holding BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(c) | 465,000 | 427,800 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 620,000 | 598,478 | ||||||
1,544,881 | ||||||||
Health Care Distributors–0.15% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Bonds, 3.40%, 05/15/24 | 940,000 | 936,221 | ||||||
McKesson Corp., Sr. Unsec. Global Notes, 2.28%, 03/15/19 | 1,095,000 | 1,099,885 | ||||||
2,036,106 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Health Care Equipment–0.57% | ||||||||
CareFusion Corp., Sr. Unsec. Global Notes, | $ | 685,000 | $ | 692,658 | ||||
4.88%, 05/15/44 | 750,000 | 758,140 | ||||||
Edwards Lifesciences Corp., Sr. Unsec. Global Notes, 2.88%, 10/15/18 | 731,000 | 747,039 | ||||||
Medtronic Inc., Sr. Unsec. Global Notes, | 525,000 | 501,548 | ||||||
4.63%, 03/15/44 | 525,000 | 550,616 | ||||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 1,104,000 | 1,268,220 | ||||||
Volcano Corp., Sr. Unsec. Conv. Notes, 1.75%, 12/01/17 | 3,297,000 | 3,200,151 | ||||||
7,718,372 | ||||||||
Health Care Facilities–0.51% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | 2,241,000 | 3,060,366 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/20(d) | 3,465,000 | 3,813,665 | ||||||
6,874,031 | ||||||||
Health Care REIT’s–0.19% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 4.20%, 03/01/24 | 480,000 | 495,452 | ||||||
Health Care REIT, Inc., Sr. Unsec. Global Notes, 4.50%, 01/15/24 | 615,000 | 647,223 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 495,000 | 513,872 | ||||||
Ventas Realty L.P., Sr. Unsec. Gtd. Notes, 5.70%, 09/30/43 | 215,000 | 250,645 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, 2.70%, 04/01/20 | 430,000 | 428,102 | ||||||
4.25%, 03/01/22 | 200,000 | 211,953 | ||||||
2,547,247 | ||||||||
Health Care Services–0.73% | ||||||||
Express Scripts Holding Co., | 940,000 | 938,096 | ||||||
Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | 300,000 | 312,579 | ||||||
Medco Health Solutions Inc., | 220,000 | 225,337 | ||||||
Sr. Unsec. Gtd. Sub. Conv. Notes, 3.50%, 02/15/44 | 1,903,000 | 2,164,663 | ||||||
3.75%, 04/01/42 | 2,681,000 | 4,448,784 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(d) | 1,625,000 | 1,736,719 | ||||||
9,826,178 | ||||||||
Homebuilding–0.08% | ||||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 1,050,000 | 1,017,133 |
Principal Amount | Value | |||||||
Hotels, Resorts & Cruise Lines–0.07% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, | $ | 335,000 | $ | 348,026 | ||||
5.63%, 03/01/21 | 580,000 | 654,540 | ||||||
1,002,566 | ||||||||
Housewares & Specialties–0.09% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/21 | 1,160,000 | 1,250,646 | ||||||
Hypermarkets & Super Centers–0.03% | ||||||||
Wal-Mart Stores, Inc., | 360,000 | 364,112 | ||||||
Sr. Unsec. Global Notes, 6.50%, 08/15/37 | 50,000 | 66,002 | ||||||
430,114 | ||||||||
Industrial Conglomerates–0.09% | ||||||||
General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes, 6.00%, 08/07/19 | 300,000 | 355,711 | ||||||
Series C, Jr. Unsec. Sub. Global Bonds, 5.25%(e) | 900,000 | 918,000 | ||||||
1,273,711 | ||||||||
Industrial Machinery–0.06% | ||||||||
Pentair Finance S.A., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/15/21 | 690,000 | 762,941 | ||||||
Insurance Brokers–0.03% | ||||||||
Marsh & McLennan Cos., Inc., Sr. Unsec. Global Notes, 4.05%, 10/15/23 | 410,000 | 432,446 | ||||||
Integrated Oil & Gas–0.19% | ||||||||
BP Capital Markets PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.24%, 05/10/19 | 985,000 | 993,307 | ||||||
Chevron Corp., Sr. Unsec. Global Notes, 1.72%, 06/24/18 | 520,000 | 524,594 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/22 | 300,000 | 318,182 | ||||||
Petrobras Global Finance B.V. (Brazil), Sr. Unsec. Gtd. Global Notes, 5.63%, 05/20/43 | 645,000 | 580,489 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | 115,000 | 118,156 | ||||||
2,534,728 | ||||||||
Integrated Telecommunication Services–0.56% | ||||||||
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | 4,000 | 5,882 | ||||||
AT&T Inc., Sr. Unsec. Global Notes, 5.35%, 09/01/40 | 101,000 | 110,080 | ||||||
6.15%, 09/15/34 | 140,000 | 167,594 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 1.25%, 02/14/17 | 550,000 | 550,441 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Deutsche Telekom International Finance B.V. (Germany), Sr. Unsec. Gtd. Global Bonds, 8.75%, 06/15/30 | $ | 155,000 | $ | 227,246 | ||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/36 | 360,000 | 456,061 | ||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, | 230,000 | 238,560 | ||||||
5.15%, 09/15/23 | 1,390,000 | 1,551,830 | ||||||
6.40%, 09/15/33 | 1,910,000 | 2,346,231 | ||||||
6.40%, 02/15/38 | 300,000 | 369,020 | ||||||
6.55%, 09/15/43 | 1,240,000 | 1,565,908 | ||||||
7,588,853 | ||||||||
Internet Software & Services–0.13% | ||||||||
Baidu Inc. (China), Sr. Unsec. Global Notes, 3.25%, 08/06/18 | 685,000 | 711,204 | ||||||
Tencent Holdings Ltd. (China), Sr. Unsec. Notes, 3.38%, 05/02/19(c) | 975,000 | 997,420 | ||||||
1,708,624 | ||||||||
Investment Banking & Brokerage–1.32% | ||||||||
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | 510,000 | 568,927 | ||||||
Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 5.25%, 07/27/21 | 400,000 | 449,651 | ||||||
6.15%, 04/01/18 | 550,000 | 630,788 | ||||||
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | 65,000 | 67,072 | ||||||
Unsec. Global Notes, 2.63%, 01/31/19 | 535,000 | 543,094 | ||||||
Unsec. Sub. Global Notes, 6.75%, 10/01/37 | 385,000 | 461,047 | ||||||
Series 0000, Sr. Unsec. Exchangeable Basket-Linked Conv. Medium-Term Notes, | ||||||||
1.00%, 03/15/17(c)(f) | 3,328,000 | 4,294,118 | ||||||
1.00%, 09/28/20(c)(g) | 6,230,000 | 6,643,859 | ||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/17(d) | 1,303,000 | 1,398,282 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(c) | 300,000 | 340,423 | ||||||
Morgan Stanley, | 705,000 | 878,234 | ||||||
Sr. Unsec. Medium-Term Global Notes, 4.00%, 07/24/15 | 610,000 | 631,842 | ||||||
Sr. Unsec. Notes, | 715,000 | 740,645 | ||||||
5.75%, 01/25/21 | 220,000 | 256,096 | ||||||
17,904,078 | ||||||||
Life & Health Insurance–0.19% | ||||||||
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | 275,000 | 289,906 |
Principal Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
Lincoln National Corp., Sr. Unsec. Global Notes, 4.00%, 09/01/23 | $ | 460,000 | $ | 478,676 | ||||
MetLife, Inc., Sr. Unsec. Global Notes, 4.75%, 02/08/21 | 410,000 | 459,336 | ||||||
Pacific LifeCorp., Sr. Unsec. Notes, 6.00%, 02/10/20(c) | 215,000 | 247,633 | ||||||
Prudential Financial, Inc., | 410,000 | 443,664 | ||||||
Series D, Sr. Unsec. Medium-Term Notes, | 50,000 | 50,932 | ||||||
4.75%, 09/17/15 | 255,000 | 267,641 | ||||||
6.63%, 12/01/37 | 110,000 | 142,361 | ||||||
7.38%, 06/15/19 | 105,000 | 130,165 | ||||||
2,510,314 | ||||||||
Managed Health Care–0.59% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 3.95%, 09/01/20 | 605,000 | 657,193 | ||||||
UnitedHealth Group Inc., Sr. Unsec. Global Notes, 1.63%, 03/15/19 | 535,000 | 527,620 | ||||||
WellPoint Inc., Sr. Unsec. Conv. Bonds, 2.75%, 10/15/42 | 4,455,000 | 6,846,778 | ||||||
8,031,591 | ||||||||
Movies & Entertainment–0.05% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Notes, 2.50%, 05/15/19(c) | 462,000 | 482,212 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | 130,000 | 144,734 | ||||||
626,946 | ||||||||
Multi-Utilities–0.03% | ||||||||
Enable Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 2.40%, 05/15/19(c) | 440,000 | 440,938 | ||||||
Office REIT’s–0.07% | ||||||||
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | 335,000 | 344,616 | ||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/24 | 605,000 | 618,937 | ||||||
963,553 | ||||||||
Office Services & Supplies–0.04% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/24 | 500,000 | 518,447 | ||||||
Oil & Gas Drilling–0.10% | ||||||||
Noble Holding International Ltd., Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/17 | 150,000 | 153,493 | ||||||
Rowan Cos. Inc., Sr. Unsec. Gtd. Notes, 5.85%, 01/15/44 | 1,165,000 | 1,260,825 | ||||||
1,414,318 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Oil & Gas Equipment & Services–0.11% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(d) | $ | 1,126,000 | $ | 1,522,915 | ||||
Oil & Gas Exploration & Production–0.74% | ||||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/19 | 4,246,000 | 3,922,243 | ||||||
Noble Energy, Inc., Sr. Unsec. Global Notes, 5.25%, 11/15/43 | 830,000 | 916,971 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/24/22 | 570,000 | 618,082 | ||||||
Southwestern Energy Co., Sr. Unsec. Gtd. Global Notes, 4.10%, 03/15/22 | 675,000 | 716,230 | ||||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17 | 3,053,000 | 3,879,218 | ||||||
10,052,744 | ||||||||
Oil & Gas Refining & Marketing–0.03% | ||||||||
Phillips 66, Sr. Unsec. Gtd. Global Notes, 1.95%, 03/05/15 | 385,000 | 388,934 | ||||||
Oil & Gas Storage & Transportation–0.30% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Global Notes, 5.25%, 01/31/20 | 155,000 | 177,097 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 09/01/40 | 25,000 | 31,652 | ||||||
Series N, Sr. Unsec. Gtd. Notes, 6.50%, 01/31/19 | 245,000 | 291,022 | ||||||
Plains All American Pipeline L.P./PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 355,000 | 366,879 | ||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/38 | 120,000 | 156,226 | ||||||
Sunoco Logistics Partners Operations L.P., Sr. Unsec. Gtd. Notes, | 645,000 | 679,291 | ||||||
5.50%, 02/15/20 | 535,000 | 607,692 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/32 | 185,000 | 244,833 | ||||||
Western Gas Partners L.P., Sr. Unsec. Notes, 5.45%, 04/01/44 | 600,000 | 661,785 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, 5.40%, 03/04/44 | 890,000 | 953,919 | ||||||
4,170,396 | ||||||||
Other Diversified Financial Services–0.37% | ||||||||
Citigroup Inc., | 65,000 | 66,884 | ||||||
6.13%, 11/21/17 | 495,000 | 565,905 | ||||||
8.50%, 05/22/19 | 455,000 | 582,874 | ||||||
Unsec. Sub. Global Notes, 3.50%, 05/15/23 | 775,000 | 756,574 | ||||||
5.30%, 05/06/44 | 250,000 | 260,120 | ||||||
6.68%, 09/13/43 | 815,000 | 1,007,897 |
Principal Amount | Value | |||||||
Other Diversified Financial Services–(continued) | ||||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/19(c) | $ | 935,000 | $ | 933,635 | ||||
ING Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.75%, 03/07/17(c) | 755,000 | 803,009 | ||||||
4,976,898 | ||||||||
Packaged Foods & Meats–0.07% | ||||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Notes, 3.88%, 06/27/24(c) | 765,000 | 763,880 | ||||||
Mondelez International Inc., Sr. Unsec. Global Notes, 6.50%, 02/09/40 | 174,000 | 222,930 | ||||||
986,810 | ||||||||
Paper Packaging–0.10% | ||||||||
Packaging Corp. of America, Sr. Unsec. Global Notes, 4.50%, 11/01/23 | 1,215,000 | 1,302,113 | ||||||
Paper Products–0.02% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/41 | 245,000 | 289,260 | ||||||
Personal Products–0.01% | ||||||||
Avon Products Inc., Sr. Unsec. Global Notes, 2.38%, 03/15/16 | 155,000 | 157,487 | ||||||
Pharmaceuticals–0.82% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, 1.20%, 11/06/15 | 1,620,000 | 1,630,888 | ||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Notes, 4.85%, 06/15/44(c) | 950,000 | 956,762 | ||||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | 75,000 | 85,939 | ||||||
6.38%, 05/15/38 | 70,000 | 91,089 | ||||||
Merck Sharp & Dohme Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 06/30/19 | 280,000 | 319,098 | ||||||
Mylan Inc., Sr. Unsec. Gtd. Notes, 6.00%, 11/15/18(c) | 1,045,000 | 1,094,637 | ||||||
Novartis Capital Corp. (Switzerland), Sr. Unsec. Gtd. Global Notes, 4.40%, 05/06/44 | 1,300,000 | 1,352,763 | ||||||
Perrigo Co. PLC, Sr. Unsec. Gtd. Notes, 2.30%, 11/08/18(c) | 405,000 | 405,107 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19 | 2,467,000 | 4,855,364 | ||||||
Zoetis Inc., Sr. Unsec. Global Notes, 4.70%, 02/01/43 | 365,000 | 371,582 | ||||||
11,163,229 | ||||||||
Property & Casualty Insurance–0.16% | ||||||||
CNA Financial Corp., | 325,000 | 380,847 | ||||||
Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 30,907 | ||||||
Markel Corp., Sr. Unsec. Notes, 5.00%, 03/30/43 | 385,000 | 403,037 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/18 | 195,000 | 243,628 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Property & Casualty Insurance–(continued) | ||||||||
Travelers Cos., Inc. (The), Sr. Unsec. Global Notes, 4.60%, 08/01/43 | $ | 665,000 | $ | 705,242 | ||||
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/22 | 420,000 | 452,422 | ||||||
2,216,083 | ||||||||
Railroads–0.25% | ||||||||
Burlington Northern Santa Fe, LLC, Sr. Unsec. Deb., 5.15%, 09/01/43 | 1,990,000 | 2,203,674 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | 380,000 | 439,040 | ||||||
Union Pacific Corp., | 101,000 | 105,227 | ||||||
Sr. Unsec. Notes, 4.85%, 06/15/44 | 570,000 | 632,182 | ||||||
3,380,123 | ||||||||
Regional Banks–0.07% | ||||||||
Nationwide Building Society (United Kingdom), | 485,000 | 573,078 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 02/08/20 | 360,000 | 410,615 | ||||||
983,693 | ||||||||
Reinsurance–0.06% | ||||||||
Reinsurance Group of America Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/23 | 780,000 | 840,119 | ||||||
Renewable Electricity–0.04% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 581,000 | 589,013 | ||||||
Retail REIT’s–0.02% | ||||||||
WEA Finance LLC (Australia), Sr. Unsec. Gtd. Notes, 7.13%, 04/15/18(c) | 270,000 | 319,343 | ||||||
Semiconductor Equipment–0.52% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | 3,026,000 | 4,149,403 | ||||||
Novellus Systems Inc., Sr. Unsec. Gtd. Conv. Notes, 2.63%, 05/15/41 | 1,399,000 | 2,838,221 | ||||||
6,987,624 | ||||||||
Semiconductors–0.66% | ||||||||
Micron Technology Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/28(d) | 3,239,000 | 4,188,432 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Notes, 1.00%, 12/01/18(c) | 4,339,000 | 4,810,866 | ||||||
8,999,298 | ||||||||
Soft Drinks–0.09% | ||||||||
PepsiCo, Inc., Sr. Unsec. Global Notes, 3.60%, 03/01/24 | 1,175,000 | 1,214,927 | ||||||
Sovereign Debt–0.01% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | 100,000 | 111,700 |
Principal Amount | Value | |||||||
Sovereign Debt–(continued) | ||||||||
Peruvian Government International Bond (Peru), Sr. Unsec. Global Notes, 7.13%, 03/30/19 | $ | 10,000 | $ | 12,188 | ||||
123,888 | ||||||||
Specialized Finance–0.09% | ||||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/22 | 935,000 | 984,663 | ||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 3.05%, 02/15/22 | 195,000 | 198,344 | ||||||
1,183,007 | ||||||||
Specialized REIT’s–0.33% | ||||||||
American Tower Corp., | 740,000 | 776,003 | ||||||
4.63%, 04/01/15 | 170,000 | 175,105 | ||||||
5.00%, 02/15/24 | 560,000 | 608,598 | ||||||
Sr. Unsec. Notes, 4.50%, 01/15/18 | 950,000 | 1,035,947 | ||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, | 370,000 | 376,003 | ||||||
6.11%, 01/15/20(c) | 770,000 | 901,862 | ||||||
EPR Properties, Sr. Unsec. Gtd. Notes, 5.25%, 07/15/23 | 615,000 | 642,962 | ||||||
4,516,480 | ||||||||
Steel–0.40% | ||||||||
ArcelorMittal (Luxembourg), | 446,000 | 571,995 | ||||||
Sr. Unsec. Global Notes, 4.25%, 08/05/15 | 585,000 | 600,385 | ||||||
6.13%, 06/01/18 | 15,000 | 16,519 | ||||||
7.25%, 03/01/41 | 115,000 | 123,625 | ||||||
United States Steel Corp., Sr. Unsec. Conv. Notes, 2.75%, 04/01/19 | 2,481,000 | 3,093,497 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.63%, 09/15/20 | 20,000 | 21,511 | ||||||
5.63%, 09/15/19 | 660,000 | 742,870 | ||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | 185,000 | 179,385 | ||||||
5,349,787 | ||||||||
Systems Software–0.26% | ||||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, 0.25%, 06/01/18 | 2,326,000 | 2,397,234 | ||||||
Oracle Corp., Sr. Unsec. Notes, 4.30%, 07/08/34 | 1,145,000 | 1,144,542 | ||||||
3,541,776 | ||||||||
Technology Hardware, Storage & Peripherals–0.66% | ||||||||
Apple Inc., Sr. Unsec. Global Notes, 3.45%, 05/06/24 | 305,000 | 307,448 | ||||||
Hewlett-Packard Co., Sr. Unsec. Global Notes, 2.63%, 12/09/14 | 420,000 | 424,039 | ||||||
SanDisk Corp., Sr. Unsec. Conv. Notes, 0.50%, 10/15/20(c) | 5,776,000 | 7,295,810 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
Technology Hardware, Storage & Peripherals–(continued) | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(c) | $ | 900,000 | $ | 894,375 | ||||
8,921,672 | ||||||||
Thrifts & Mortgage Finance–0.90% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | 710,000 | 1,060,562 | ||||||
5.00%, 05/01/17 | 6,201,000 | 7,255,170 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | 412,000 | 619,545 | ||||||
3.00%, 11/15/17 | 2,275,000 | 3,301,594 | ||||||
12,236,871 | ||||||||
Tobacco–0.13% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 35,000 | 36,427 | ||||||
Philip Morris International Inc., Sr. Unsec. Global Notes, 3.60%, 11/15/23 | 405,000 | 419,068 | ||||||
4.88%, 11/15/43 | 1,210,000 | 1,309,231 | ||||||
1,764,726 | ||||||||
Trucking–0.07% | ||||||||
Penske Truck Leasing Co., L.P./PTL Finance Corp., Sr. Unsec. Notes, 2.50%, 03/15/16(c) | 670,000 | 687,517 | ||||||
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | 280,000 | 284,866 | ||||||
972,383 | ||||||||
Wireless Telecommunication Services–0.10% | ||||||||
America Movil S.A.B. de C.V. (Mexico), Sr. Unsec. Global Notes, 4.38%, 07/16/42 | 600,000 | 562,943 | ||||||
Sr. Unsec. Gtd. Global Notes, 2.38%, 09/08/16 | 255,000 | 262,354 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 4.50%, 03/15/43 | 585,000 | 570,699 | ||||||
1,395,996 | ||||||||
Total Bonds and Notes |
| 274,904,361 | ||||||
U.S. Treasury Securities–7.95% |
| |||||||
U.S. Treasury Bills–0.01% | ||||||||
0.04%, 11/13/14(h)(i) | 175,000 | 174,971 | ||||||
U.S. Treasury Notes–7.67% | ||||||||
2.63%, 07/31/14 | 1,100,000 | 1,102,239 | ||||||
2.38%, 10/31/14 | 15,720,000 | 15,840,620 | ||||||
2.13%, 11/30/14 | 5,250,000 | 5,294,407 | ||||||
2.25%, 01/31/15 | 6,000,000 | 6,076,115 | ||||||
2.50%, 03/31/15 | 275,000 | 279,952 | ||||||
2.13%, 05/31/15 | 680,000 | 692,357 | ||||||
2.25%, 03/31/16 | 2,000,000 | 2,066,115 | ||||||
0.50%, 06/30/16 | 18,393,000 | 18,408,740 | ||||||
0.63%, 05/31/17 | 380,000 | 377,428 | ||||||
0.88%, 06/15/17 | 22,045,000 | 22,050,853 |
Principal Amount | Value | |||||||
U.S. Treasury Notes–(continued) | ||||||||
0.75%, 06/30/17 | $ | 9,000,000 | $ | 8,964,431 | ||||
0.75%, 02/28/18 | 6,200,000 | 6,102,980 | ||||||
1.25%, 01/31/19 | 8,000,000 | 7,909,627 | ||||||
1.63%, 06/30/19 | 5,035,000 | 5,034,818 | ||||||
3.63%, 08/15/19 | 1,525,000 | 1,674,123 | ||||||
3.38%, 11/15/19 | 300,000 | 325,962 | ||||||
3.63%, 02/15/20 | 46,000 | 50,592 | ||||||
2.63%, 11/15/20 | 600,000 | 623,154 | ||||||
2.50%, 05/15/24 | 987,000 | 985,209 | ||||||
103,859,722 | ||||||||
U.S. Treasury Bonds–0.27% | ||||||||
5.38%, 02/15/31 | 1,720,000 | 2,255,951 | ||||||
4.50%, 08/15/39 | 40,000 | 48,672 | ||||||
4.38%, 05/15/40 | 80,000 | 95,757 | ||||||
3.63%, 02/15/44 | 1,260,000 | 1,327,243 | ||||||
3,727,623 | ||||||||
Total U.S. Treasury Securities |
| 107,762,316 | ||||||
Shares | ||||||||
Preferred Stocks–0.94% |
| |||||||
Asset Management & Custody Banks–0.17% | ||||||||
AMG Capital Trust II, $2.58 Jr. Gtd. Sub. Conv. Pfd. | 25,000 | 1,576,563 | ||||||
State Street Corp., Series D, 5.90% Pfd.(b) | 30,000 | 787,875 | ||||||
2,364,438 | ||||||||
Diversified Banks–0.09% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 45,000 | 1,167,300 | ||||||
Oil & Gas Storage & Transportation–0.39% | ||||||||
El Paso Energy Capital Trust I, $2.38, Jr. Unsec. Gtd. Sub. Conv. Pfd. | 95,499 | 5,281,095 | ||||||
Regional Banks–0.29% | ||||||||
KeyCorp, Series A, | 30,290 | 3,969,504 | ||||||
Total Preferred Stocks |
| 12,782,337 | ||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency Securities–0.52% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.38% | ||||||||
Unsec. Global Notes, 3.00%, 07/28/14 | $ | 1,020,000 | 1,022,266 | |||||
4.88%, 06/13/18 | 1,000,000 | 1,136,499 | ||||||
5.00%, 04/18/17 | 1,500,000 | 1,673,149 | ||||||
5.50%, 08/23/17 | 140,000 | 159,419 | ||||||
6.75%, 03/15/31 | 750,000 | 1,077,189 | ||||||
5,068,522 | ||||||||
Federal National Mortgage Association (FNMA)–0.14% | ||||||||
Unsec. Global Notes, 2.63%, 11/20/14 | 130,000 | 131,275 | ||||||
4.38%, 10/15/15 | 1,700,000 | 1,789,423 | ||||||
1,920,698 | ||||||||
Total U.S. Government Sponsored Agency Securities (Cost $6,590,502) |
| 6,989,220 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.00% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.00% | ||||||||
Pass Through Ctfs., 6.50%, 02/01/26 | $ | 2,619 | $ | 2,953 | ||||
5.50%, 02/01/37 | 134 | 149 | ||||||
3,102 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., 6.00%, 01/01/17 | 395 | 410 | ||||||
5.50%, 03/01/21 | 225 | 246 | ||||||
8.00%, 08/01/21 | 2,308 | 2,478 | ||||||
9.50%, 04/01/30 | 6,118 | 7,223 | ||||||
10,357 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $12,573) |
| 13,459 |
Shares | Value | |||||||
Money Market Funds–7.65% |
| |||||||
Liquid Assets Portfolio–Institutional Class(j) | 51,790,016 | $ | 51,790,016 | |||||
Premier Portfolio–Institutional Class(j) | 51,790,015 | 51,790,015 | ||||||
Total Money Market Funds |
| 103,580,031 | ||||||
TOTAL INVESTMENTS–100.07% |
| 1,355,837,333 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.07)% |
| (941,558 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,354,895,775 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
REIT | – Real Estate Investment Trust |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $73,763,759, which represented 5.44% of the Fund’s Net Assets. |
(d) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
(e) | Perpetual bond with no specified maturity date. |
(f) | Exchangeable for a basket of four common stocks and one ordinary share. |
(g) | Exchangeable for a basket of five common stocks. |
(h) | Security traded on a discount basis. The interest rate show represents the discount rate at the time of purchase by the Fund. |
(i) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Financials | 23.3 | % | ||
Health Care | 12.4 | |||
Information Technology | 11.4 | |||
Energy | 9.7 | |||
Consumer Discretionary | 8.6 | |||
Unknown | 8.5 | |||
Industrials | 7.1 | |||
Consumer Staples | 4.2 | |||
Materials | 3.2 | |||
Telecommunication Services | 2.4 | |||
Utilities | 1.6 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.6 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $974,549,330) | $ | 1,252,257,302 | ||
Investments in affiliated money market funds, at value and cost | 103,580,031 | |||
Total investments, at value (Cost $1,078,129,361) | 1,355,837,333 | |||
Foreign currencies, at value (Cost $238,163) | 238,948 | |||
Receivable for: | ||||
Investments sold | 29,050,157 | |||
Fund shares sold | 153,891 | |||
Dividends and interest | 3,812,574 | |||
Investment for trustee deferred compensation and retirement plans | 147,481 | |||
Total assets | 1,389,240,384 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 29,967,561 | |||
Fund shares reacquired | 1,243,673 | |||
Forward foreign currency contracts outstanding | 571,856 | |||
Variation margin — futures | 12,664 | |||
Accrued fees to affiliates | 2,350,316 | |||
Accrued trustees’ and officers’ fees and benefits | 536 | |||
Accrued other operating expenses | 30,637 | |||
Trustee deferred compensation and retirement plans | 167,366 | |||
Total liabilities | 34,344,609 | |||
Net assets applicable to shares outstanding | $ | 1,354,895,775 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 926,752,626 | ||
Undistributed net investment income | 30,112,624 | |||
Undistributed net realized gain | 120,848,870 | |||
Net unrealized appreciation | 277,181,655 | |||
$ | 1,354,895,775 | |||
Net Assets: |
| |||
Series I | $ | 61,147,695 | ||
Series II | $ | 1,293,748,080 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,101,351 | |||
Series II | 65,924,541 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 19.72 | ||
Series II: | ||||
Net asset value per share | $ | 19.62 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $282,247) | $ | 16,205,622 | ||
Dividends from affiliated money market funds | 18,815 | |||
Interest | 4,246,275 | |||
Total investment income | 20,470,712 | |||
Expenses: | ||||
Advisory fees | 2,470,036 | |||
Administrative services fees | 1,712,857 | |||
Custodian fees | 27,821 | |||
Distribution fees — Series II | 1,557,758 | |||
Transfer agent fees | 12,499 | |||
Trustees’ and officers’ fees and benefits | 21,201 | |||
Other | 92,273 | |||
Total expenses | 5,894,445 | |||
Less: Fees waived | (64,075 | ) | ||
Net expenses | 5,830,370 | |||
Net investment income | 14,640,342 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 62,538,146 | |||
Foreign currencies | 25,780 | |||
Forward foreign currency contracts | (958,912 | ) | ||
Futures contracts | (367,063 | ) | ||
61,237,951 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 1,047,944 | |||
Foreign currencies | (268 | ) | ||
Forward foreign currency contracts | 35,061 | |||
Futures contracts | (161,778 | ) | ||
920,959 | ||||
Net realized and unrealized gain | 62,158,910 | |||
Net increase in net assets resulting from operations | $ | 76,799,252 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 14,640,342 | $ | 16,018,000 | ||||
Net realized gain | 61,237,951 | 91,385,848 | ||||||
Change in net unrealized appreciation | 920,959 | 149,760,286 | ||||||
Net increase in net assets resulting from operations | 76,799,252 | 257,164,134 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (922,674 | ) | |||||
Series ll | — | (17,292,155 | ) | |||||
Total distributions from net investment income | — | (18,214,829 | ) | |||||
Share transactions–net: | ||||||||
Series l | (2,634,575 | ) | (5,778,611 | ) | ||||
Series ll | (23,602,354 | ) | 54,234,443 | |||||
Net increase(decrease) in net assets resulting from share transactions | (26,236,929 | ) | 48,455,832 | |||||
Net increase in net assets | 50,562,323 | 287,405,137 | ||||||
Net assets: | ||||||||
Beginning of period | 1,304,333,452 | 1,016,928,315 | ||||||
End of period (includes undistributed net investment income of $30,112,624 and $15,472,282, respectively) | $ | 1,354,895,775 | $ | 1,304,333,452 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco 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-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objectives are both capital appreciation and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. Equity and Income Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Equity and Income Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
K. | Futures Contracts — The Fund may enter into futures contracts to manage exposure to interest rate, equity and market price movements and/or currency risks. A futures contract is an agreement between two parties to purchase or sell a specified underlying security, currency or commodity (or delivery of a cash settlement price, in the case of an index future) for a fixed price at a future date. The Fund currently invests only in exchange-traded futures and they are standardized as to maturity date and underlying financial instrument. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral at the futures commission merchant (broker). During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by recalculating the value of the contracts on a daily basis. Subsequent or variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. These amounts are reflected as receivables or payables on the Statement of Assets and Liabilities. When the contracts are closed or expire, the Fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s basis in the contract. The net realized gain (loss) and the change in unrealized gain (loss) on futures contracts held during the period is included on the Statement of Operations. The primary risks associated with futures contracts are market risk and the absence of a liquid secondary market. If the Fund were unable to liquidate a futures contract and/or enter into an offsetting closing transaction, the Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to maintain the margin deposits on the futures contracts. Futures contracts have minimal counterparty risk since the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
L. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
Invesco V.I. Equity and Income Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $150 million | 0.50% | |||
Next $100 million | 0.45% | |||
Next $100 million | 0.40% | |||
Over $350 million | 0.35% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $64,075.
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, 2014, Invesco was paid $152,576 for accounting and fund administrative services and reimbursed $1,560,281 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $3,332 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Equity and Income Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 954,911,595 | $ | 11,256,382 | $ | — | $ | 966,167,977 | ||||||||
U.S. Treasury Securities | — | 107,762,316 | — | 107,762,316 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 7,002,679 | — | 7,002,679 | ||||||||||||
Corporate Debt Securities | — | 274,780,473 | — | 274,780,473 | ||||||||||||
Foreign Government Debt Securities | — | 123,888 | — | 123,888 | ||||||||||||
954,911,595 | 400,925,738 | — | 1,355,837,333 | |||||||||||||
Forward Foreign Currency Contracts* | — | (571,856 | ) | — | (571,856 | ) | ||||||||||
Futures* | 40,843 | — | — | 40,843 | ||||||||||||
Total Investments | $ | 954,952,438 | $ | 400,353,882 | $ | — | $ | 1,355,306,320 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (571,856 | ) | |||
Interest rate risk | ||||||||
Futures contracts(b) | 40,843 | — | ||||||
Total | $ | 40,843 | $ | (571,856 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
(b) | Includes cumulative appreciation of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||
Futures Contracts | Forward Foreign Currency Contracts | |||||||
Realized Gain (Loss) | ||||||||
Currency risk | $ | — | $ | (958,912 | ) | |||
Interest rate risk | (367,063 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Currency risk | $ | — | $ | 35,061 | ||||
Interest rate risk | (161,778 | ) | — | |||||
Total | $ | (528,841 | ) | $ | (923,851 | ) |
The table below summarizes the average notional value of futures contracts and forward foreign currency contracts outstanding during the period.
Futures Contracts | Forward Foreign Currency Contracts | |||||||
Average notional value | $ | 12,840,164 | $ | 68,525,519 |
Invesco V.I. Equity and Income Fund
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | CAD | 7,893,285 | USD | 7,344,299 | $ | 7,392,303 | $ | (48,004 | ) | ||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | CAD | 7,902,291 | USD | 7,352,049 | 7,400,737 | (48,688 | ) | ||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | CHF | 4,244,220 | USD | 4,743,205 | 4,787,290 | (44,085 | ) | ||||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | CHF | 4,223,068 | USD | 4,718,934 | 4,763,432 | (44,498 | ) | ||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | EUR | 9,592,684 | USD | 13,041,350 | 13,136,206 | (94,856 | ) | ||||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | EUR | 9,666,740 | USD | 13,142,126 | 13,237,617 | (95,491 | ) | ||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | GBP | 6,693,712 | USD | 11,361,974 | 11,453,611 | (91,637 | ) | ||||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | GBP | 6,689,120 | USD | 11,353,644 | 11,445,753 | (92,109 | ) | ||||||||||||||||||
07/25/2014 | Bank of New York Mellon (The) | ILS | 4,231,364 | USD | 1,231,143 | 1,232,638 | (1,495 | ) | ||||||||||||||||||
07/25/2014 | State Street Bank and Trust Co. | ILS | 24,810,886 | USD | 7,216,663 | 7,227,656 | (10,993 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk |
| $ | (571,856 | ) |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
ILS | – Israeli Shekel | |
USD | – U.S. Dollar |
Open Futures Contracts at Period-End | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation | |||||||||||||||
U.S. Treasury 5 Year Notes | Short | 45 | September-2014 | $ | (5,375,742 | ) | $ | 12,912 | ||||||||||||
U.S. Treasury 10 Year Notes | Short | 28 | September-2014 | (3,504,813 | ) | 14,378 | ||||||||||||||
U.S. Treasury Long Bond | Short | 26 | September-2014 | (3,566,875 | ) | 13,553 | ||||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | 40,843 |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities* | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Goldman Sachs & Co. | $ | 40,843 | $ | — | $ | 40,843 | $ | — | $ | — | $ | 40,843 | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York Mellon (The) | $ | 280,077 | $ | — | $ | 280,077 | $ | — | $ | — | $ | 280,077 | ||||||||||||
State Street Bank and Trust Co. | 291,779 | — | 291,779 | — | — | 291,779 | ||||||||||||||||||
Total | $ | 571,856 | $ | — | $ | 571,856 | $ | — | $ | — | $ | 571,856 |
* | Includes cumulative appreciation of futures contracts. |
Invesco V.I. Equity and Income Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 4,241,666 | $ | — | $ | 4,241,666 | ||||||
December 31, 2017 | 524,022 | — | 524,022 | |||||||||
$ | 4,765,688 | $ | — | $ | 4,765,688 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $209,910,440 and $210,222,805, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $276,574,797 and $282,418,839, 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 | $ | 283,854,349 | ||
Aggregate unrealized (depreciation) of investment securities | (9,152,896 | ) | ||
Net unrealized appreciation of investment securities | $ | 274,701,453 |
Cost of investments for tax purposes is $1,081,135,880.
Invesco V.I. Equity and Income Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 199,462 | $ | 3,808,709 | 337,298 | $ | 5,758,048 | ||||||||||
Series II | 1,853,021 | 34,736,212 | 7,056,697 | 120,193,527 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 52,544 | 922,674 | ||||||||||||
Series II | — | — | 987,559 | 17,292,155 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (342,111 | ) | (6,443,284 | ) | (726,382 | ) | (12,459,333 | ) | ||||||||
Series II | (3,098,481 | ) | (58,338,566 | ) | (4,866,125 | ) | (83,251,239 | ) | ||||||||
Net increase (decrease) in share activity | (1,388,109 | ) | $ | (26,236,929 | ) | 2,841,591 | $ | 48,455,832 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 18.58 | $ | 0.23 | $ | 0.91 | $ | 1.14 | $ | — | $ | 19.72 | 6.14 | % | $ | 61,148 | 0.65 | %(d) | 0.66 | %(d) | 2.49 | %(d) | 40 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 15.08 | 0.27 | 3.51 | 3.78 | (0.28 | ) | 18.58 | 25.18 | 60,288 | 0.66 | 0.67 | 1.59 | 41 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 13.65 | 0.28 | 1.42 | 1.70 | (0.27 | ) | 15.08 | 12.49 | 53,990 | 0.66 | 0.67 | 1.85 | 31 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.06 | 0.25 | (0.41 | ) | (0.16 | ) | (0.25 | ) | 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 06/30/14 | 18.52 | 0.21 | 0.89 | 1.10 | — | 19.62 | 5.94 | 1,293,748 | 0.90 | (d) | 0.91 | (d) | 2.24 | (d) | 40 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 15.05 | 0.23 | 3.50 | 3.73 | (0.26 | ) | 18.52 | 24.88 | 1,244,045 | 0.91 | 0.92 | 1.34 | 41 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 13.63 | 0.25 | 1.44 | 1.69 | (0.27 | ) | 15.05 | 12.39 | 962,938 | 0.81 | 0.92 | 1.70 | 31 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.05 | 0.25 | (0.42 | ) | (0.17 | ) | (0.25 | ) | 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 | ) | 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 | ) | 12.80 | 22.49 | 672,782 | 0.74 | (g) | 1.04 | (g) | 2.09 | (g)(h) | 81 |
(a) | Calculate using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $84,964,454 and sold of $24,142,395 in effect to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $59,469 and $1,256,534 for Series I and Series II shares, respectively. |
(e) | Commencement date of June 1, 2010. |
(f) | Annualized. |
(g) | The ratios reflect the rebate of certain Fund expenses in connection with the investments in Morgan Stanley affiliates during the period. The effect of the rebate was 0.01% for the year ended December 31, 2009. |
(h) | Ratio of net investment income to average net assets without fee waivers and/or expenses absorbed was 1.79% for the year ended December 31, 2009. |
Invesco V.I. Equity and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,061.40 | $ | 3.32 | $ | 1,021.57 | $ | 3.26 | 0.65 | % | ||||||||||||
Series II | 1,000.00 | 1,059.40 | 4.60 | 1,020.33 | 4.51 | 0.90 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equity and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Equity and Income Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Mixed-Asset Target Allocation Growth Funds Index. The Board noted that performance of Series II 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 third quintile for
Invesco V.I. Equity and Income Fund
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 above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund and above the sub-adviser effective fee rate of two funds sub-advised by Invesco Advisers using a similar investment process and below the effective fee rate of one fund sub-advised by Invesco Advisers using a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly
by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such
services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Equity and Income Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Global Core Equity Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.86 | % | |||
Series II Shares | 4.65 | ||||
MSCI World Index‚ (Broad Market/Style-Specific Index) | 6.18 | ||||
Lipper VUF Global Core Funds Indexn (Peer Group Index) | 6.10 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Lipper VUF Global Core Funds Index is an unmanaged index considered representative of global core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (1/2/97) | 5.27 | % | |||
10 Years | 4.08 | ||||
5 Years | 11.14 | ||||
1 Year | 20.77 | ||||
Series II Shares | |||||
10 Years | 3.81 | % | |||
5 Years | 10.85 | ||||
1 Year | 20.40 |
Effective June 1, 2010, Class I shares of the predecessor fund, Universal Funds Global Value Equity Portfolio, advised by Morgan Stanley Investment Management Inc. were reorganized into Series I shares of Invesco Van Kampen V.I. Global Value Equity Fund (renamed Invesco V.I. Global Core Equity Fund on April 30, 2012). Returns shown above for Series I shares are blended returns of the predecessor fund and Invesco V.I. Global Value Equity Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series II shares incepted on June 1, 2010. Series II 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 1.09% and 1.34%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. 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 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, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.72% |
| |||||||
Australia–0.32% | ||||||||
Navitas Ltd. | 47,276 | $ | 317,864 | |||||
Canada–2.27% | ||||||||
CAE, Inc. | 47,852 | 626,067 | ||||||
Hudson’s Bay Co.(a) | 53,160 | 842,489 | ||||||
Toronto-Dominion Bank (The) | 15,764 | 811,543 | ||||||
2,280,099 | ||||||||
Finland–1.38% | ||||||||
Sampo Oyj–Class A | 27,244 | 1,378,428 | ||||||
France–8.94% | ||||||||
BNP Paribas S.A. | 5,651 | 383,375 | ||||||
Bouygues S.A. | 18,161 | 755,734 | ||||||
Casino Guichard-Perrachon S.A. | 6,651 | 881,851 | ||||||
Danone | 26,901 | 1,997,960 | ||||||
Edenred | 20,135 | 610,110 | ||||||
Lafarge S.A.(a) | 4,072 | 353,505 | ||||||
LVMH Moet Hennessy Louis Vuitton S.A. | 6,114 | 1,177,743 | ||||||
Publicis Groupe S.A. | 7,390 | 626,779 | ||||||
Sanofi | 20,533 | 2,183,951 | ||||||
8,971,008 | ||||||||
Germany–1.32% | ||||||||
SAP S.E. | 7,823 | 604,159 | ||||||
Siemens AG | 5,447 | 719,380 | ||||||
1,323,539 | ||||||||
Israel–1.16% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 22,222 | 1,164,877 | ||||||
Italy–1.50% | ||||||||
Fiat S.p.A.(b) | 58,485 | 576,393 | ||||||
Prada S.p.A. | 131,400 | 929,925 | ||||||
1,506,318 | ||||||||
Japan–6.32% | ||||||||
Asahi Group Holdings, Ltd.(a) | 25,400 | 797,276 | ||||||
Isuzu Motors Ltd. | 92,000 | 609,517 | ||||||
KDDI Corp. | 12,500 | 764,066 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 195,500 | 1,200,892 | ||||||
Sumitomo Corp.(a) | 106,200 | 1,436,078 | ||||||
Tokio Marine Holdings, Inc. | 13,300 | 438,209 | ||||||
Toyota Motor Corp. | 18,200 | 1,094,752 | ||||||
6,340,790 | ||||||||
Netherlands–1.88% | ||||||||
Heineken N.V. | 17,683 | 1,269,505 | ||||||
Koninklijke Philips N.V. | 19,240 | 610,553 | ||||||
1,880,058 | ||||||||
Spain–0.56% | ||||||||
Acciona S.A. | 6,336 | 565,921 |
Shares | Value | |||||||
Sweden–2.57% | ||||||||
Sandvik AB(a) | 123,554 | $ | 1,686,421 | |||||
SKF AB–Class B(a) | 34,840 | 888,106 | ||||||
2,574,527 | ||||||||
Switzerland–3.93% | ||||||||
ABB Ltd. | 59,187 | 1,365,847 | ||||||
Roche Holding AG | 6,078 | 1,812,845 | ||||||
TE Connectivity Ltd. | 12,362 | 764,466 | ||||||
3,943,158 | ||||||||
Taiwan–1.34% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 318,000 | 1,338,219 | ||||||
United Kingdom–11.77% | ||||||||
British American Tobacco PLC | 13,858 | 824,911 | ||||||
British Sky Broadcasting Group PLC | 75,701 | 1,171,243 | ||||||
Diageo PLC | 44,613 | 1,420,262 | ||||||
Imperial Tobacco Group PLC | 18,359 | 825,625 | ||||||
Kingfisher PLC | 110,770 | 680,602 | ||||||
Liberty Global PLC–Series A(a)(b) | 17,444 | 771,374 | ||||||
Liberty Global PLC–Series C(b) | 17,444 | 738,056 | ||||||
London Stock Exchange Group PLC | 13,992 | 480,195 | ||||||
National Grid PLC | 50,447 | 724,807 | ||||||
Rio Tinto PLC | 36,332 | 1,960,540 | ||||||
Royal Dutch Shell PLC–Class A | 20,579 | 851,819 | ||||||
Standard Chartered PLC | 66,382 | 1,356,537 | ||||||
11,805,971 | ||||||||
United States–53.46% | ||||||||
Abercrombie & Fitch Co.–Class A | 25,798 | 1,115,763 | ||||||
ACE Ltd. | 7,297 | 756,699 | ||||||
American Express Co. | 26,831 | 2,545,457 | ||||||
Amphenol Corp.–Class A | 8,016 | 772,261 | ||||||
Archer-Daniels-Midland Co. | 17,351 | 765,353 | ||||||
Berkshire Hathaway Inc.–Class A (b) | 14 | 2,658,607 | ||||||
Cameron International Corp.(b) | 11,586 | 784,488 | ||||||
Celgene Corp.(b) | 14,894 | 1,279,097 | ||||||
Chevron Corp. | 15,840 | 2,067,912 | ||||||
Cisco Systems, Inc. | 28,254 | 702,112 | ||||||
CMS Energy Corp. | 24,801 | 772,551 | ||||||
Concho Resources Inc.(b) | 8,330 | 1,203,685 | ||||||
Dana Holding Corp. | 35,028 | 855,384 | ||||||
Dick’s Sporting Goods, Inc. | 16,185 | 753,574 | ||||||
Dow Chemical Co. (The) | 15,148 | 779,516 | ||||||
Eaton Corp. PLC | 9,730 | 750,961 | ||||||
eBay Inc.(b) | 25,101 | 1,256,556 | ||||||
EMC Corp. | 58,153 | 1,531,750 | ||||||
EOG Resources, Inc. | 7,998 | 934,646 | ||||||
Express Scripts Holding Co.(b) | 12,152 | 842,498 | ||||||
First Republic Bank | 27,342 | 1,503,537 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Shares | Value | |||||||
United States–(continued) | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 20,965 | $ | 765,223 | |||||
GameStop Corp.–Class A(a) | 26,192 | 1,059,990 | ||||||
Gilead Sciences, Inc.(b) | 8,777 | 727,701 | ||||||
HCA Holdings, Inc.(b) | 27,621 | 1,557,272 | ||||||
International Business Machines Corp. | 11,939 | 2,164,183 | ||||||
Johnson Controls, Inc. | 14,440 | 720,989 | ||||||
Joy Global Inc.(a) | 19,926 | 1,227,043 | ||||||
Kroger Co. (The) | 14,494 | 716,438 | ||||||
Las Vegas Sands Corp. | 8,828 | 672,870 | ||||||
Linear Technology Corp. | 15,385 | 724,172 | ||||||
Macy’s, Inc. | 13,250 | 768,765 | ||||||
Marsh & McLennan Cos., Inc. | 23,689 | 1,227,564 | ||||||
Microsoft Corp. | 18,766 | 782,542 | ||||||
Moody’s Corp. | 21,603 | 1,893,719 | ||||||
Mosaic Co. (The) | 14,443 | 714,206 | ||||||
Noble Energy, Inc. | 10,663 | 825,956 | ||||||
Northern Trust Corp. | 30,918 | 1,985,245 | ||||||
Parker Hannifin Corp. | 9,580 | 1,204,493 | ||||||
Perrigo Co. PLC | 5,011 | 730,403 | ||||||
Pfizer Inc. | 23,496 | 697,361 | ||||||
Philip Morris International Inc. | 8,802 | 742,097 | ||||||
Progressive Corp. (The) | 53,221 | 1,349,685 | ||||||
QUALCOMM, Inc. | 18,019 | 1,427,105 |
Shares | Value | |||||||
United States–(continued) | ||||||||
ResMed Inc.(a) | 24,689 | $ | 1,250,004 | |||||
Tenet Healthcare Corp.(b) | 26,357 | 1,237,198 | ||||||
Weatherford International PLC(b) | 32,507 | 747,661 | ||||||
Yum! Brands, Inc. | 13,190 | 1,071,028 | ||||||
53,623,320 | ||||||||
Total Common Stocks & Other Equity Interests |
| 99,014,097 | ||||||
Money Market Funds–0.99% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 495,602 | 495,602 | ||||||
Premier Portfolio–Institutional Class(c) | 495,601 | 495,601 | ||||||
Total Money Market Funds |
| 991,203 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.71% (Cost $92,329,357) |
| 100,005,300 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–7.74% |
| |||||||
Liquid Asset Portfolio–Institutional Class | 7,764,727 | 7,764,727 | ||||||
TOTAL INVESTMENTS–107.45% |
| 107,770,027 | ||||||
OTHER ASSETS LESS LIABILITIES–(7.45)% |
| (7,468,949 | ) | |||||
NET ASSETS–100.00% |
| $ | 100,301,078 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | All or a portion of this security was out on loan at June 30, 2014. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(d) | 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. The following table presents the Fund’s gross and net amount of assets available for offset by the Fund as of June 30, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 7,500,030 | $ | (7,500,030 | ) | $ | — |
* | Amount does not include excess collateral received. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2014
United States | 53.5 | % | ||
United Kingdom | 11.8 | |||
France | 8.9 | |||
Japan | 6.3 | |||
Switzerland | 3.9 | |||
Sweden | 2.6 | |||
Canada | 2.3 | |||
Countries each less than 2.0% of portfolio | 9.4 | |||
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 V.I. Global Core Equity Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $91,338,154)* | $ | 99,014,097 | ||
Investments in affiliated money market funds, at value and cost | 8,755,930 | |||
Total investments, at value (Cost $100,094,084) | 107,770,027 | |||
Foreign currencies, at value (Cost $135,018) | 139,656 | |||
Receivable for: | ||||
Investments sold | 693,432 | |||
Dividends | 169,068 | |||
Investment for trustee deferred compensation and retirement plans | 29,831 | |||
Total assets | 108,802,014 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 421,823 | |||
Fund shares reacquired | 139,115 | |||
Collateral upon return of securities loaned | 7,764,727 | |||
Accrued fees to affiliates | 112,585 | |||
Accrued trustees’ and officers’ fees and benefits | 666 | |||
Accrued other operating expenses | 30,165 | |||
Trustee deferred compensation and retirement plans | 31,855 | |||
Total liabilities | 8,500,936 | |||
Net assets applicable to shares outstanding | $ | 100,301,078 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 95,597,199 | ||
Undistributed net investment income | 2,552,304 | |||
Undistributed net realized gain (loss) | (5,530,042 | ) | ||
Net unrealized appreciation | 7,681,617 | |||
$ | 100,301,078 | |||
Net Assets: |
| |||
Series I | $ | 82,465,960 | ||
Series II | $ | 17,835,118 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 8,684,847 | |||
Series II | 1,884,365 | |||
Series I: | ||||
Net asset value per share | $ | 9.50 | ||
Series II: | ||||
Net asset value per share | $ | 9.46 |
* | At June 30, 2014, securities with an aggregate value of $7,500,030 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $107,542) | $ | 1,387,227 | ||
Dividends from affiliated money market funds (includes securities lending income of $44,692) | 45,008 | |||
Total investment income | 1,432,235 | |||
Expenses: | ||||
Advisory fees | 335,767 | |||
Administrative services fees | 125,232 | |||
Custodian fees | 21,150 | |||
Distribution fees — Series II | 24,636 | |||
Transfer agent fees | 4,925 | |||
Trustees’ and officers’ fees and benefits | 13,218 | |||
Other | 29,797 | |||
Total expenses | 554,725 | |||
Less: Fees waived | (1,076 | ) | ||
Net expenses | 553,649 | |||
Net investment income | 878,586 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 15,698,204 | |||
Foreign currencies | (13,403 | ) | ||
15,684,801 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (11,904,263 | ) | ||
Foreign currencies | 2,169 | |||
(11,902,094 | ) | |||
Net realized and unrealized gain | 3,782,707 | |||
Net increase in net assets resulting from operations | $ | 4,661,293 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 878,586 | $ | 1,735,967 | ||||
Net realized gain | 15,684,801 | 7,659,768 | ||||||
Change in net unrealized appreciation (depreciation) | (11,902,094 | ) | 10,623,406 | |||||
Net increase in net assets resulting from operations | 4,661,293 | 20,019,141 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,522,471 | ) | |||||
Series ll | — | (347,778 | ) | |||||
Total distributions from net investment income | — | (1,870,249 | ) | |||||
Share transactions–net: | ||||||||
Series l | (5,309,616 | ) | (4,829,903 | ) | ||||
Series ll | (4,311,110 | ) | (3,576,358 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (9,620,726 | ) | (8,406,261 | ) | ||||
Net increase (decrease) in net assets | (4,959,433 | ) | 9,742,631 | |||||
Net assets: | ||||||||
Beginning of period | 105,260,511 | 95,517,880 | ||||||
End of period (includes undistributed net investment income of $2,552,304 and $1,673,718, respectively) | $ | 100,301,078 | $ | 105,260,511 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including U.S. issuers.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Global Core Equity Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Global Core Equity Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $1,076.
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, 2014, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $100,438 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, 2014, 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, 2014, 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, 2014. 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 Core Equity Fund
During the six months ended June 30, 2014, there were transfers from Level 1 to Level 2 of $3,701,517 and from Level 2 to Level 1 of $11,854,463, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 317,864 | $ | — | $ | — | $ | 317,864 | ||||||||
Canada | 2,280,099 | — | — | 2,280,099 | ||||||||||||
Finland | 1,378,428 | — | — | 1,378,428 | ||||||||||||
France | 4,999,204 | 3,971,804 | — | 8,971,008 | ||||||||||||
Germany | 1,323,539 | — | — | 1,323,539 | ||||||||||||
Israel | 1,164,877 | — | — | 1,164,877 | ||||||||||||
Italy | 929,925 | 576,393 | — | 1,506,318 | ||||||||||||
Japan | 797,276 | 5,543,514 | — | 6,340,790 | ||||||||||||
Netherlands | 1,880,058 | — | — | 1,880,058 | ||||||||||||
Spain | — | 565,921 | — | 565,921 | ||||||||||||
Sweden | — | 2,574,527 | — | 2,574,527 | ||||||||||||
Switzerland | 2,577,311 | 1,365,847 | — | 3,943,158 | ||||||||||||
Taiwan | — | 1,338,219 | — | 1,338,219 | ||||||||||||
United Kingdom | 6,394,542 | 5,411,429 | — | 11,805,971 | ||||||||||||
United States | 62,379,250 | — | — | 62,379,250 | ||||||||||||
$ | 86,422,373 | $ | 21,347,654 | $ | — | $ | 107,770,027 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 3,148,307 | $ | — | $ | 3,148,307 | ||||||
December 31, 2017 | 17,917,976 | — | 17,917,976 | |||||||||
$ | 21,066,283 | $ | — | $ | 21,066,283 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. Global Core Equity Fund
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2014 was $89,417,429 and $96,601,230, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 8,543,287 | ||
Aggregate unrealized (depreciation) of investment securities | (1,015,904 | ) | ||
Net unrealized appreciation of investment securities | $ | 7,527,383 |
Cost of investments for tax purposes is $100,242,644.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 255,570 | $ | 2,325,048 | 988,327 | $ | 8,287,585 | ||||||||||
Series II | 3,163 | 29,105 | 17,976 | 148,266 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 179,325 | 1,522,471 | ||||||||||||
Series II | — | — | 40,986 | 347,557 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (843,590 | ) | (7,634,664 | ) | (1,779,138 | ) | (14,639,959 | ) | ||||||||
Series II | (473,011 | ) | (4,340,215 | ) | (496,082 | ) | (4,072,181 | ) | ||||||||
Net increase (decrease) in share activity | (1,057,868 | ) | $ | (9,620,726 | ) | (1,048,606 | ) | $ | (8,406,261 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 86% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Global Core Equity Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 9.06 | $ | 0.08 | $ | 0.36 | $ | 0.44 | $ | — | $ | 9.50 | 4.86 | % | $ | 82,466 | 1.06 | %(d) | 1.06 | %(d) | 1.80 | %(d) | 90 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 7.54 | 0.15 | 1.54 | 1.69 | (0.17 | ) | 9.06 | 22.50 | 83,982 | 1.08 | 1.08 | 1.81 | 32 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.80 | 0.14 | 0.79 | 0.93 | (0.19 | ) | 7.54 | 13.75 | 74,517 | 1.00 | 1.08 | 1.98 | 23 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 7.87 | 0.20 | (1.02 | ) | (0.82 | ) | (0.25 | ) | 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 | ) | 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 | ) | 7.24 | �� | 15.99 | 45,972 | 1.15 | (e) | 1.20 | (e) | 3.33 | (e)(f) | 79 | |||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 9.04 | 0.07 | 0.35 | 0.42 | — | 9.46 | 4.65 | 17,835 | 1.31 | (d) | 1.31 | (d) | 1.55 | (d) | 90 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.52 | 0.13 | 1.53 | 1.66 | (0.14 | ) | 9.04 | 22.25 | 21,279 | 1.33 | 1.33 | 1.56 | 32 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.79 | 0.12 | 0.78 | 0.90 | (0.17 | ) | 7.52 | 13.41 | 21,001 | 1.25 | 1.33 | 1.73 | 23 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 7.86 | 0.18 | (1.02 | ) | (0.84 | ) | (0.23 | ) | 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 excludes the value of securities purchased of $68,458,544 and sold of $8,561,566 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Dividend Growth Fund into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $81,188 and $19,872 for Series I and Series II, respectively. |
(e) | The ratios reflect the rebate of certain Fund expenses in connection with investments in a Morgan Stanley affiliate during the period. The effect of the rebate on the ratios was less than 0.005% for the year ended December 31, 2009. |
(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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,048.60 | $ | 5.38 | $ | 1,019.54 | $ | 5.31 | 1.06 | % | ||||||||||||
Series II | 1,000.00 | 1,046.50 | 6.65 | 1,018.30 | 6.56 | 1.31 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met
during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Asset Management Limited currently manages certain assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Global Core 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 year period and the fifth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the
Invesco V.I. Global Core Equity Fund
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 noted that changes to the portfolio management team had been made in February 2014. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers retains overall responsibility for, and provides services to, sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described herein. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the
Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and
that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Core Equity Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Global Health Care Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VIGHC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.17 | % | |||
Series II Shares | 9.03 | ||||
MSCI World Index‚ (Broad Market Index) | 6.18 | ||||
MSCI World Health Care Index‚ (Style-Specific Index) | 10.79 | ||||
Lipper VUF Health/Biotechnology Funds Classification Averagen | 11.25 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The MSCI World Health Care Index is an unmanaged index considered representative of health care stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Lipper VUF Health/Biotechnology Funds Classification Average represents an average of the variable insurance underlying funds in the Lipper Health/Biotechnology Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/21/97) | 9.35 | % | |||
10 Years | 9.31 | ||||
5 Years | 19.01 | ||||
1 Year | 29.61 | ||||
Series II Shares | |||||
Inception (4/30/04) | 8.92 | % | |||
10 Years | 9.03 | ||||
5 Years | 18.71 | ||||
1 Year | 29.29 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.10% and 1.35%, 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 1.11% and 1.36%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Health Care Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
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, 2016. See current prospectus for more information. |
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–92.48% |
| |||||||
Biotechnology–22.00% | ||||||||
ACADIA Pharmaceuticals Inc.(b) | 50,257 | $ | 1,135,306 | |||||
Alexion Pharmaceuticals, Inc.(b) | 48,428 | 7,566,875 | ||||||
Biogen Idec Inc.(b) | 23,529 | 7,418,929 | ||||||
BioMarin Pharmaceutical Inc.(b) | 52,972 | 3,295,388 | ||||||
Celgene Corp.(b) | 76,268 | 6,549,896 | ||||||
Celldex Therapeutics Inc.(b) | 62,415 | 1,018,613 | ||||||
Exact Sciences Corp.(b) | 95,887 | 1,632,955 | ||||||
Gilead Sciences, Inc.(b) | 119,687 | 9,923,249 | ||||||
Incyte Corp.(b) | 51,645 | 2,914,844 | ||||||
Insmed, Inc.(b) | 40,671 | 812,606 | ||||||
Intercept Pharmaceuticals Inc.(b) | 8,000 | 1,893,040 | ||||||
Keryx Biopharmaceuticals, Inc.(b) | 99,428 | 1,529,203 | ||||||
Medivation Inc.(b) | 42,556 | 3,280,216 | ||||||
NPS Pharmaceuticals, Inc.(b) | 64,521 | 2,132,419 | ||||||
Vanda Pharmaceuticals Inc.(b) | 131,482 | 2,127,379 | ||||||
Vertex Pharmaceuticals Inc.(b) | 38,878 | 3,680,969 | ||||||
56,911,887 | ||||||||
Drug Retail–1.44% | ||||||||
CVS Caremark Corp. | 33,142 | 2,497,913 | ||||||
Raia Drogasil S.A. (Brazil) | 148,860 | 1,235,615 | ||||||
3,733,528 | ||||||||
Health Care Distributors–3.01% | ||||||||
Cardinal Health, Inc. | 54,566 | 3,741,045 | ||||||
McKesson Corp. | 21,796 | 4,058,633 | ||||||
7,799,678 | ||||||||
Health Care Equipment–6.18% | ||||||||
Abbott Laboratories | 78,741 | 3,220,507 | ||||||
Covidien PLC | 43,681 | 3,939,152 | ||||||
Olympus Corp. (Japan)(b) | 98,500 | 3,401,523 | ||||||
ResMed Inc. | 60,730 | 3,074,760 | ||||||
Wright Medical Group, Inc.(b) | 75,099 | 2,358,109 | ||||||
15,994,051 | ||||||||
Health Care Facilities–7.83% | ||||||||
Community Health Systems Inc.(b) | 105,210 | 4,773,377 | ||||||
HCA Holdings, Inc.(b) | 119,781 | 6,753,253 | ||||||
Tenet Healthcare Corp.(b) | 96,904 | 4,548,674 | ||||||
Universal Health Services, Inc.–Class B | 43,545 | 4,169,869 | ||||||
20,245,173 | ||||||||
Health Care Services–3.46% | ||||||||
Air Methods Corp.(b) | 46,991 | 2,427,085 | ||||||
Express Scripts Holding Co.(b) | 88,191 | 6,114,282 | ||||||
Innovacare Inc. (Puerto Rico) (Acquired 12/12/12; Cost $480,796)(b)(c) | 122,652 | 398,619 | ||||||
8,939,986 |
Shares | Value | |||||||
Life Sciences Tools & Services–2.71% | ||||||||
Thermo Fisher Scientific, Inc. | 37,863 | $ | 4,467,834 | |||||
Waters Corp.(b) | 24,349 | 2,543,010 | ||||||
7,010,844 | ||||||||
Managed Health Care–3.57% | ||||||||
Aetna Inc. | 49,605 | 4,021,974 | ||||||
Qualicorp S.A. (Brazil)(b) | 109,000 | 1,288,563 | ||||||
UnitedHealth Group Inc. | 48,107 | 3,932,747 | ||||||
9,243,284 | ||||||||
Pharmaceuticals–42.28% | ||||||||
AbbVie Inc. | 114,258 | 6,448,721 | ||||||
Allergan, Inc. | 22,693 | 3,840,109 | ||||||
Auxilium Pharmaceuticals Inc.(b) | 115,982 | 2,326,599 | ||||||
Bayer AG (Germany) | 47,416 | 6,697,192 | ||||||
Bristol-Myers Squibb Co. | 117,896 | 5,719,135 | ||||||
Endo International PLC(b) | 60,096 | 4,207,922 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 110,524 | 5,910,824 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 127,661 | 3,666,292 | ||||||
Horizon Pharma, Inc.(b) | 88,655 | 1,402,522 | ||||||
Jazz Pharmaceuticals PLC(b) | 24,721 | 3,634,234 | ||||||
Johnson & Johnson | 61,686 | 6,453,589 | ||||||
Mylan Inc.(b) | 80,761 | 4,164,037 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 116,000 | 3,377,311 | ||||||
Novartis AG–ADR (Switzerland) | 104,043 | 9,419,013 | ||||||
Perrigo Co. PLC | 27,129 | 3,954,323 | ||||||
Pfizer Inc. | 317,032 | 9,409,510 | ||||||
Repros Therapeutics Inc.(b) | 41,222 | 713,141 | ||||||
Roche Holding AG (Switzerland) | 31,847 | 9,498,795 | ||||||
Sanofi–ADR (France) | 193,285 | 10,276,963 | ||||||
Shire PLC–ADR (Ireland) | 16,575 | 3,903,247 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 83,442 | 4,374,031 | ||||||
109,397,510 | ||||||||
Total Common Stocks & Other Equity Interests |
| 239,275,941 | ||||||
Money Market Funds–7.49% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 9,685,626 | 9,685,626 | ||||||
Premier Portfolio–Institutional Class(d) | 9,685,625 | 9,685,625 | ||||||
Total Money Market Funds |
| 19,371,251 | ||||||
TOTAL INVESTMENTS–99.97% |
| 258,647,192 | ||||||
OTHER ASSETS LESS LIABILITIES–0.03% |
| 70,749 | ||||||
NET ASSETS–100.00% |
| $ | 258,717,941 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Investment Abbreviations:
ADR | – American Depositary Receipt |
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 transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2014 represented less than 1% of the Fund’s Net Assets. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2014
United States | 68.0 | % | ||
Switzerland | 7.3 | |||
France | 4.0 | |||
United Kingdom | 3.7 | |||
Germany | 2.6 | |||
Japan | 2.6 | |||
Countries each less than 2.0% of portfolio | 4.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 7.5 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $145,971,744) | $ | 239,275,941 | ||
Investments in affiliated money market funds, at value and cost | 19,371,251 | |||
Total investments, at value (Cost $165,342,995) | 258,647,192 | |||
Foreign currencies, at value (Cost $18,140) | 18,378 | |||
Receivable for: | ||||
Fund shares sold | 337,180 | |||
Dividends | 329,009 | |||
Investment for trustee deferred compensation and retirement plans | 68,633 | |||
Other assets | 161,901 | |||
Total assets | 259,562,293 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 227,406 | |||
Forward foreign currency contracts outstanding | 158,632 | |||
Accrued fees to affiliates | 348,258 | |||
Accrued trustees’ and officers’ fees and benefits | 396 | |||
Accrued other operating expenses | 31,629 | |||
Trustee deferred compensation and retirement plans | 78,031 | |||
Total liabilities | 844,352 | |||
Net assets applicable to shares outstanding | $ | 258,717,941 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 146,627,535 | ||
Undistributed net investment income | 239,076 | |||
Undistributed net realized gain | 18,699,573 | |||
Net unrealized appreciation | 93,151,757 | |||
$ | 258,717,941 | |||
Net Assets: |
| |||
Series I | $ | 192,154,529 | ||
Series II | $ | 66,563,412 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,002,153 | |||
Series II | 2,136,705 | |||
Series I: | ||||
Net asset value per share | $ | 32.01 | ||
Series II: | ||||
Net asset value per share | $ | 31.15 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $117,830) | $ | 1,721,929 | ||
Dividends from affiliated money market funds | 3,990 | |||
Total investment income | 1,725,919 | |||
Expenses: | ||||
Advisory fees | 926,720 | |||
Administrative services fees | 338,748 | |||
Custodian fees | 10,785 | |||
Distribution fees — Series II | 77,423 | |||
Transfer agent fees | 24,449 | |||
Trustees’ and officers’ fees and benefits | 14,198 | |||
Other | 40,371 | |||
Total expenses | 1,432,694 | |||
Less: Fees waived | (14,196 | ) | ||
Net expenses | 1,418,498 | |||
Net investment income | 307,421 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 8,351,043 | |||
Foreign currencies | (113 | ) | ||
Forward foreign currency contracts | (10,501 | ) | ||
8,340,429 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 12,764,257 | |||
Foreign currencies | 935 | |||
Forward foreign currency contracts | (10,271 | ) | ||
12,754,921 | ||||
Net realized and unrealized gain | 21,095,350 | |||
Net increase in net assets resulting from operations | $ | 21,402,771 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | 307,421 | $ | (50,362 | ) | |||
Net realized gain | 8,340,429 | 11,305,614 | ||||||
Change in net unrealized appreciation | 12,754,921 | 56,251,050 | ||||||
Net increase in net assets resulting from operations | 21,402,771 | 67,506,302 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,103,498 | ) | |||||
Series ll | — | (268,414 | ) | |||||
Total distributions from net investment income | — | (1,371,912 | ) | |||||
Share transactions–net: | ||||||||
Series l | (4,476,767 | ) | 238,003 | |||||
Series ll | 2,768,648 | 10,929,984 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (1,708,119 | ) | 11,167,987 | |||||
Net increase in net assets | 19,694,652 | 77,302,377 | ||||||
Net assets: | ||||||||
Beginning of period | 239,023,289 | 161,720,912 | ||||||
End of period (includes undistributed net investment income (loss) of $239,076 and $(68,345), respectively) | $ | 258,717,941 | $ | 239,023,289 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Health Care Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Global Health Care Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Global Health Care 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
K. | Other Risks — The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations. |
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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco V.I. Global Health Care Fund
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $14,196.
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, 2014, Invesco was paid $30,899 for accounting and fund administrative services and reimbursed $307,849 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $776 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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, 2014, there were transfers from Level 1 to Level 2 of $3,377,311 and from Level 2 to Level 1 of $13,165,087, due to foreign fair value adjustments, additionally, there were transfers from Level 2 to Level 3 of $398,619, due to security low volume trading.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 251,469,739 | $ | 6,778,834 | $ | 398,619 | $ | 258,647,192 | ||||||||
Forward Foreign Currency Contracts* | — | (158,632 | ) | — | (158,632 | ) | ||||||||||
Total Investments | $ | 251,469,739 | $ | 6,620,202 | $ | 398,619 | $ | 258,488,560 |
* | Unrealized appreciation (depreciation). |
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Invesco V.I. Global Health Care Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (158,632 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Forward Foreign Currency Contracts | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (10,501 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (10,271 | ) | |
Total | $ | (20,772 | ) |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 11,976,694 |
Open Forward Foreign Currency Contracts at Period–End | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/11/14 | Citibank Capital, Inc. | CHF | 5,989,800 | USD | 6,661,254 | $ | 6,755,202 | $ | (93,948 | ) | ||||||||||||||||
07/11/14 | Citibank Capital, Inc. | EUR | 4,453,800 | USD | 6,034,097 | 6,098,781 | (64,684 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk | $ | (158,632 | ) |
Currency Abbreviations:
CHF | – Swiss Franc | |
EUR | – Euro | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Citibank Capital, Inc. | $ | 158,632 | $ | — | $ | 158,632 | $ | — | $ | — | $ | 158,632 |
Invesco V.I. Global Health Care 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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $26,929,194 and $23,943,561, 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 | $ | 95,140,032 | ||
Aggregate unrealized (depreciation) of investment securities | (1,835,835 | ) | ||
Net unrealized appreciation of investment securities | $ | 93,304,197 |
Cost of investments is the same for tax and financial reporting purposes.
Invesco V.I. Global Health Care Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 622,396 | $ | 19,146,508 | 1,793,336 | $ | 44,988,563 | ||||||||||
Series II | 214,759 | 6,429,980 | 585,408 | 14,448,063 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 41,129 | 1,103,498 | ||||||||||||
Series II | — | — | 10,264 | 268,414 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (776,790 | ) | (23,623,275 | ) | (1,814,512 | ) | (45,854,058 | ) | ||||||||
Series II | (125,174 | ) | (3,661,332 | ) | (150,514 | ) | (3,786,493 | ) | ||||||||
Net increase (decrease) in share activity | (64,809 | ) | $ | (1,708,119 | ) | 465,111 | $ | 11,167,987 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net (loss)(a) | Net gains on securities (both | Total from operations | Dividends income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of to average net assets absorbed | Ratio of fee waivers | Ratio of net to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 29.32 | $ | 0.05 | $ | 2.64 | $ | 2.69 | $ | — | $ | 32.01 | 9.17 | % | $ | 192,155 | 1.09 | %(d) | 1.10 | %(d) | 0.31 | %(d) | 10 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 21.00 | 0.01 | 8.49 | 8.50 | (0.18 | ) | 29.32 | 40.54 | 180,535 | 1.09 | 1.10 | 0.03 | 32 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 17.37 | 0.12 | (e) | 3.51 | 3.63 | — | 21.00 | 20.90 | 128,898 | 1.12 | 1.13 | 0.63 | (e) | 43 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 16.71 | 0.00 | 0.66 | 0.66 | — | 17.37 | 3.95 | 114,476 | 1.11 | 1.12 | 0.03 | 42 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.87 | (0.03 | ) | 0.87 | 0.84 | — | 16.71 | 5.29 | 124,441 | 1.11 | 1.12 | (0.18 | ) | 16 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.47 | (0.01 | ) | 3.46 | 3.45 | (0.05 | ) | 15.87 | 27.67 | 143,648 | 1.13 | 1.14 | (0.05 | ) | 45 | |||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 28.57 | 0.01 | 2.57 | 2.58 | — | 31.15 | 9.03 | 66,563 | 1.34 | (d) | 1.35 | (d) | 0.06 | (d) | 10 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 20.49 | (0.05 | ) | 8.27 | 8.22 | (0.14 | ) | 28.57 | 40.16 | 58,488 | 1.34 | 1.35 | (0.22 | ) | 32 | |||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.99 | 0.07 | (e) | 3.43 | 3.50 | — | 20.49 | 20.60 | 32,823 | 1.37 | 1.38 | 0.38 | (e) | 43 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 16.38 | (0.04 | ) | 0.65 | 0.61 | — | 16.99 | 3.72 | 27,448 | 1.36 | 1.37 | (0.22 | ) | 42 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 15.60 | (0.07 | ) | 0.85 | 0.78 | — | 16.38 | 5.00 | 26,063 | 1.36 | 1.37 | (0.43 | ) | 16 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.26 | (0.04 | ) | 3.40 | 3.36 | (0.02 | ) | 15.60 | 27.39 | 26,722 | 1.38 | 1.39 | (0.30 | ) | 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 omitted) of $186,721 and $62,452 for Series I and Series II, respectively. |
(e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets includes significant dividends received during the period. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the significant dividends are $(0.01) and (0.02)% and $(0.06) and (0.27)% for Series I and Series II, 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending (06/30/14)1 | Expenses Paid During Period2 | Ending (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,091.70 | $ | 5.64 | $ | 1,019.41 | $ | 5.44 | 1.09 | % | ||||||||||||
Series II | 1,000.00 | 1,090.30 | 6.94 | 1,018.15 | 6.71 | 1.34 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Health Care Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met
during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Health Biotechnology 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
Invesco V.I. Global Health Care Fund
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, three and five year periods. Invesco Advisers noted that changes had been made to the portfolio management team in February 2014. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts using in investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the
Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and
that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Health Care Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Global Real Estate Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGRE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.77 | % | |||
Series II Shares | 11.61 | ||||
MSCI World Index‚ (Broad Market Index) | 6.18 | ||||
FTSE EPRA/NAREIT Developed Real Estate Index - Net Return‚ (Style-Specific Index)* | 11.74 | ||||
FTSE EPRA/NAREIT Developed Real Estate Index - Gross Return‚ (Former Style-Specific Index)* | 12.21 | ||||
Lipper VUF Real Estate Funds Classification Averagen (Peer Group) | 16.79 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
* | The Fund has elected to use the FTSE EPRA/NAREIT Developed Real Estate Index - Net Return as its style-specific benchmark rather than the FTSE EPRA/NAREIT Developed Real Estate Index - Gross Return because the FTSE EPRA/NAREIT Developed Real Estate Index - Net Return more closely reflects the performance of the types of securities in which the Fund invests. |
The MSCI World IndexSM is an unmanaged index considered representative of stocks of developed countries. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The FTSE EPRA/NAREIT Developed Real Estate Index – Net Return is an unmanaged index considered representative of global real estate companies and REITs. The index is computed using the net return, which withholds taxes for non-resident investors.
The Lipper VUF Real Estate Funds Classification Average represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds classification.
The FTSE EPRA/NAREIT Developed Real Estate Index – Gross Return is an unmanaged index considered representative of global real estate companies and REITs. The index is computed using the gross return, which does not withhold taxes for non-resident investors.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (3/31/98) | 8.79 | % | |||
10 Years | 8.69 | ||||
5 Years | 15.51 | ||||
1 Year | 13.70 | ||||
Series II Shares | |||||
Inception (4/30/04) | 9.34 | % | |||
10 Years | 8.43 | ||||
5 Years | 15.25 | ||||
1 Year | 13.36 |
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 1.10% and 1.35%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Global Real Estate Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They
do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Real Estate Investment Trusts, Common Stocks & Other Equity Interests–95.73% |
| |||||||
Australia–6.26% | ||||||||
Dexus Property Group | 3,164,259 | $ | 3,312,125 | |||||
Federation Centres Ltd. | 1,162,533 | 2,729,709 | ||||||
Goodman Group | 514,697 | 2,451,064 | ||||||
Mirvac Group | 1,799,605 | 3,029,194 | ||||||
Scentre Group(a) | 1,740,313 | 5,251,569 | ||||||
Stockland | 1,060,873 | 3,881,565 | ||||||
Westfield Corp. | 498,712 | 3,362,541 | ||||||
24,017,767 | ||||||||
Austria–0.23% | ||||||||
Conwert Immobilien Invest S.E. | 75,729 | 899,146 | ||||||
Brazil–0.48% | ||||||||
BR Properties S.A. | 33,400 | 201,201 | ||||||
Cyrela Brazil Realty S.A. Empreendimentos e Participacoes | 88,800 | 555,427 | ||||||
Even Construtora e Incorporadora S.A. | 35,300 | 104,646 | ||||||
EZ TEC Empreendimentos e Participacoes S.A. | 9,800 | 104,232 | ||||||
Helbor Empreendimentos S.A. | 3,800 | 11,609 | ||||||
Iguatemi Empresa de Shopping Centers S.A. | 11,100 | 111,427 | ||||||
MRV Engenharia e Participacoes S.A. | 26,700 | 89,423 | ||||||
Multiplan Empreendimentos Imobiliarios S.A. | 21,200 | 495,098 | ||||||
Tecnisa S.A. | 48,600 | 157,491 | ||||||
1,830,554 | ||||||||
Canada–3.43% | ||||||||
Allied Properties REIT | 122,400 | 4,055,145 | ||||||
Boardwalk REIT | 30,700 | 1,877,678 | ||||||
Canadian REIT | 68,300 | 2,943,877 | ||||||
Chartwell Retirement Residences | 132,608 | 1,347,208 | ||||||
H&R REIT | 135,500 | 2,941,125 | ||||||
13,165,033 | ||||||||
China–1.31% | ||||||||
China Overseas Land & Investment Ltd. | 2,028,000 | 4,919,282 | ||||||
Shimao Property Holdings Ltd. | 48,000 | 88,191 | ||||||
5,007,473 | ||||||||
Finland–0.36% | ||||||||
Sponda Oyj | 259,341 | 1,384,951 | ||||||
France–3.95% | ||||||||
Gecina S.A. | 14,591 | 2,127,812 | ||||||
ICADE | 6,112 | 655,305 | ||||||
Klepierre | 11,396 | 580,723 | ||||||
Mercialys S.A. | 52,345 | 1,219,926 | ||||||
Unibail-Rodamco S.E. | 36,288 | 10,545,610 | ||||||
15,129,376 | ||||||||
Germany–2.42% | ||||||||
Deutsche Wohnen AG | 186,563 | 4,023,506 | ||||||
GAGFAH S.A.(a) | 131,827 | 2,399,890 | ||||||
LEG Immobilien AG | 42,574 | 2,867,900 | ||||||
9,291,296 |
Shares | Value | |||||||
Hong Kong–6.98% | ||||||||
Henderson Land Development Co. Ltd. | 396,990 | $ | 2,322,912 | |||||
Hongkong Land Holdings Ltd. | 702,000 | 4,682,340 | ||||||
Hysan Development Co. Ltd. | 287,000 | 1,344,202 | ||||||
Link REIT (The) | 1,260,000 | 6,779,263 | ||||||
New World Development Co. Ltd. | 1,650,000 | 1,877,709 | ||||||
Sun Hung Kai Properties Ltd. | 610,000 | 8,366,407 | ||||||
Sun Hung Kai Properties Ltd.–Wts. expiring 04/22/16(a) | 32,916 | 42,980 | ||||||
Wharf Holdings Ltd. (The) | 186,000 | 1,339,131 | ||||||
26,754,944 | ||||||||
Japan–13.08% | ||||||||
Activia Properties, Inc. | 171 | 1,503,909 | ||||||
Frontier Real Estate Investment Corp. | 256 | 1,392,321 | ||||||
Hulic Co., Ltd. | 130,500 | 1,725,556 | ||||||
Hulic Reit, Inc. | 663 | 1,052,973 | ||||||
Japan Logistics Fund Inc. | 516 | 1,223,915 | ||||||
Japan Prime Realty Investment Corp. | 639 | 2,292,730 | ||||||
Japan Real Estate Investment Corp. | 633 | 3,686,408 | ||||||
Japan Retail Fund Investment Corp. | 415 | 933,146 | ||||||
Kenedix Office Investment Corp. | 420 | 2,284,276 | ||||||
Mitsubishi Estate Co. Ltd. | 232,000 | 5,739,635 | ||||||
Mitsui Fudosan Co., Ltd. | 513,000 | 17,347,109 | ||||||
Mori Hills REIT Investment Corp. | 889 | 1,288,177 | ||||||
Nippon Prologis REIT Inc. | 742 | 1,729,942 | ||||||
Sumitomo Realty & Development Co., Ltd. | 161,000 | 6,927,163 | ||||||
United Urban Investment Corp. | 656 | 1,058,691 | ||||||
50,185,951 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC (Acquired 08/06/09; Cost $0)(a)(b) | 3,053,090 | 0 | ||||||
Mexico–0.15% | ||||||||
Fibra Uno Administracion S.A. de C.V. | 166,593 | 584,147 | ||||||
Netherlands–0.08% | ||||||||
Wereldhave N.V. | 3,076 | 285,993 | ||||||
Norway–0.17% | ||||||||
Norwegian Property ASA(a) | 524,675 | 645,804 | ||||||
Singapore–3.39% | ||||||||
Ascendas REIT | 1,255,000 | 2,314,941 | ||||||
CapitaCommercial Trust | 1,845,000 | 2,515,438 | ||||||
CapitaLand Ltd. | 999,000 | 2,563,798 | ||||||
CapitaMall Trust | 469,000 | 742,862 | ||||||
CDL Hospitality Trusts | 522,000 | 736,803 | ||||||
Global Logistic Properties Ltd. | 1,360,000 | 2,944,903 | ||||||
Keppel Land Ltd. | 435,000 | 1,179,164 | ||||||
12,997,909 | ||||||||
Sweden–1.15% | ||||||||
Castellum AB | 135,914 | 2,408,982 | ||||||
Fabege AB | 62,218 | 880,461 | ||||||
Wihlborgs Fastigheter AB | 58,355 | 1,117,945 | ||||||
4,407,388 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
United Kingdom–5.92% | ||||||||
Big Yellow Group PLC | 122,549 | $ | 1,040,323 | |||||
Derwent London PLC | 49,555 | 2,269,333 | ||||||
Great Portland Estates PLC | 333,608 | 3,690,189 | ||||||
Hammerson PLC | 408,331 | 4,049,646 | ||||||
Land Securities Group PLC | 528,508 | 9,360,826 | ||||||
Quintain Estates & Development PLC(a) | 515,032 | 780,108 | ||||||
UNITE Group PLC (The) | 227,152 | 1,531,756 | ||||||
22,722,181 | ||||||||
United States–46.37% | ||||||||
AvalonBay Communities, Inc. | 94,821 | 13,482,598 | ||||||
Boston Properties, Inc. | 77,720 | 9,184,950 | ||||||
Brixmor Property Group Inc. | 112,900 | 2,591,055 | ||||||
Brookdale Senior Living Inc.(a) | 46,746 | 1,558,512 | ||||||
Cousins Properties, Inc. | 395,538 | 4,924,448 | ||||||
CubeSmart | 121,300 | 2,222,216 | ||||||
DDR Corp. | 493,099 | 8,693,335 | ||||||
EastGroup Properties, Inc. | 25,200 | 1,618,596 | ||||||
Empire State Realty Trust Inc.–Class A | 122,300 | 2,017,950 | ||||||
Essex Property Trust, Inc. | 34,545 | 6,387,716 | ||||||
Federal Realty Investment Trust | 43,173 | 5,220,479 | ||||||
General Growth Properties, Inc. | 263,424 | 6,206,269 | ||||||
Health Care REIT, Inc. | 150,227 | 9,414,726 | ||||||
Healthcare Realty Trust, Inc. | 112,535 | 2,860,640 | ||||||
Healthcare Trust of America, Inc.–Class A | 341,238 | 4,108,506 | ||||||
Hilton Worldwide Holdings Inc.(a) | 88,857 | 2,070,368 | ||||||
Host Hotels & Resorts Inc. | 208,162 | 4,581,646 | ||||||
Hudson Pacific Properties Inc. | 132,700 | 3,362,618 | ||||||
LaSalle Hotel Properties | 133,934 | 4,726,531 |
Shares | Value | |||||||
United States–(continued) | ||||||||
Liberty Property Trust | 7,475 | $ | 283,527 | |||||
Mid-America Apartment Communities, Inc. | 72,707 | 5,311,246 | ||||||
National Health Investors, Inc. | 37,800 | 2,364,768 | ||||||
National Retail Properties Inc. | 113,883 | 4,235,309 | ||||||
Pebblebrook Hotel Trust | 18,915 | 699,098 | ||||||
Piedmont Office Realty Trust Inc.–Class A | 217,884 | 4,126,723 | ||||||
Prologis, Inc. | 286,620 | 11,777,216 | ||||||
Public Storage | 47,000 | 8,053,450 | ||||||
Realty Income Corp. | 84,625 | 3,759,042 | ||||||
Retail Opportunity Investments Corp. | 180,184 | 2,834,294 | ||||||
RLJ Lodging Trust | 145,865 | 4,214,040 | ||||||
Simon Property Group, Inc. | 119,006 | 19,788,318 | ||||||
SL Green Realty Corp. | 86,758 | 9,492,193 | ||||||
UDR, Inc. | 156,855 | 4,490,759 | ||||||
Washington Prime Group Inc.(a) | 64,503 | 1,208,786 | ||||||
177,871,928 | ||||||||
Total Real Estate Investment Trusts, |
| 367,181,841 | ||||||
Money Market Funds–4.75% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 9,113,866 | 9,113,866 | ||||||
Premier Portfolio–Institutional Class(c) | 9,113,866 | 9,113,866 | ||||||
Total Money Market Funds |
| 18,227,732 | ||||||
TOTAL INVESTMENTS–100.48% |
| 385,409,573 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.48)% |
| (1,837,410 | ) | |||||
NET ASSETS–100.00% |
| $ | 383,572,163 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Non-income producing security. |
(b) | Security purchased or received in transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2014 represented less than 1% of the Fund’s Net Assets. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By country, based on Net Assets
as of June 30, 2014
United States | 46.4 | % | ||
Japan | 13.1 | |||
Hong Kong | 7.0 | |||
Australia | 6.3 | |||
United Kingdom | 5.9 | |||
France | 3.9 | |||
Canada | 3.4 | |||
Singapore | 3.4 | |||
Germany | 2.4 | |||
Countries each less than 2.0% of portfolio | 3.9 | |||
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. Global Real Estate Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $294,917,361) | $ | 367,181,841 | ||
Investments in affiliated money market funds, at value and cost | 18,227,732 | |||
Total investments, at value (Cost $313,145,093) | 385,409,573 | |||
Foreign currencies, at value (Cost $189,833) | 190,917 | |||
Receivable for: | ||||
Investments sold | 9,908,011 | |||
Fund shares sold | 278,947 | |||
Dividends | 1,704,828 | |||
Investment for trustee deferred compensation and retirement plans | 60,481 | |||
Other assets | 902 | |||
Total assets | 397,553,659 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 12,531,815 | |||
Fund shares reacquired | 778,863 | |||
Accrued fees to affiliates | 560,386 | |||
Accrued trustees’ and officers’ fees and benefits | 569 | |||
Accrued other operating expenses | 41,963 | |||
Trustee deferred compensation and retirement plans | 67,900 | |||
Total liabilities | 13,981,496 | |||
Net assets applicable to shares outstanding | $ | 383,572,163 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 323,795,501 | ||
Undistributed net investment income | 3,005,960 | |||
Undistributed net realized gain (loss) | (15,514,902 | ) | ||
Net unrealized appreciation | 72,285,604 | |||
$ | 383,572,163 | |||
Net Assets: |
| |||
Series I | $ | 210,848,093 | ||
Series II | $ | 172,724,070 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 12,339,679 | |||
Series II | 10,385,566 | |||
Series I: | ||||
Net asset value per share | $ | 17.09 | ||
Series II: | ||||
Net asset value per share | $ | 16.63 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $392,632) | $ | 6,269,105 | ||
Dividends from affiliated money market funds | 1,504 | |||
Total investment income | 6,270,609 | |||
Expenses: | ||||
Advisory fees | 1,365,901 | |||
Administrative services fees | 497,630 | |||
Custodian fees | 68,172 | |||
Distribution fees — Series II | 215,404 | |||
Transfer agent fees | 18,618 | |||
Trustees’ and officers’ fees and benefits | 14,969 | |||
Other | 33,002 | |||
Total expenses | 2,213,696 | |||
Less: Fees waived | (4,832 | ) | ||
Net expenses | 2,208,864 | |||
Net investment income | 4,061,745 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 8,070,187 | |||
Foreign currencies | 12,557 | |||
8,082,744 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 28,104,470 | |||
Foreign currencies | 25,561 | |||
28,130,031 | ||||
Net realized and unrealized gain | 36,212,775 | |||
Net increase in net assets resulting from operations | $ | 40,274,520 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 4,061,745 | $ | 4,488,219 | ||||
Net realized gain | 8,082,744 | 16,689,192 | ||||||
Change in net unrealized appreciation (depreciation) | 28,130,031 | (14,467,845 | ) | |||||
Net increase in net assets resulting from operations | 40,274,520 | 6,709,566 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (7,233,276 | ) | |||||
Series ll | — | (6,251,428 | ) | |||||
Total distributions from net investment income | — | (13,484,704 | ) | |||||
Share transactions–net: | ||||||||
Series l | (506,238 | ) | 15,656,375 | |||||
Series ll | (16,176,207 | ) | 49,946,312 | |||||
Net increase (decrease) in net assets resulting from share transactions | (16,682,445 | ) | 65,602,687 | |||||
Net increase in net assets | 23,592,075 | 58,827,549 | ||||||
Net assets: | ||||||||
Beginning of period | 359,980,088 | 301,152,539 | ||||||
End of period (includes undistributed net investment income of $3,005,960 and $(1,055,785), respectively) | $ | 383,572,163 | $ | 359,980,088 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Global Real Estate Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return through growth of capital and current income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Global Real Estate Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available on a timely basis from the REIT, the recharacterization will be based on available information which may include the previous year’s allocation. If new or additional information becomes available from the REIT at a later date, a recharacterization will be made in the following year. The Fund records as dividend income the amount recharacterized as ordinary income and as realized gain the amount recharacterized as capital gain in the Statement of Operations, and the amount recharacterized as return of capital as a reduction to the cost of investments in the Statement of Assets and Liabilities. These recharacterizations are reflected in the accompanying financial statements.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s |
Invesco V.I. Global Real Estate Fund
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 recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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.
Invesco V.I. Global Real Estate Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.75% | |||
Next $250 million | 0.74% | |||
Next $500 million | 0.73% | |||
Next $1.5 billion | 0.72% | |||
Next $2.5 billion | 0.71% | |||
Next $2.5 billion | 0.70% | |||
Next $2.5 billion | 0.69% | |||
Over $10 billion | 0.68% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $4,832.
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, 2014, Invesco was paid $44,548 for accounting and fund administrative services and reimbursed $453,082 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, 2014, 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, 2014, 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. |
Invesco V.I. Global Real Estate Fund
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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, 2014, there were transfers from Level 1 to Level 2 of $6,099,171 and from Level 2 to Level 1 of $22,106,924, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 24,017,767 | $ | — | $ | — | $ | 24,017,767 | ||||||||
Austria | 899,146 | — | — | 899,146 | ||||||||||||
Brazil | 1,830,554 | — | — | 1,830,554 | ||||||||||||
Canada | 13,165,033 | — | — | 13,165,033 | ||||||||||||
China | 5,007,473 | — | — | 5,007,473 | ||||||||||||
Finland | 1,384,951 | — | — | 1,384,951 | ||||||||||||
France | 4,583,766 | 10,545,610 | — | 15,129,376 | ||||||||||||
Germany | 9,291,296 | — | — | 9,291,296 | ||||||||||||
Hong Kong | 26,754,944 | — | — | 26,754,944 | ||||||||||||
Japan | 18,446,488 | 31,739,463 | — | 50,185,951 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Mexico | 584,147 | — | — | 584,147 | ||||||||||||
Netherlands | 285,993 | — | — | 285,993 | ||||||||||||
Norway | 645,804 | — | — | 645,804 | ||||||||||||
Singapore | 12,997,909 | — | — | 12,997,909 | ||||||||||||
Sweden | 1,998,406 | 2,408,982 | — | 4,407,388 | ||||||||||||
United Kingdom | 3,352,187 | 19,369,994 | — | 22,722,181 | ||||||||||||
United States | 196,099,660 | — | — | 196,099,660 | ||||||||||||
Total Investments | $ | 321,345,524 | $ | 64,064,049 | $ | 0 | $ | 385,409,573 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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
Invesco V.I. Global Real Estate Fund
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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 18,050,383 | $ | — | $ | 18,050,383 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $93,112,320 and $113,848,833, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 61,868,272 | ||
Aggregate unrealized (depreciation) of investment securities | (1,492,065 | ) | ||
Net unrealized appreciation of investment securities | $ | 60,376,207 |
Cost of investments for tax purposes is $325,033,366.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,099,679 | $ | 34,579,689 | 2,782,023 | $ | 44,529,853 | ||||||||||
Series II | 1,721,528 | 26,918,010 | 4,044,745 | 63,141,654 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 466,362 | 7,233,276 | ||||||||||||
Series II | — | — | 413,454 | 6,251,428 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,173,618 | ) | (35,085,927 | ) | (2,268,921 | ) | (36,106,754 | ) | ||||||||
Series II | (2,753,189 | ) | (43,094,217 | ) | (1,261,354 | ) | (19,446,770 | ) | ||||||||
Net increase (decrease) in share activity | (1,105,600 | ) | $ | (16,682,445 | ) | 4,176,309 | $ | 65,602,687 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 62% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 15.29 | $ | 0.19 | $ | 1.61 | $ | 1.80 | $ | — | $ | 17.09 | 11.77 | % | $ | 210,848 | 1.09 | %(d) | 1.09 | %(d) | 2.34 | %(d) | 26 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 15.47 | 0.22 | 0.21 | 0.43 | (0.61 | ) | 15.29 | 2.71 | 189,835 | 1.10 | 1.10 | 1.41 | 49 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 12.14 | 0.27 | 3.14 | 3.41 | (0.08 | ) | 15.47 | 28.12 | 176,933 | 1.14 | 1.14 | 1.94 | 51 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 13.58 | 0.24 | (1.16 | ) | (0.92 | ) | (0.52 | ) | 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 | ) | 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 | ||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 14.90 | 0.16 | 1.57 | 1.73 | — | 16.63 | 11.61 | 172,724 | 1.34 | (d) | 1.34 | (d) | 2.09 | (d) | 26 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 15.11 | 0.18 | 0.20 | 0.38 | (0.59 | ) | 14.90 | 2.44 | 170,145 | 1.35 | 1.35 | 1.16 | 49 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.87 | 0.23 | 3.07 | 3.30 | (0.06 | ) | 15.11 | 27.85 | 124,219 | 1.39 | 1.39 | 1.69 | 51 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 13.31 | 0.20 | (1.13 | ) | (0.93 | ) | (0.51 | ) | 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 | ) | 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 |
(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 $195,092 and $173,752 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,117.70 | $ | 5.72 | $ | 1,019.39 | $ | 5.46 | 1.09 | % | ||||||||||||
Series II | 1,000.00 | 1,116.10 | 7.03 | 1,018.15 | 6.71 | 1.34 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Global Real Estate Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement as well as the sub-advisory contracts for the Fund, as Invesco Asset Management Limited currently manages certain assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Global Real Estate Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the performance universe for the one year period and in the third quintile for the three and five year periods. (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Global Real Estate Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco and below the total account fee of a mutual fund sub-advised by Invesco Advisers. The Board also noted that Invesco Advisers advises or sub-advises four funds with a similar investment process, but the fee structures were not comparable.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of
redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board noted that Invesco Advisers retains overall responsibility for, and provides services to, sub-advised Invesco Funds, including oversight of the Affiliated Sub-Advisers as well as the additional services described herein other than day-to-day portfolio management. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from
the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Global Real Estate Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Government Securities Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIGOV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.32 | % | |||
Series II Shares | 2.17 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 3.93 | ||||
Barclays U.S. Government Index‚ (Style-Specific Index) | 2.66 | ||||
Lipper VUF General U.S. Government Funds Indexn (Peer Group Index) | 2.67 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Government Index is an unmanaged index considered representative of fixed income obligations issued by the US Treasury, government agencies and quasi-federal corporations.
The Lipper VUF General U.S. Government Funds Index is an unmanaged index considered representative of general US government variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/5/93) | 4.68 | % | |||
10 Years | 4.10 | ||||
5 Years | 3.43 | ||||
1 Year | 1.94 | ||||
Series II Shares | |||||
Inception (9/19/01) | 3.80 | % | |||
10 Years | 3.83 | ||||
5 Years | 3.16 | ||||
1 Year | 1.65 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.76% and 1.01%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Government Securities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Government Securities Fund
Schedule of Investments
June 30, 2014
(Unaudited)
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–57.57% |
| |||||||
Collateralized Mortgage Obligations–26.15% | ||||||||
Fannie Mae REMICs, | $ | 7,450,813 | $ | 7,889,688 | ||||
5.00%, 08/25/19 to 09/25/37 | 4,698,069 | 4,846,966 | ||||||
4.25%, 12/25/19 to 02/25/37 | 4,692,035 | 4,933,974 | ||||||
4.50%, 10/25/22 to 07/25/27 | 1,271,315 | 1,300,919 | ||||||
3.00%, 10/25/25 to 09/25/36 | 5,924,250 | 6,063,551 | ||||||
2.50%, 03/25/26 | 2,528,516 | 2,585,841 | ||||||
7.00%, 09/18/27 | 588,640 | 663,623 | ||||||
6.50%, 03/25/32 | 1,587,705 | 1,772,303 | ||||||
5.75%, 10/25/35 | 1,045,086 | 1,170,120 | ||||||
0.45%, 05/25/36(a) | 6,434,979 | 6,424,744 | ||||||
0.65%, 03/25/37 to 05/25/41(a) | 11,727,625 | 11,761,180 | ||||||
0.55%, 06/25/38(a) | 9,964,398 | 9,975,912 | ||||||
6.58%, 06/25/39(a) | 6,425,477 | 7,408,622 | ||||||
0.70%, 02/25/41(a) | 6,848,579 | 6,880,452 | ||||||
0.67%, 11/25/41(a) | 2,717,219 | 2,734,266 | ||||||
Federal Home Loan Bank, | 792,417 | 829,293 | ||||||
5.46%, 11/27/15 | 11,202,328 | 11,866,761 | ||||||
5.77%, 03/23/18 | 1,590,278 | 1,761,962 | ||||||
Freddie Mac REMICs, | 7,400,584 | 7,656,622 | ||||||
5.00%, 02/15/18 to 09/15/31 | 3,014,413 | 3,160,371 | ||||||
4.50%, 07/15/18 to 10/15/36 | 793,175 | 831,617 | ||||||
3.00%, 10/15/18 to 04/15/26 | 5,899,577 | 6,093,224 | ||||||
3.75%, 10/15/18 | 1,546,354 | 1,572,730 | ||||||
4.25%, 01/15/19 | 170,279 | 171,386 | ||||||
3.50%, 12/15/27 | 416,860 | 426,999 | ||||||
0.55%, 04/15/28 to 06/15/37(a) | 8,258,909 | 8,274,719 | ||||||
0.65%, 12/15/35 to 03/15/40(a) | 9,087,981 | 9,129,828 | ||||||
0.45%, 03/15/36(a) | 6,420,010 | 6,437,126 | ||||||
0.50%, 11/15/36(a) | 8,770,218 | 8,760,861 | ||||||
1.01%, 11/15/39(a) | 2,018,649 | 2,052,728 | ||||||
0.60%, 03/15/40 to 02/15/42(a) | 21,332,195 | 21,348,157 | ||||||
Ginnie Mae REMICs, | 1,346,328 | 1,505,038 | ||||||
4.75%, 09/20/32 | 333,142 | 339,220 | ||||||
4.50%, 03/20/33 to 09/16/34 | 8,461,355 | 8,672,948 | ||||||
4.00%, 04/16/33 to 02/20/38 | 4,443,653 | 4,572,822 | ||||||
5.74%, 08/20/34(a) | 2,232,555 | 2,470,311 | ||||||
5.00%, 08/16/35 | 160,904 | 164,381 | ||||||
5.86%, 01/20/39(a) | 7,375,003 | 8,320,191 | ||||||
0.95%, 09/16/39(a) | 2,759,891 | 2,815,869 | ||||||
4.51%, 07/20/41(a) | 1,928,545 | 2,073,541 | ||||||
197,720,866 | ||||||||
Federal Deposit Insurance Co. (FDIC)–0.06% | ||||||||
Series 2010-S1, Class 1A, Gtd. Floating Rate Notes , 0.70%, 02/25/48 (Acquired 03/05/10; Cost $442,731)(a)(b) | 442,731 | 442,986 |
Principal Amount | Value | |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–11.55% | ||||||||
Pass Through Ctfs., | $ | 6,854,220 | $ | 7,778,870 | ||||
8.00%, 07/01/15 to 09/01/36 | 7,594,089 | 9,094,414 | ||||||
6.50%, 11/01/15 to 12/01/35 | 5,963,973 | 6,741,498 | ||||||
6.00%, 02/01/16 to 07/01/38 | 2,400,821 | 2,621,558 | ||||||
5.00%, 07/01/18 to 01/01/40 | 3,157,274 | 3,500,524 | ||||||
10.50%, 08/01/19 | 770 | 791 | ||||||
4.50%, 09/01/20 to 08/01/41 | 18,499,441 | 20,167,255 | ||||||
8.50%, 09/01/20 to 08/01/31 | 699,209 | 801,805 | ||||||
10.00%, 03/01/21 | 29,750 | 33,008 | ||||||
9.00%, 06/01/21 to 06/01/22 | 195,346 | 212,677 | ||||||
7.50%, 09/01/22 to 08/01/36 | 2,255,423 | 2,552,230 | ||||||
5.50%, 12/01/22 | 1,085,769 | 1,162,707 | ||||||
3.50%, 08/01/26 | 1,694,298 | 1,796,500 | ||||||
3.00%, 05/01/27 | 2,467,868 | 2,570,595 | ||||||
7.05%, 05/20/27 | 194,412 | 216,926 | ||||||
6.03%, 10/20/30 | 1,301,481 | 1,504,973 | ||||||
Pass Through Ctfs., ARM, | 9,427,096 | 10,078,749 | ||||||
2.45%, 07/01/36(a) | 7,587,285 | 8,092,624 | ||||||
2.21%, 10/01/36(a) | 4,412,259 | 4,666,615 | ||||||
2.53%, 10/01/36(a) | 315,541 | 336,688 | ||||||
2.62%, 11/01/37(a) | 3,072,477 | 3,302,758 | ||||||
2.68%, 01/01/38(a) | 150,565 | 162,188 | ||||||
87,395,953 | ||||||||
Federal National Mortgage Association (FNMA)–15.35% | ||||||||
Pass Through Ctfs., | 6,372,804 | 7,436,015 | ||||||
7.00%, 09/01/14 to 06/01/36 | 9,373,299 | 10,303,623 | ||||||
6.50%, 12/01/14 to 11/01/37 | 6,551,457 | 7,276,544 | ||||||
7.50%, 02/01/15 to 08/01/37 | 8,525,212 | 9,814,130 | ||||||
6.00%, 09/01/17 to 10/01/38 | 5,011,485 | 5,625,642 | ||||||
5.00%, 11/01/17 to 12/01/33 | 767,486 | 828,909 | ||||||
8.50%, 11/01/17 to 08/01/37 | 2,704,583 | 3,159,437 | ||||||
4.50%, 04/01/19 to 08/01/41 | 14,960,935 | 16,217,553 | ||||||
5.50%, 03/01/21 to 05/01/35 | 3,207,804 | 3,603,758 | ||||||
6.75%, 07/01/24 | 664,924 | 756,357 | ||||||
6.95%, 10/01/25 | 23,900 | 25,014 | ||||||
3.50%, 03/01/27 to 08/01/27 | 16,909,135 | 18,096,066 | ||||||
3.00%, 05/01/27 to 08/01/27 | 8,046,498 | 8,371,197 | ||||||
Pass Through Ctfs., ARM, | 3,767,066 | 4,059,538 | ||||||
2.33%, 05/01/35(a) | 724,082 | 770,716 | ||||||
2.35%, 03/01/38(a) | 167,504 | 178,421 | ||||||
2.85%, 02/01/42(a) | 3,477,465 | 3,625,786 | ||||||
2.30%, 06/01/43(a) | 4,569,493 | 4,578,707 | ||||||
2.24%, 08/01/43(a) | 4,374,066 | 4,452,660 | ||||||
Pass Through Ctfs., BAL, | 6,406,958 | 6,896,457 | ||||||
116,076,530 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Government National Mortgage Association (GNMA)–4.46% | ||||||||
Pass Through Ctfs., | $ | 6,434,083 | $ | 7,263,528 | ||||
7.50%, 10/15/14 to 10/15/35 | 4,019,884 | 4,618,468 | ||||||
11.00%, 10/15/15 | 606 | 609 | ||||||
7.00%, 04/15/17 to 01/15/37 | 2,245,686 | 2,480,306 | ||||||
8.00%, 05/15/17 to 01/15/37 | 2,297,848 | 2,706,959 | ||||||
10.50%, 09/15/17 | 532 | 535 | ||||||
8.50%, 12/15/17 to 01/15/37 | 365,048 | 400,596 | ||||||
10.00%, 06/15/19 | 12,647 | 14,078 | ||||||
6.00%, 09/15/20 to 08/15/33 | 1,046,038 | 1,168,356 | ||||||
5.00%, 02/15/25 | 360,825 | 396,558 | ||||||
6.95%, 08/20/25 to 08/20/27 | 370,813 | 386,714 | ||||||
6.38%, 10/20/27 to 04/20/28 | 465,344 | 521,951 | ||||||
6.10%, 12/20/33 | 5,997,630 | 7,128,253 | ||||||
3.50%, 10/20/42 | 6,406,016 | 6,628,001 | ||||||
33,714,912 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $425,008,025) |
| 435,351,247 | ||||||
U.S. Treasury Securities–16.18% |
| |||||||
U.S. Treasury Bills–0.24%(c)(d) | ||||||||
0.04%, 11/13/14 | 1,820,000 | 1,819,692 | ||||||
U.S. Treasury Notes–8.25% | ||||||||
0.88%, 11/30/16 | 4,600,000 | 4,627,727 | ||||||
0.63%, 05/31/17 | 5,000,000 | 4,966,162 | ||||||
0.75%, 06/30/17 | 6,250,000 | 6,225,300 | ||||||
0.63%, 08/31/17 | 1,500,000 | 1,483,533 | ||||||
0.75%, 12/31/17 | 5,000,000 | 4,936,574 | ||||||
1.38%, 12/31/18 | 3,000,000 | 2,987,199 | ||||||
1.50%, 12/31/18 | 5,500,000 | 5,502,315 | ||||||
1.50%, 05/31/19 | 9,000,000 | 8,954,650 | ||||||
1.63%, 06/30/19 | 5,000,000 | 4,999,816 | ||||||
3.63%, 02/15/20 | 2,000,000 | 2,199,657 | ||||||
2.00%, 09/30/20 | 5,000,000 | 5,008,545 | ||||||
2.13%, 06/30/21 | 4,500,000 | 4,498,618 | ||||||
2.13%, 08/15/21 | 2,700,000 | 2,697,912 | ||||||
2.00%, 11/15/21 | 3,300,000 | 3,258,274 | ||||||
62,346,282 | ||||||||
U.S. Treasury Bonds–2.03% | ||||||||
8.75%, 05/15/20 | 3,500,000 | 4,857,935 | ||||||
7.88%, 02/15/21 | 1,100,000 | 1,503,596 | ||||||
5.38%, 02/15/31 | 3,800,000 | 4,984,078 | ||||||
3.38%, 05/15/44 | 4,000,000 | 4,019,693 | ||||||
15,365,302 | ||||||||
U.S. Treasury Inflation-Indexed Bonds–5.66% | ||||||||
2.00%, 01/15/16 | 9,554,560 | (e) | 10,073,369 | |||||
0.13%, 04/15/18 | 21,534,660 | (e) | 22,237,702 | |||||
0.63%, 01/15/24 | 10,159,200 | (e) | 10,518,797 | |||||
42,829,868 | ||||||||
Total U.S. Treasury Securities |
| 122,361,144 |
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency |
| |||||||
Federal Agricultural Mortgage Corp.–3.53% | ||||||||
Sec. Gtd. Notes, 5.13%, 04/19/17(b) | $ | 14,000,000 | $ | 15,578,145 | ||||
Sr. Unsec. Medium-Term Notes, | 4,000,000 | 4,110,117 | ||||||
Unsec. Medium-Term Notes, | 7,000,000 | 7,006,081 | ||||||
26,694,343 | ||||||||
Federal Farm Credit Bank (FFCB)–1.75% | ||||||||
Unsec. Bonds, | 7,000,000 | 7,080,331 | ||||||
5.43%, 06/07/24 | 2,885,000 | 3,503,147 | ||||||
Unsec. Medium-Term Notes, | 2,100,000 | 2,662,439 | ||||||
13,245,917 | ||||||||
Federal Home Loan Bank (FHLB)–3.88% | ||||||||
Unsec. Bonds, | 4,800,000 | 4,857,462 | ||||||
2.00%, 09/14/18 | 2,500,000 | 2,550,885 | ||||||
4.50%, 09/13/19 | 5,000,000 | 5,659,660 | ||||||
1.88%, 03/13/20 | 6,000,000 | 5,976,329 | ||||||
3.38%, 06/12/20 | 6,220,000 | 6,708,762 | ||||||
2.88%, 09/11/20 | 3,455,000 | 3,615,700 | ||||||
29,368,798 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–2.40% | ||||||||
Unsec. Global Notes, | 6,850,000 | 6,867,483 | ||||||
0.75%, 01/12/18 | 1,650,000 | 1,624,570 | ||||||
1.25%, 08/01/19 | 4,800,000 | 4,686,429 | ||||||
2.38%, 01/13/22 | 5,000,000 | 4,997,496 | ||||||
18,175,978 | ||||||||
Federal National Mortgage Association (FNMA)–1.85% | ||||||||
Unsec. Global Notes, | 5,000,000 | 5,022,008 | ||||||
1.88%, 02/19/19 | 8,800,000 | 8,915,300 | ||||||
13,937,308 | ||||||||
Financing Corp (FICO)–0.47% | ||||||||
Sec. Bonds, 9.80%, 04/06/18 | 700,000 | 910,110 | ||||||
Series E, Sec. Bonds, 9.65%, 11/02/18 | 1,985,000 | 2,640,089 | ||||||
3,550,199 | ||||||||
Tennessee Valley Authority (TVA)–2.23% | ||||||||
Sr. Unsec. Global Bonds, | 13,553,000 | 14,932,284 | ||||||
Sr. Unsec. Global Notes, | 2,000,000 | 1,890,798 | ||||||
16,823,082 | ||||||||
Total U.S. Government Sponsored Agency Securities |
| 121,795,625 | ||||||
Bonds–6.87% |
| |||||||
Collateralized Mortgage Obligations–5.35% | ||||||||
La Hipotecaria El Salvadorian Mortgage Trust (El Savador), Series 2013-1A, Class A, Pass Through Ctfs., 3.50%, 10/25/41 | 12,033,922 | 12,613,055 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Collateralized Mortgage Obligations–(continued) | ||||||||
La Hipotecaria Panamanian Mortgage Trust (El Savador), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 2.75%, 09/08/39 | $ | 20,665,260 | $ | 21,420,844 | ||||
LSTAR Commercial Mortgage Trust, Series 2014-2, Class A2, Pass Through Ctfs., 2.77%, 01/20/41(b) | 6,300,000 | 6,386,430 | ||||||
40,420,329 | ||||||||
Credit Cards–0.93% | ||||||||
Citibank Credit Card Issuance Trust, Series 2014-A5, Class A5, Pass Through Ctfs., 2.68%, 06/07/23 | 7,000,000 | 7,036,512 | ||||||
Sovereign Debt–0.59% | ||||||||
Israel Government Agency for International Development (AID) Bond (Israel), Unsec. Gtd. Global Bonds, 5.13%, 11/01/24 | 3,800,000 | 4,477,041 | ||||||
Total Bonds |
| 51,933,882 |
Principal Amount | Value | |||||||
Corporate Notes–2.22% |
| |||||||
Private Export Funding Corp.–2.22% | ||||||||
Sec. Gtd. Notes, | $ | 5,000,000 | $ | 5,142,206 | ||||
1.38%, 02/15/17 | 5,000,000 | 5,059,674 | ||||||
4.30%, 12/15/21 | 1,540,000 | 1,715,839 | ||||||
Sr. Sec. Gtd. Notes, | 5,000,000 | 4,900,753 | ||||||
Total Corporate Notes |
| 16,818,472 | ||||||
Shares | ||||||||
Money Market Funds–0.86% |
| |||||||
Government & Agency Portfolio, Institutional Class | 6,467,959 | 6,467,959 | ||||||
SWAPTIONS PURCHASED–0.03% | 230,989 | |||||||
TOTAL INVESTMENTS–99.84% |
| 754,959,318 | ||||||
OTHER ASSETS LESS LIABILITIES–0.16% |
| 1,218,945 | ||||||
NET ASSETS–100.00% |
| $ | 756,178,263 |
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
BAL | – Balloon | |
Ctfs. | – Certificates |
Gtd. | – Guaranteed | |
REMIC | – Real Estate Mortgage Investment Conduits | |
Sec. | – Secured |
Sr. | – Senior | |
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, 2014. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $56,441,460, which represented 7.46% of the Fund’s Net Assets. |
(c) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I 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. |
(g) | The table below details swaptions purchased. |
Open Over-The-Counter Swaptions Purchased | ||||||||||||||||||||||||||||||||
Description | Type of Contract | Counterparty | Exercise Rate | Pay/Receive Exercise Rate | Floating Rate Index | Expiration Date | Currency | Notional Value | Value | |||||||||||||||||||||||
1 Year Interest | Put | Barclays Bank PLC | 0.461 | % | Pay | 3 Month USD BBA LIBOR | 12/09/14 | USD | $ | 330,000,000 | $ | 230,989 | ||||||||||||||||||||
Total Swaptions Purchased (Cost $268,125) — Interest Rate Risk |
| $ | 230,989 |
Abbreviations:
BBA | – British Banker’s Association | |
LIBOR | – London InterBank Offered Rate | |
USD | – U.S. Dollar |
Portfolio Composition
By security type, based on Net Assets
as of June 30, 2014
U.S. Government Sponsored Agency Mortgage-Backed Securities | 57.6 | % | ||
U.S. Treasury Securities | 16.2 | |||
U.S. Government Sponsored Agency Securities | 16.1 | |||
Bonds | 6.9 | |||
Corporate Notes | 2.2 | |||
Swaptions Purchased | 0.0 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.0 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $734,009,197) | $ | 748,491,359 | ||
Investments in affiliated money market funds, at value and cost | 6,467,959 | |||
Total investments, at value (Cost $740,477,156) | 754,959,318 | |||
Receivable for: | ||||
Variation margin — futures contracts | 350,938 | |||
Fund shares sold | 72,678 | |||
Dividends and interest | 2,575,338 | |||
Principal paydowns | 365,933 | |||
Investment for trustee deferred compensation and retirement plans | 240,441 | |||
Other assets | 13,249 | |||
Total assets | 758,577,895 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 1,014,267 | |||
Accrued fees to affiliates | 1,074,540 | |||
Accrued trustees’ and officers’ fees and benefits | 896 | |||
Accrued other operating expenses | 32,490 | |||
Trustee deferred compensation and retirement plans | 277,439 | |||
Total liabilities | 2,399,632 | |||
Net assets applicable to shares outstanding | $ | 756,178,263 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 736,004,193 | ||
Undistributed net investment income | 25,767,867 | |||
Undistributed net realized gain (loss) | (21,440,876 | ) | ||
Net unrealized appreciation | 15,847,079 | |||
$ | 756,178,263 | |||
Net Assets: |
| |||
Series I | $ | 535,079,575 | ||
Series II | $ | 221,098,688 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 44,931,550 | |||
Series II | 18,754,313 | |||
Series I: | ||||
Net asset value per share | $ | 11.91 | ||
Series II: | ||||
Net asset value per share | $ | 11.79 |
Investment income: |
| |||
Interest | $ | 8,497,073 | ||
Dividends from affiliated money market funds | 869 | |||
Total investment income | 8,497,942 | |||
Expenses: | ||||
Advisory fees | 1,800,876 | |||
Administrative services fees | 1,026,789 | |||
Custodian fees | 33,270 | |||
Distribution fees — Series II | 279,716 | |||
Transfer agent fees | 25,442 | |||
Trustees’ and officers’ fees and benefits | 17,442 | |||
Other | 125,222 | |||
Total expenses | 3,308,757 | |||
Less: Fees waived | (990 | ) | ||
Net expenses | 3,307,767 | |||
Net investment income | 5,190,175 | |||
Realized and unrealized gain from: | ||||
Net realized gain from: | ||||
Investment securities | 195,145 | |||
Futures contracts | 3,931,050 | |||
4,126,195 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 6,104,000 | |||
Futures contracts | 2,175,297 | |||
8,279,297 | ||||
Net realized and unrealized gain | 12,405,492 | |||
Net increase in net assets resulting from operations | $ | 17,595,667 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 5,190,175 | $ | 9,968,610 | ||||
Net realized gain (loss) | 4,126,195 | (11,506,190 | ) | |||||
Change in net unrealized appreciation (depreciation) | 8,279,297 | (25,851,310 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 17,595,667 | (27,388,890 | ) | |||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (22,128,544 | ) | |||||
Series ll | — | (7,761,089 | ) | |||||
Total distributions from net investment income | — | (29,889,633 | ) | |||||
Share transactions–net: | ||||||||
Series l | (43,320,717 | ) | (265,152,570 | ) | ||||
Series ll | (11,023,732 | ) | (18,936,311 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (54,344,449 | ) | (284,088,881 | ) | ||||
Net increase (decrease) in net assets | (36,748,782 | ) | (341,367,404 | ) | ||||
Net assets: | ||||||||
Beginning of period | 792,927,045 | 1,134,294,449 | ||||||
End of period (includes undistributed net investment income of $25,767,867 and $20,577,692, respectively) | $ | 756,178,263 | $ | 792,927,045 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Government Securities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
A security listed or traded on an exchange (except convertible securities) is valued at its last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded, or lacking any sales or official closing price on a particular day, the security may be valued at the closing bid price on that day. Securities traded in the over-the-counter market are valued based on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. Futures contracts are valued at the final settlement price set by an exchange on which they are principally traded. Listed options are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. Options not listed on an exchange are valued by an independent source at the mean between the last bid and ask prices. For purposes of determining net asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Government Securities Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
Invesco V.I. Government Securities Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. | 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. |
Additionally, the Fund may enter into an option on a swap agreement, also called a “swaption,” is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based premium. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
L. | Other Risks — The Fund 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 Fund may not be able to recover its investment in such issuer from the U.S. Government. Many securities purchased by the Fund are not guaranteed by the U.S. Government. |
M. | Collateral — To the extent the Fund has designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
Invesco V.I. Government Securities Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.50% | |||
Over $250 million | 0.45% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets. 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 Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $990.
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, 2014, Invesco was paid $91,356 for accounting and fund administrative services and reimbursed $935,433 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, 2014, 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, 2014, 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. Government Securities Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2014. The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 6,467,959 | $ | — | $ | — | $ | 6,467,959 | ||||||||
U.S. Treasury Securities | — | 122,361,144 | — | 122,361,144 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 557,146,872 | — | 557,146,872 | ||||||||||||
Corporate Debt Securities | — | 16,818,472 | — | 16,818,472 | ||||||||||||
Bonds | — | 47,456,841 | — | 47,456,841 | ||||||||||||
Foreign Sovereign Debt Securities | — | 4,477,041 | — | 4,477,041 | ||||||||||||
Swaptions Purchased | — | 230,989 | — | 230,989 | ||||||||||||
6,467,959 | 748,491,359 | — | 754,959,318 | |||||||||||||
Futures Contracts* | 1,364,918 | — | — | 1,364,918 | ||||||||||||
Total Investments | $ | 7,832,877 | $ | 748,491,359 | $ | — | $ | 756,324,236 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk | ||||||||
Futures contracts(a) | $ | 1,382,944 | $ | (18,026 | ) | |||
Swaptions purchased(b) | — | (37,136 | ) | |||||
Total | $ | 1,382,944 | $ | (55,162 | ) |
(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. |
(b) | Swaptions purchased at value as reported in the Schedule of Investments. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations(a) | ||||
Futures Contracts | ||||
Realized Gain | ||||
Interest rate risk | $ | 3,931,050 | ||
Change in Unrealized Appreciation | ||||
Interest rate risk | 2,175,297 | |||
Total | $ | 6,106,347 |
(a) | Swaptions purchased are included in the net realized gain from investment securities and net change in unrealized appreciation (depreciation) on investment securities. |
The table below summarizes the six month average notional value of futures contracts and the one month average notional value for swaptions purchased.
Futures Contracts | Swaptions Purchased | |||||||
Average notional value | $ | 217,300,680 | $ | 330,000,000 |
Open Futures Contracts at Period-End | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
U.S. Treasury 2 Year Notes | Long | 140 | September-2014 | $ | 30,743,125 | $ | (18,026 | ) | ||||||||||||
U.S. Treasury 5 Year Notes | Long | 164 | September-2014 | 19,591,594 | 53,258 | |||||||||||||||
U.S. Treasury 10 Year Notes | Long | 230 | September-2014 | 28,789,531 | 86,930 | |||||||||||||||
U.S. Ultra Bonds | Long | 598 | September-2014 | 89,662,625 | 1,077,923 | |||||||||||||||
U.S. Treasury 30 Year Bonds | Short | 268 | September-2014 | (36,766,250 | ) | 164,833 | ||||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | 1,364,918 |
Invesco V.I. Government Securities Fund
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities(a) | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in Statement of Assets & Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of America Securities LLC | $ | 1,382,944 | $ | (18,026 | ) | $ | 1,364,918 | $ | — | $ | — | $ | 1,364,918 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities(a) | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in Statement of Assets & Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of America Securities LLC | $ | 18,026 | $ | (18,026 | ) | $ | — | $ | — | $ | — | $ | — |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. |
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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. Government Securities Fund
The Fund had a capital loss carryforward as of December 31, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 3,845,839 | $ | — | $ | 3,845,839 | ||||||
Not subject to expiration | 13,796,425 | 8,373,704 | 22,170,129 | |||||||||
$ | 17,642,264 | $ | 8,373,704 | $ | 26,015,968 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $92,537,814 and $89,301,864, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $49,077,929 and $89,080,970, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 16,513,426 | ||
Aggregate unrealized (depreciation) of investment securities | (2,121,927 | ) | ||
Net unrealized appreciation of investment securities | $ | 14,391,499 |
Cost of investments for tax purposes is $740,567,819.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,487,616 | $ | 29,291,996 | 4,151,119 | $ | 50,366,115 | ||||||||||
Series II | 537,850 | 6,274,703 | 2,789,136 | 33,454,648 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 1,892,946 | 22,128,544 | ||||||||||||
Series II | — | — | 669,059 | 7,761,089 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (6,157,941 | ) | (72,612,713 | ) | (27,869,610 | ) | (337,647,229 | ) | ||||||||
Series II | (1,480,413 | ) | (17,298,435 | ) | (5,008,779 | ) | (60,152,048 | ) | ||||||||
Net increase (decrease) in share activity | (4,612,888 | ) | $ | (54,344,449 | ) | (23,376,129 | ) | $ | (284,088,881 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 83% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Government Securities Fund
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 11.64 | $ | 0.08 | $ | 0.19 | $ | 0.27 | $ | — | $ | — | $ | — | $ | 11.91 | 2.32 | % | $ | 535,080 | 0.78 | %(d) | 0.78 | %(d) | 1.42 | %(d) | 19 | % | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.40 | 0.13 | (0.45 | ) | (0.32 | ) | (0.44 | ) | — | (0.44 | ) | 11.64 | (2.62 | ) | 565,690 | 0.74 | 0.76 | 1.10 | 139 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 12.49 | 0.19 | 0.12 | 0.31 | (0.40 | ) | — | (0.40 | ) | 12.40 | 2.47 | 873,212 | 0.65 | 0.76 | 1.49 | 118 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.00 | 0.25 | 0.67 | 0.92 | (0.43 | ) | — | (0.43 | ) | 12.49 | 7.91 | 970,029 | 0.63 | 0.75 | 2.03 | 85 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 11.95 | 0.24 | 0.41 | 0.65 | (0.60 | ) | — | (0.60 | ) | 12.00 | 5.40 | 1,072,405 | 0.73 | 0.75 | 1.98 | 61 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.05 | 0.45 | (0.43 | ) | 0.02 | (0.65 | ) | (0.47 | ) | (1.12 | ) | 11.95 | (0.01 | ) | 1,192,967 | 0.73 | 0.75 | 3.47 | 55 | |||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 11.54 | 0.10 | 0.15 | 0.25 | — | — | — | 11.79 | 2.17 | 221,099 | 1.03 | (d) | 1.03 | (d) | 1.17 | (d) | 19 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.29 | 0.10 | (0.45 | ) | (0.35 | ) | (0.40 | ) | — | (0.40 | ) | 11.54 | (2.85 | ) | 227,237 | 0.99 | 1.01 | 0.85 | 139 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 12.39 | 0.16 | 0.12 | 0.28 | (0.38 | ) | — | (0.38 | ) | 12.29 | 2.22 | 261,083 | 0.90 | 1.01 | 1.24 | 118 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 11.92 | 0.21 | 0.67 | 0.88 | (0.41 | ) | — | (0.41 | ) | 12.39 | 7.63 | 295,318 | 0.88 | 1.00 | 1.78 | 85 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 11.88 | 0.22 | 0.40 | 0.62 | (0.58 | ) | — | (0.58 | ) | 11.92 | 5.10 | 24,074 | 0.98 | 1.00 | 1.73 | 61 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 12.97 | 0.41 | (0.43 | ) | (0.02 | ) | (0.60 | ) | (0.47 | ) | (1.07 | ) | 11.88 | (0.26 | ) | 14,462 | 0.98 | 1.00 | 3.22 | 55 |
(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 omitted) of $553,617 and $225,627 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,023.20 | $ | 3.91 | $ | 1,020.93 | $ | 3.91 | 0.78 | % | ||||||||||||
Series II | 1,000.00 | 1,021.70 | 5.16 | 1,019.69 | 5.16 | 1.03 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Government Securities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Government Securities Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds 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 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 below the performance of the Index for the one, three, and five year periods. The Board noted that unlike many peers, the Fund does not invest up to 20% of its assets in non-U.S.
Invesco V.I. Government Securities Fund
government or non-government securities. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 Invesco Advisers and the Affiliated Sub-Advisers do not manage other mutual funds or client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its
affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to
waive through varying periods the advisory fees payable by the Invesco Funds with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
Invesco V.I. Government Securities Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Growth and Income Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIGRI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.73 | % | |||
Series II Shares | 6.59 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 8.28 | ||||
Lipper VUF Large-Cap Value Funds Indexn (Peer Group Index) | 7.44 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (12/23/96) | 9.26 | % | |||
10 Years | 8.30 | ||||
5 Years | 17.83 | ||||
1 Year | 21.70 | ||||
Series II Shares | |||||
Inception (9/18/00) | 6.57 | % | |||
10 Years | 8.04 | ||||
5 Years | 17.54 | ||||
1 Year | 21.43 |
Effective June 1, 2010, Class I and Class II shares of the predecessor fund, Van Kampen Life Investment Trust Growth and Income Portfolio, advised by Van Kampen Asset Management were reorganized into Series I and Series II shares, respectively, of Invesco Van Kampen V.I. Growth and Income Fund (renamed Invesco V.I. Growth and Income Fund on April 29, 2013). Returns shown above for Series I and Series II shares are blended returns of the predecessor fund and Invesco V.I. Growth and Income Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.78% and 1.03%, respectively.1,2 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.84% and 1.09%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Growth and Income Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2015. See current prospectus for more information. |
2 | Total annual Fund operating expenses after any contractual fee waivers by the adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Growth and Income Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–95.56% |
| |||||||
Aerospace & Defense–1.04% | ||||||||
General Dynamics Corp. | 183,172 | $ | 21,348,697 | |||||
Agricultural Products–0.94% | ||||||||
Archer-Daniels-Midland Co. | 437,586 | 19,301,918 | ||||||
Apparel Retail–1.14% | ||||||||
Abercrombie & Fitch Co.–Class A | 538,514 | 23,290,730 | ||||||
Application Software–2.45% | ||||||||
Adobe Systems Inc.(b) | 511,170 | 36,988,261 | ||||||
Citrix Systems, Inc.(b) | 211,716 | 13,242,836 | ||||||
50,231,097 | ||||||||
Asset Management & Custody Banks–2.07% | ||||||||
Northern Trust Corp. | 319,788 | 20,533,587 | ||||||
State Street Corp. | 327,168 | 22,005,320 | ||||||
42,538,907 | ||||||||
Automobile Manufacturers–1.29% | ||||||||
General Motors Co. | 730,149 | 26,504,409 | ||||||
Biotechnology–1.02% | ||||||||
Amgen Inc. | 176,523 | 20,895,027 | ||||||
Cable & Satellite–3.07% | ||||||||
Comcast Corp.–Class A | 584,488 | 31,375,316 | ||||||
Time Warner Cable Inc. | 215,161 | 31,693,215 | ||||||
63,068,531 | ||||||||
Construction Machinery & Heavy Trucks–1.51% | ||||||||
Caterpillar Inc. | 286,018 | 31,081,576 | ||||||
Diversified Banks–7.79% | ||||||||
Bank of America Corp. | 1,459,645 | 22,434,744 | ||||||
Comerica Inc. | 448,987 | 22,521,188 | ||||||
JPMorgan Chase & Co. | 1,531,928 | 88,269,691 | ||||||
Wells Fargo & Co. | 507,887 | 26,694,541 | ||||||
159,920,164 | ||||||||
Diversified Chemicals–1.17% | ||||||||
Dow Chemical Co. (The) | 467,117 | 24,037,841 | ||||||
Diversified Metals & Mining–0.88% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 492,920 | 17,991,580 | ||||||
Electric Utilities–1.38% | ||||||||
Edison International | 184,884 | 10,743,609 | ||||||
Pinnacle West Capital Corp. | 304,264 | 17,598,630 | ||||||
28,342,239 | ||||||||
Electronic Components–1.36% | ||||||||
Corning Inc. | 1,275,942 | 28,006,927 | ||||||
Health Care Equipment–0.78% | ||||||||
Medtronic, Inc. | 252,366 | 16,090,856 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–1.42% | ||||||||
Carnival Corp. | 774,155 | $ | 29,146,936 | |||||
Household Products–0.88% | ||||||||
Procter & Gamble Co. (The) | 230,636 | 18,125,683 | ||||||
Industrial Conglomerates–2.42% | ||||||||
General Electric Co. | 1,892,377 | 49,731,668 | ||||||
Industrial Machinery–1.18% | ||||||||
Ingersoll-Rand PLC | 388,919 | 24,311,327 | ||||||
Insurance Brokers–3.18% | ||||||||
Aon PLC | 218,535 | 19,687,818 | ||||||
Marsh & McLennan Cos., Inc. | 610,693 | 31,646,111 | ||||||
Willis Group Holdings PLC | 322,772 | 13,976,028 | ||||||
65,309,957 | ||||||||
Integrated Oil & Gas–6.61% | ||||||||
Exxon Mobil Corp. | 197,988 | 19,933,432 | ||||||
Occidental Petroleum Corp. | 243,702 | 25,011,136 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 1,330,932 | 55,090,772 | ||||||
Total S.A. (France) | 493,528 | 35,668,085 | ||||||
135,703,425 | ||||||||
Integrated Telecommunication Services–1.66% | ||||||||
Koninklijke (Royal) KPN N.V. (Netherlands)(b) | 815,910 | 2,972,937 | ||||||
Orange S.A. (France) | 236,073 | 3,720,433 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 2,243,460 | 2,841,572 | ||||||
Telefonica S.A. (Spain) | 217,543 | 3,729,478 | ||||||
Verizon Communications Inc. | 425,582 | 20,823,728 | ||||||
34,088,148 | ||||||||
Internet Software & Services–1.74% | ||||||||
eBay Inc.(b) | 714,011 | 35,743,391 | ||||||
Investment Banking & Brokerage–4.74% | ||||||||
Charles Schwab Corp. (The) | 1,109,095 | 29,867,928 | ||||||
Goldman Sachs Group, Inc. (The) | 115,615 | 19,358,576 | ||||||
Morgan Stanley | 1,487,884 | 48,103,290 | ||||||
97,329,794 | ||||||||
IT Consulting & Other Services–1.17% | ||||||||
Amdocs Ltd. | 518,135 | 24,005,194 | ||||||
Managed Health Care–3.18% | ||||||||
Cigna Corp. | 193,168 | 17,765,661 | ||||||
UnitedHealth Group Inc. | 252,980 | 20,681,115 | ||||||
WellPoint, Inc. | 248,996 | 26,794,459 | ||||||
65,241,235 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Shares | Value | |||||||
Movies & Entertainment–2.44% | ||||||||
Time Warner Inc. | 181,628 | $ | 12,759,367 | |||||
Viacom Inc.–Class B | 429,846 | 37,280,544 | ||||||
50,039,911 | ||||||||
Multi-Utilities–0.71% | ||||||||
PG&E Corp. | 302,832 | 14,541,993 | ||||||
Oil & Gas Equipment & Services–1.68% | ||||||||
Baker Hughes Inc. | 464,182 | 34,558,350 | ||||||
Oil & Gas Exploration & Production–3.90% | ||||||||
Anadarko Petroleum Corp. | 211,283 | 23,129,150 | ||||||
Apache Corp. | 242,210 | 24,371,170 | ||||||
Canadian Natural Resources Ltd. (Canada) | 707,637 | 32,516,816 | ||||||
80,017,136 | ||||||||
Other Diversified Financial Services–4.57% | ||||||||
Citigroup Inc. | 1,607,900 | 75,732,090 | ||||||
Voya Financial, Inc. | 499,834 | 18,163,967 | ||||||
93,896,057 | ||||||||
Packaged Foods & Meats–1.91% | ||||||||
Mondelez International Inc.–Class A | 663,044 | 24,937,085 | ||||||
Unilever N.V.–New York Shares (Netherlands) | 325,421 | 14,240,423 | ||||||
39,177,508 | ||||||||
Personal Products–1.64% | ||||||||
Avon Products, Inc. | 2,300,381 | 33,608,566 | ||||||
Pharmaceuticals–7.68% | ||||||||
Bristol-Myers Squibb Co. | 212,777 | 10,321,812 | ||||||
Eli Lilly and Co. | 404,771 | 25,164,613 | ||||||
Hospira, Inc.(b) | 72,706 | 3,734,907 | ||||||
Merck & Co., Inc. | 535,664 | 30,988,162 | ||||||
Novartis AG (Switzerland) | 319,429 | 28,924,390 | ||||||
Novartis AG–ADR (Switzerland) | 26,692 | 2,416,427 | ||||||
Pfizer Inc. | 491,344 | 14,583,090 | ||||||
Sanofi (France) | 152,180 | 16,186,318 | ||||||
Teva Pharmaceutical Industries Ltd.– ADR (Israel) | 483,969 | 25,369,655 | ||||||
157,689,374 | ||||||||
Property & Casualty Insurance–0.05% | ||||||||
Chubb Corp. (The) | 11,235 | 1,035,530 | ||||||
Publishing–0.78% | ||||||||
Thomson Reuters Corp. | 436,867 | 15,906,557 | ||||||
Railroads–1.01% | ||||||||
CSX Corp. | 672,658 | 20,724,593 |
Shares | Value | |||||||
Regional Banks–3.40% | ||||||||
BB&T Corp. | 448,556 | $ | 17,686,563 | |||||
Fifth Third Bancorp | 802,030 | 17,123,340 | ||||||
PNC Financial Services Group, Inc. (The) | 393,131 | 35,008,316 | ||||||
69,818,219 | ||||||||
Security & Alarm Services–1.67% | ||||||||
Tyco International Ltd. | 752,773 | 34,326,449 | ||||||
Semiconductor Equipment–1.99% | ||||||||
Applied Materials, Inc. | 1,807,804 | 40,765,980 | ||||||
Semiconductors–1.61% | ||||||||
Broadcom Corp.–Class A | 299,508 | 11,117,737 | ||||||
Intel Corp. | 166,262 | 5,137,496 | ||||||
Texas Instruments Inc. | 349,994 | 16,726,213 | ||||||
32,981,446 | ||||||||
Specialized Finance–0.74% | ||||||||
CME Group Inc.–Class A | 212,905 | 15,105,610 | ||||||
Specialty Chemicals–0.46% | ||||||||
PPG Industries, Inc. | 45,363 | 9,533,034 | ||||||
Systems Software–2.45% | ||||||||
Microsoft Corp. | 570,832 | 23,803,694 | ||||||
Symantec Corp. | 1,153,296 | 26,410,479 | ||||||
50,214,173 | ||||||||
Wireless Telecommunication Services–0.80% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 490,932 | 16,392,219 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,961,719,962 | ||||||
Money Market Funds–4.71% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 48,343,577 | 48,343,577 | ||||||
Premier Portfolio–Institutional Class(c) | 48,343,577 | 48,343,577 | ||||||
Total Money Market Funds | 96,687,154 | |||||||
TOTAL INVESTMENTS–100.27% (Cost $1,582,257,749) | 2,058,407,116 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.27)% |
| (5,509,147 | ) | |||||
NET ASSETS–100.00% | $ | 2,052,897,969 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | 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, 2014
Financials | 26.5 | % | ||
Information Technology | 12.8 | |||
Health Care | 12.7 | |||
Energy | 12.2 | |||
Consumer Discretionary | 10.1 | |||
Industrials | 8.8 | |||
Consumer Staples | 5.4 | |||
Materials | 2.5 | |||
Telecommunication Services | 2.5 | |||
Utilities | 2.1 | |||
Money Market Funds Plus Other Assets Less Liabilities | 4.4 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $1,485,570,595) | $ | 1,961,719,962 | ||
Investments in affiliated money market funds, at value and cost | 96,687,154 | |||
Total investments, at value (Cost $1,582,257,749) | 2,058,407,116 | |||
Foreign currencies, at value (Cost $542,873) | 544,670 | |||
Receivable for: | ||||
Investments sold | 7,245,863 | |||
Fund shares sold | 23,757 | |||
Dividends | 3,303,934 | |||
Fund expenses absorbed | 77,216 | |||
Investment for trustee deferred compensation and retirement plans | 181,760 | |||
Total assets | 2,069,784,316 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 5,427,044 | |||
Fund shares reacquired | 5,844,326 | |||
Forward foreign currency contracts outstanding | 1,347,474 | |||
Accrued fees to affiliates | 3,984,676 | |||
Accrued trustees’ and officers’ fees and benefits | 1,103 | |||
Accrued other operating expenses | 64,416 | |||
Trustee deferred compensation and retirement plans | 217,308 | |||
Total liabilities | 16,886,347 | |||
Net assets applicable to shares outstanding | $ | 2,052,897,969 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 998,710,732 | ||
Undistributed net investment income | 59,319,148 | |||
Undistributed net realized gain | 520,053,161 | |||
Net unrealized appreciation | 474,814,928 | |||
$ | 2,052,897,969 | |||
Net Assets: | ||||
Series I | $ | 164,643,981 | ||
Series II | $ | 1,888,253,988 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,867,487 | |||
Series II | 67,543,164 | |||
Series I: | ||||
Net asset value per share | $ | 28.06 | ||
Series II: | ||||
Net asset value per share | $ | 27.96 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $731,754) | $ | 44,157,657 | ||
Dividends from affiliated money market funds | 11,729 | |||
Total investment income | 44,169,386 | |||
Expenses: | ||||
Advisory fees | 6,428,758 | |||
Administrative services fees | 2,966,302 | |||
Custodian fees | 38,507 | |||
Distribution fees — Series II | 2,659,965 | |||
Transfer agent fees | 14,933 | |||
Trustees’ and officers’ fees and benefits | 27,479 | |||
Other | 58,110 | |||
Total expenses | 12,194,054 | |||
Less: Fees waived | (637,464 | ) | ||
Net expenses | 11,556,590 | |||
Net investment income | 32,612,796 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 289,261,273 | |||
Foreign currencies | 59,701 | |||
Forward foreign currency contracts | (2,727,720 | ) | ||
286,593,254 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (185,581,704 | ) | ||
Foreign currencies | 7,818 | |||
Forward foreign currency contracts | 330,899 | |||
(185,242,987 | ) | |||
Net realized and unrealized gain | 101,350,267 | |||
Net increase in net assets resulting from operations | $ | 133,963,063 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 32,612,796 | $ | 26,853,402 | ||||
Net realized gain | 286,593,254 | 233,036,749 | ||||||
Change in net unrealized appreciation (depreciation) | (185,242,987 | ) | 415,214,219 | |||||
Net increase in net assets resulting from operations | 133,963,063 | 675,104,370 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,305,237 | ) | |||||
Series ll | — | (27,699,552 | ) | |||||
Total distributions from net investment income | — | (30,004,789 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (1,362,853 | ) | |||||
Series ll | — | (19,141,457 | ) | |||||
Total distributions from net realized gains | — | (20,504,310 | ) | |||||
Share transactions–net: | ||||||||
Series l | (16,592,136 | ) | (11,114,225 | ) | ||||
Series ll | (570,856,473 | ) | (193,330,275 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (587,448,609 | ) | (204,444,500 | ) | ||||
Net increase (decrease) in net assets | (453,485,546 | ) | 420,150,771 | |||||
Net assets: | ||||||||
Beginning of period | 2,506,383,515 | 2,086,232,744 | ||||||
End of period (includes undistributed net investment income of $59,319,148 and $26,706,352, respectively) | $ | 2,052,897,969 | $ | 2,506,383,515 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco 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-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek long-term growth of capital and income.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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. Growth and Income Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Growth and Income Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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).
The Adviser has contractually agreed, through at least April 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.78% and Series II shares to 1.03% of average daily net assets. 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 Invesco continues the fee waiver agreement, it will terminate on April 30, 2015. The fee waiver agreement cannot be terminated during its term. To the extent that the annualized expense ratio does not exceed the expense limitation, the Adviser will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year.
Invesco V.I. Growth and Income Fund
Further, the Adviser has contractually agreed, through at least June 30, 2016, 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, 2014, the Adviser waived advisory fees of $637,464.
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, 2014, Invesco was paid $225,885 for accounting and fund administrative services and reimbursed $2,740,417 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $8,203 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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, 2014, there were transfers from Level 2 to Level 1 of $71,294,890, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Equity Securities | $ | 2,038,500,365 | $ | 19,906,751 | $ | — | $ | 2,058,407,116 | ||||||||
Forward Foreign Currency Contracts* | — | (1,347,474 | ) | — | (1,347,474 | ) | ||||||||||
Total Investments | $ | 2,038,500,365 | $ | 18,559,277 | $ | — | $ | 2,057,059,642 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (1,347,474 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Invesco V.I. Growth and Income Fund
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (loss) on Statement of Operations | ||||
Forward Foreign Currency Contracts | ||||
Realized Gain (loss) | ||||
Currency risk | $ | (2,727,720 | ) | |
Change in Unrealized Appreciation | ||||
Currency risk | 330,899 | |||
Total | $ | (2,396,821 | ) |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 149,827,995 |
Open Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | CAD | 19,315,297 | USD | 17,971,898 | $ | 18,089,366 | $ | (117,468 | ) | ||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | CAD | 19,337,338 | USD | 17,990,866 | 18,110,008 | (119,142 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | CHF | 10,508,964 | USD | 11,744,484 | 11,853,641 | (109,157 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | CHF | 10,456,592 | USD | 11,684,387 | 11,794,568 | (110,181 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | EUR | 21,861,197 | USD | 29,720,516 | 29,936,687 | (216,171 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | EUR | 22,029,964 | USD | 29,950,177 | 30,167,796 | (217,619 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | GBP | 15,646,913 | USD | 26,559,227 | 26,773,433 | (214,206 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | GBP | 15,636,180 | USD | 26,539,757 | 26,755,067 | (215,310 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | ILS | 9,561,345 | USD | 2,781,935 | 2,785,314 | (3,379 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | ILS | 56,063,591 | USD | 16,307,036 | 16,331,877 | (24,841 | ) | ||||||||||||||||||
Total open forward foreign currency contracts | $ | (1,347,474 | ) |
Currency Abbreviations:
CAD | – Canadian Dollar | |
GBP | – British Pound Sterling |
CHF | – Swiss Franc | |
ILS | – Israeli Shekel |
EUR | – Euro | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York Mellon (The) | $ | 660,381 | $ | — | $ | 660,381 | $ | — | $ | — | $ | 660,381 | ||||||||||||
State Street Bank and Trust Co. | 687,093 | — | 687,093 | — | — | 687,093 | ||||||||||||||||||
Total | $ | 1,347,474 | $ | — | $ | 1,347,474 | $ | — | $ | — | $ | 1,347,474 |
Invesco V.I. Growth and Income Fund
NOTE 5—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $305,371,389 and $877,587,152, 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 | $ | 501,543,644 | ||
Aggregate unrealized (depreciation) of investment securities | (25,866,949 | ) | ||
Net unrealized appreciation of investment securities | $ | 475,676,695 |
Cost of investments for tax purposes is $1,582,730,421.
Invesco V.I. Growth and Income Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 253,605 | $ | 6,761,933 | 732,389 | $ | 17,501,732 | ||||||||||
Series II | 278,378 | 7,338,578 | 3,449,020 | 79,001,588 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 150,517 | 3,668,090 | ||||||||||||
Series II | — | — | 1,925,237 | 46,841,009 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (876,335 | ) | (23,354,069 | ) | (1,364,259 | ) | (32,284,047 | ) | ||||||||
Series II | (21,792,625 | ) | (578,195,051 | ) | (13,466,001 | ) | (319,172,872 | ) | ||||||||
Net increase (decrease) in share activity | (22,136,977 | ) | $ | (587,448,609 | ) | (8,573,097 | ) | $ | (204,444,500 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 80% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(b) | |||||||||||||||||||||||||||||||||||||||||||
Series I(g) |
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Six months ended 06/30/14 | $ | 26.29 | $ | 0.41 | (c) | $ | 1.36 | $ | 1.77 | $ | — | $ | — | $ | — | $ | 28.06 | 6.73 | %(d) | $ | 164,644 | 0.78 | %(e) | 0.83 | %(e) | 3.07 | %(c)(e) | 14 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 20.07 | 0.32 | 6.47 | 6.79 | (0.36 | ) | (0.21 | ) | (0.57 | ) | 26.29 | 34.08 | (d) | 170,637 | 0.75 | 0.83 | 1.37 | 29 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 17.77 | 0.33 | 2.27 | 2.60 | (0.30 | ) | — | (0.30 | ) | 20.07 | 14.63 | (d) | 139,947 | 0.66 | 0.84 | 1.72 | 31 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 18.40 | 0.30 | (0.70 | ) | (0.40 | ) | (0.23 | ) | — | (0.23 | ) | 17.77 | (2.01 | )(d) | 156,617 | 0.61 | 0.84 | 1.65 | 28 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 16.37 | 0.24 | 1.81 | 2.05 | (0.02 | ) | — | (0.02 | ) | 18.40 | 12.51 | (d) | 154,488 | 0.61 | 0.74 | 1.42 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.74 | 0.24 | 2.98 | 3.22 | (0.59 | ) | — | (0.59 | ) | 16.37 | 24.37 | 153,653 | 0.62 | — | 1.72 | 55 | ||||||||||||||||||||||||||||||||||||||||
Series II(g) |
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Six months ended 06/30/14 | 26.23 | 0.37 | (c) | 1.36 | 1.73 | — | — | — | 27.96 | 6.59 | (d) | 1,888,254 | 1.03 | (e) | 1.08 | (e) | 2.82 | (c)(e) | 14 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 20.03 | 0.26 | 6.46 | 6.72 | (0.31 | ) | (0.21 | ) | (0.52 | ) | 26.23 | 33.77 | (d) | 2,335,747 | 1.00 | 1.08 | 1.12 | 29 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 17.74 | 0.28 | 2.27 | 2.55 | (0.26 | ) | — | (0.26 | ) | 20.03 | 14.35 | (d) | 1,946,286 | 0.91 | 1.09 | 1.47 | 31 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 18.37 | 0.25 | (0.69 | ) | (0.44 | ) | (0.19 | ) | — | (0.19 | ) | 17.74 | (2.26 | )(d) | 1,724,830 | 0.86 | 1.09 | 1.40 | 28 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 16.39 | 0.20 | 1.80 | 2.00 | (0.02 | ) | — | (0.02 | ) | 18.37 | 12.19 | (d) | 1,725,378 | 0.86 | 0.99 | 1.17 | 30 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.71 | 0.20 | 2.99 | 3.19 | (0.51 | ) | — | (0.51 | ) | 16.39 | 24.11 | (f) | 1,514,691 | 0.87 | — | 1.45 | 55 |
(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) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include significant cash dividends received during the period. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the significant dividends are $0.18 and 1.34%, $0.14 and 1.09%, for Series I and Series II, 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 $166,042 and $2,145,607 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%. |
(g) | On June 1, 2010, the Class I and Class II shares of the Van Kampen Life Investment Trust Growth and Income Portfolio were reorganized into Series I and Series II shares, respectively of the Fund. |
Invesco V.I. Growth and Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,067.30 | $ | 4.00 | $ | 1,020.93 | $ | 3.91 | 0.78 | % | ||||||||||||
Series II | 1,000.00 | 1,065.90 | 5.28 | 1,019.69 | 5.16 | 1.03 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Growth and Income Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Growth and Income Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Large-Cap Value Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one year period and the third quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was 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
Invesco V.I. Growth and Income Fund
performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund and above the sub-adviser effective rate for two mutual funds sub-advised by Invesco Advisers using a similar investment process.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers
by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including
information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Growth and Income Fund
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Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. High Yield Fund | ||||
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIHYI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.26 | % | |||
Series II Shares | 5.11 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 3.93 | ||||
Barclays U.S. Corporate High Yield 2% Issuer Cap Index‚ (Style-Specific Index) | 5.46 | ||||
Lipper VUF High Current Yield Bond Funds Classification Averagen (Peer Group) | 4.72 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index comprising US corporate, fixed-rate, noninvestment-grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Lipper VUF High Current Yield Bond Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper High Current Yield Bond Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/1/98) | 4.65 | % | |||
10 Years | 8.03 | ||||
5 Years | 12.96 | ||||
1 Year | 11.84 | ||||
Series II Shares | |||||
Inception (3/26/02) | 8.10 | % | |||
10 Years | 7.78 | ||||
5 Years | 12.68 | ||||
1 Year | 11.43 |
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. High Yield Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. High Yield Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–87.29% |
| |||||||
Aerospace & Defense–2.24% | ||||||||
B/E Aerospace Inc., Sr. Unsec. Notes, 5.25%, 04/01/22 | $ | 125,000 | $ | 136,719 | ||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, | ||||||||
5.75%, 03/15/22(b) | 135,000 | 139,219 | ||||||
6.00%, 10/15/22(b) | 58,000 | 60,030 | ||||||
7.75%, 03/15/20(b) | 927,000 | 1,053,303 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Bonds, 5.25%, 02/01/21 | 263,000 | 261,685 | ||||||
GenCorp Inc., Sec. Gtd. Global Notes, 7.13%, 03/15/21 | 766,000 | 840,685 | ||||||
TransDigm Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Global Notes, 5.50%, 10/15/20 | 195,000 | 198,900 | ||||||
7.50%, 07/15/21 | 335,000 | 373,525 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 6.00%, 07/15/22(b) | 270,000 | 277,762 | ||||||
6.50%, 07/15/24(b) | 227,000 | 236,364 | ||||||
3,578,192 | ||||||||
Agricultural Products–0.24% | ||||||||
Darling Ingredients Inc., Sr. Unsec. Gtd. Notes, 5.38%, 01/15/22(b) | 373,000 | 388,853 | ||||||
Airlines–0.60% | ||||||||
American Airlines Pass Through Trust, Series 2011-1, Class B, Sec. Pass Through Ctfs., 7.00%, 01/31/18(b) | 280,479 | 307,124 | ||||||
Continental Airlines Pass Through Trust, | ||||||||
Series 2000-2, Class B, Sec. Pass Through Ctfs., 8.31%, 04/02/18 | 27,971 | 30,838 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 170,803 | 191,833 | ||||||
UAL Pass Through Trust, Series 2009-2, Class B, Sr. Sec. Gtd. Pass Through Ctfs., 12.00%, 01/15/16(b) | 154,830 | 173,506 | ||||||
US Airways Pass Through Trust, | ||||||||
Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/15 | 122,903 | 123,533 | ||||||
Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 64,864 | 74,837 | ||||||
Series 2012-1, Class C, Sec. Pass Through Ctfs., 9.13%, 10/01/15 | 59,337 | 63,342 | ||||||
965,013 | ||||||||
Alternative Carriers–1.08% | ||||||||
Level 3 Financing Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.00%, 06/01/20 | 491,000 | 538,259 | ||||||
Sr. Unsec. Gtd. Notes, 6.13%, 01/15/21(b) | 1,111,000 | 1,195,713 | ||||||
1,733,972 |
Principal Amount | Value | |||||||
Apparel Retail–1.53% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. Notes, 9.25%, 06/15/21(b) | $ | 897,000 | $ | 999,034 | ||||
L Brands Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.63%, 02/15/22 | 160,000 | 173,800 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.63%, 04/01/21 | 80,000 | 91,300 | ||||||
7.00%, 05/01/20 | 150,000 | 172,688 | ||||||
Men’s Wearhouse Inc. (The), Sr. Unsec. Gtd. Notes, 7.00%, 07/01/22(b) | 780,000 | 819,000 | ||||||
Neiman Marcus Group LTD LLC., Sr. Unsec. Gtd. Notes, | 185,000 | 200,262 | ||||||
2,456,084 | ||||||||
Apparel, Accessories & Luxury Goods–0.44% | ||||||||
Levi Strauss & Co., Sr. Unsec. Global Notes, 6.88%, 05/01/22 | 505,000 | 558,025 | ||||||
PVH Corp., Sr. Unsec. Global Notes, 4.50%, 12/15/22 | 70,000 | 69,300 | ||||||
William Carter Co. (The), Sr. Unsec. Gtd. Notes, | 69,000 | 72,105 | ||||||
699,430 | ||||||||
Application Software–0.31% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, | 484,000 | 503,360 | ||||||
Auto Parts & Equipment–2.07% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/19(b) | 395,000 | 427,587 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, 5.38%, 09/15/21 | 813,000 | 853,650 | ||||||
Gestamp Funding Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 5.63%, 05/31/20(b) | 220,000 | 231,000 | ||||||
Schaeffler Finance B.V. (Germany), | ||||||||
Sr. Sec. Gtd. Notes, | 272,000 | 271,943 | ||||||
Sr. Sec. Notes, 4.75%, 05/15/21(b) | 200,000 | 206,000 | ||||||
Schaeffler Holding Finance B.V. (Germany), Sr. Sec. Gtd. PIK Notes, 6.88%, 08/15/18(b)(c) | 400,000 | 423,500 | ||||||
Stackpole International Intermediate Co. S.A./Stackpole International Powder Metal (Canada), Sr. Sec. Gtd. Notes, 7.75%, 10/15/21(b) | 863,000 | 906,150 | ||||||
3,319,830 | ||||||||
Automotive Retail–0.30% | ||||||||
CST Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/23 | 485,000 | 485,000 | ||||||
Biotechnology–0.00% | ||||||||
Savient Pharmaceuticals, Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18(d) | 120,000 | 0 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Broadcasting–0.96% | ||||||||
Central European Media Enterprises Ltd. (Czech Republic), Sr. Sec. Gtd. PIK Global Notes, | $ | 76,000 | $ | 83,250 | ||||
Clear Channel Communications, Inc., Sr. Unsec. Notes, | 459,000 | 446,378 | ||||||
Clear Channel Worldwide Holdings Inc., Series B, | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.50%, 11/15/22 | 438,000 | 474,135 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 03/15/20 | 68,000 | 73,695 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 01/15/21 | 388,000 | 410,310 | ||||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 50,000 | 52,250 | ||||||
1,540,018 | ||||||||
Building Products–3.39% | ||||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 1,060,000 | 1,134,200 | ||||||
Building Materials Holding Corp., Sr. Sec. Notes, 9.00%, 09/15/18(b) | 622,000 | 674,870 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/21 | 1,010,000 | 1,055,450 | ||||||
Norbord Inc. (Canada), Sr. Sec. Notes, 5.38%, 12/01/20(b) | 209,000 | 213,035 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 900,000 | 1,001,250 | ||||||
USG Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 5.88%, 11/01/21(b) | 101,000 | 107,818 | ||||||
7.88%, 03/30/20(b) | 445,000 | 495,062 | ||||||
Sr. Unsec. Notes, 9.75%, 01/15/18 | 620,000 | 744,000 | ||||||
5,425,685 | ||||||||
Cable & Satellite–3.80% | ||||||||
Altice S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 7.75%, 05/15/22(b) | 490,000 | 524,300 | ||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 1,034,000 | 1,070,190 | ||||||
DISH DBS Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 05/01/20 | 1,437,000 | 1,517,831 | ||||||
Hughes Satellite Systems Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 6.50%, 06/15/19 | 345,000 | 385,969 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 177,000 | 203,329 | ||||||
Intelsat Jackson Holdings S.A. (Luxembourg), Sr. Unsec. Gtd. Global Bonds, 6.63%, 12/15/22 | 998,000 | 1,046,652 | ||||||
Numericable Group S.A. (France), | ||||||||
Sr. Sec. Bonds, 6.00%, 05/15/22(b) | 340,000 | 355,385 | ||||||
6.25%, 05/15/24(b) | 290,000 | 304,138 | ||||||
VTR Finance B.V. (Chile), Sr. Sec. Notes, 6.88%, 01/15/24(b) | 625,000 | 668,750 | ||||||
6,076,544 |
Principal Amount | Value | |||||||
Casinos & Gaming–2.06% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/20 | $ | 512,000 | $ | 567,040 | ||||
Caesars Entertainment Operating Co. Inc., | ||||||||
Sec. Global Notes, 10.00%, 12/15/15 | 246,000 | 250,920 | ||||||
Sr. Sec. Global Notes, 11.25%, 06/01/17 | 145,000 | 133,038 | ||||||
Caesars Entertainment Resort Properties LLC, Sr. Sec. Gtd. Notes, 8.00%, 10/01/20(b) | 195,000 | 204,263 | ||||||
Caesars Growth Properties Holdings LLC/Caesars Growth Properties Finance Inc., Sec. Gtd. Notes, 9.38%, 05/01/22(b) | 116,000 | 118,610 | ||||||
MGM Resorts International, | ||||||||
Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 95,000 | 139,709 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 12/15/21 | 180,000 | 201,600 | ||||||
6.75%, 10/01/20 | 319,000 | 357,280 | ||||||
Sr. Unsec. Gtd. Notes, 7.75%, 03/15/22 | 855,000 | 1,006,762 | ||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., Sr. Unsec. Global Notes, 5.38%, 03/15/22 | 305,000 | 318,725 | ||||||
3,297,947 | ||||||||
Coal & Consumable Fuels–1.43% | ||||||||
Alpha Natural Resources Inc., Sec. Gtd. Notes, 7.50%, 08/01/20(b) | 177,000 | 172,575 | ||||||
Arch Coal Inc., Sec. Gtd. Notes, 8.00%, 01/15/19(b) | 331,000 | 329,345 | ||||||
CONSOL Energy Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.38%, 03/01/21 | 440,000 | 470,800 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 04/15/22(b) | 558,000 | 590,085 | ||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | 722,000 | 731,927 | ||||||
2,294,732 | ||||||||
Communications Equipment–1.14% | ||||||||
Avaya Inc., | ||||||||
Sec. Gtd. Notes, 10.50%, 03/01/21(b) | 370,000 | 343,638 | ||||||
Sr. Sec. Gtd. Notes, | ||||||||
7.00%, 04/01/19(b) | 955,000 | 963,356 | ||||||
9.00%, 04/01/19(b) | 498,000 | 519,787 | ||||||
1,826,781 | ||||||||
Computer & Electronics Retail–0.30% | ||||||||
Rent-A-Center Inc., Sr. Unsec. Gtd. Global Notes, 6.63%, 11/15/20 | 465,000 | 486,506 | ||||||
Construction & Engineering–1.09% | ||||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 730,000 | 786,575 | ||||||
Tutor Perini Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/01/18 | 910,000 | 958,912 | ||||||
1,745,487 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Construction Machinery & Heavy Trucks–3.03% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, | $ | 742,000 | $ | 797,650 | ||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, | 845,000 | 883,025 | ||||||
Manitowoc Co. Inc. (The), Sr. Unsec. Gtd. Global Notes, 5.88%, 10/15/22 | 400,000 | 438,000 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 02/15/24 | 469,000 | 490,105 | ||||||
6.75%, 06/15/21 | 177,000 | 191,602 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 460,000 | 484,150 | ||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 03/01/22 | 818,000 | 838,450 | ||||||
Terex Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.00%, 05/15/21 | 105,000 | 113,663 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 04/01/20 | 40,000 | 43,600 | ||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 6.88%, 10/01/20 | 564,000 | 575,280 | ||||||
4,855,525 | ||||||||
Construction Materials–0.93% | ||||||||
Cemex Finance LLC (Mexico), Sr. Sec. Gtd. Notes, 6.00%, 04/01/24(b) | 300,000 | 314,250 | ||||||
Cemex S.A.B. de C.V. (Mexico), Sr. Sec. Gtd. Notes, | ||||||||
5.88%, 03/25/19(b) | 630,000 | 663,075 | ||||||
7.25%, 01/15/21(b) | 200,000 | 220,000 | ||||||
CPG Merger Sub LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/01/21(b) | 120,000 | 127,200 | ||||||
US Concrete, Inc., Sr. Sec. Gtd. Notes, 8.50%, 12/01/18(b) | 153,000 | 166,005 | ||||||
1,490,530 | ||||||||
Consumer Finance–1.05% | ||||||||
Ally Financial Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.50%, 09/15/20 | 175,000 | 211,750 | ||||||
8.00%, 03/15/20 | 1,040,000 | 1,271,400 | ||||||
First Cash Financial Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 04/01/21(b) | 178,000 | 190,237 | ||||||
1,673,387 | ||||||||
Data Processing & Outsourced Services–2.05% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | 930,000 | 1,011,375 | ||||||
First Data Corp., | ||||||||
Sec. Gtd. Notes, 8.25%, 01/15/21(b) | 992,000 | 1,089,960 | ||||||
Sr. Unsec. Gtd. Global Notes, 12.63%, 01/15/21 | 286,000 | 353,210 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 11.75%, 08/15/21 | 698,000 | 827,130 | ||||||
3,281,675 |
Principal Amount | Value | |||||||
Distillers & Vintners–0.28% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Global Notes, 9.00%, 04/30/18(e) | $ | 243,474 | $ | 231,300 | ||||
Constellation Brands Inc., Sr. Unsec. Gtd. Notes, | ||||||||
3.75%, 05/01/21 | 193,000 | 192,759 | ||||||
6.00%, 05/01/22 | 25,000 | 28,125 | ||||||
452,184 | ||||||||
Diversified Banks–0.13% | ||||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | 195,000 | 214,430 | ||||||
Diversified Metals & Mining–1.94% | ||||||||
FMG Resources Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 6.88%, 04/01/22(b) | 856,000 | 920,200 | ||||||
HudBay Minerals Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 9.50%, 10/01/20 | 461,000 | 509,405 | ||||||
Imperial Metals Corp. (Canada), Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 563,000 | 577,646 | ||||||
Vedanta Resources PLC (India), | ||||||||
Sr. Unsec. Notes, 9.50%, 07/18/18(b) | 395,000 | 459,214 | ||||||
REGS, Sr. Unsec. Euro Notes, 6.00%, 01/31/19(b) | 200,000 | 207,760 | ||||||
Walter Energy, Inc., | ||||||||
Sr. Sec. Gtd. Notes, | 312,000 | 319,020 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 183,000 | 106,140 | ||||||
3,099,385 | ||||||||
Diversified Support Services–0.07% | ||||||||
Envision Healthcare Corp., Sr. Unsec. Gtd. Notes, 5.13%, 07/01/22(b) | 111,000 | 112,526 | ||||||
Electric Utilities–0.00% | ||||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(d) | 275,000 | 0 | ||||||
Electrical Components & Equipment–0.17% | ||||||||
Belden Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 09/01/22(b) | 270,000 | 278,775 | ||||||
Electronic Manufacturing Services–0.05% | ||||||||
Sanmina Corp., Sr. Sec. Gtd. Notes, 4.38%, 06/01/19(b) | 83,000 | 83,623 | ||||||
Environmental & Facilities Services–0.11% | ||||||||
ADS Waste Holdings, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/20 | 161,000 | 175,088 | ||||||
Forest Products–0.00% | ||||||||
Emerald Plantation Holdings Ltd. (Cayman Islands), Sr. Sec. Gtd. Global PIK Notes, | 5,751 | 4,543 | ||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, | 40,000 | 100 | ||||||
4,643 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Gas Utilities–1.07% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., | ||||||||
Sr. Unsec. Global Notes, 6.50%, 05/01/21 | $ | 785,000 | $ | 823,269 | ||||
Sr. Unsec. Notes, 6.75%, 01/15/22(b) | 127,000 | 133,985 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Global Notes, | ||||||||
5.50%, 06/01/24 | 528,000 | 535,920 | ||||||
7.38%, 08/01/21 | 203,000 | 222,792 | ||||||
1,715,966 | ||||||||
Gold–0.58% | ||||||||
New Gold Inc. (Canada), | ||||||||
Sr. Unsec. Gtd. Notes, | 96,000 | 102,595 | ||||||
Sr. Unsec. Notes, 6.25%, 11/15/22(b) | 790,000 | 822,232 | ||||||
924,827 | ||||||||
Health Care Equipment–0.24% | ||||||||
Universal Hospital Services Inc., Sec. Gtd. Global Notes, 7.63%, 08/15/20 | 360,000 | 378,900 | ||||||
Health Care Facilities–3.20% | ||||||||
Aviv Healthcare Properties L.P./Aviv Healthcare Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 10/15/21 | 49,000 | 52,430 | ||||||
Community Health Systems Inc., | ||||||||
Sr. Sec. Gtd. Notes, | 143,000 | 147,648 | ||||||
Sr. Unsec. Gtd. Notes, | 982,202 | 1,047,273 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/21 | 859,000 | 925,572 | ||||||
HCA, Inc., | ||||||||
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 475,000 | 516,563 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.50%, 02/15/22 | 224,000 | 260,120 | ||||||
LifePoint Hospitals, Inc., Sr. Unsec. Gtd. Notes, 5.50%, 12/01/21(b) | 113,000 | 119,215 | ||||||
Tenet Healthcare Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 6.00%, 10/01/20 | 395,000 | 432,525 | ||||||
Sr. Unsec. Global Notes, | ||||||||
6.75%, 02/01/20 | 565,000 | 617,262 | ||||||
8.13%, 04/01/22 | 856,000 | 998,310 | ||||||
5,116,918 | ||||||||
Health Care Services–0.63% | ||||||||
DaVita HealthCare Partners Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.13%, 07/15/24 | 314,000 | 317,533 | ||||||
5.75%, 08/15/22 | 140,000 | 150,850 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, | 506,000 | 532,565 | ||||||
1,000,948 |
Principal Amount | Value | |||||||
Health Care Supplies–0.17% | ||||||||
Crimson Merger Sub, Inc., Sr. Unsec. Notes, 6.63%, 05/15/22(b) | $ | 273,000 | $ | 273,000 | ||||
Home Improvement Retail–0.18% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Notes, 6.38%, 07/15/22(b) | 287,000 | 287,000 | ||||||
Homebuilding–2.07% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/21(b) | 942,000 | 945,532 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/21 | 360,000 | 383,400 | ||||||
K. Hovnanian Enterprises Inc., | ||||||||
Sr. Sec. Gtd. Notes, 7.25%, 10/15/20(b) | 352,000 | 381,920 | ||||||
Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 01/15/19(b) | 400,000 | 409,000 | ||||||
7.50%, 05/15/16 | 125,000 | 133,906 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 12/15/21 | 181,000 | 198,195 | ||||||
7.50%, 09/15/22 | 105,000 | 117,075 | ||||||
Lennar Corp., Sr. Unsec. Gtd. Global Notes, 6.95%, 06/01/18 | 520,000 | 588,900 | ||||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 163,000 | 162,593 | ||||||
3,320,521 | ||||||||
Hotels, Resorts & Cruise Lines–0.19% | ||||||||
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | 282,000 | 304,736 | ||||||
Household Products–1.08% | ||||||||
Reynolds Group Issuer Inc./LLC, | ||||||||
Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 746,000 | 788,895 | ||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
8.25%, 02/15/21 | 428,000 | 466,520 | ||||||
9.88%, 08/15/19 | 420,000 | 466,200 | ||||||
1,721,615 | ||||||||
Independent Power Producers & Energy Traders–0.94% | ||||||||
AES Corp., Sr. Unsec. Global Notes, 7.38%, 07/01/21 | 640,000 | 752,800 | ||||||
NRG Energy Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.63%, 01/15/18 | 233,000 | 268,532 | ||||||
Sr. Unsec. Gtd. Notes, | 298,000 | 316,625 | ||||||
Red Oak Power LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 154,450 | 168,737 | ||||||
1,506,694 | ||||||||
Industrial Conglomerates–0.40% | ||||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, | 607,000 | 638,109 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Industrial Machinery–0.51% | ||||||||
Waterjet Holdings, Inc., Sr. Sec. Gtd. Notes, 7.63%, 02/01/20(b) | $ | 764,000 | $ | 811,750 | ||||
Integrated Telecommunication Services–0.56% | ||||||||
Altice Financing S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 6.50%, 01/15/22(b) | 200,000 | 215,500 | ||||||
Telecom Italia S.p.A. (Italy), Sr. Unsec. Notes, 5.30%, 05/30/24(b) | 200,000 | 201,368 | ||||||
Virgin Media Secured Finance PLC (United Kingdom), Sr. Sec. Gtd. Global Notes, 5.25%, 01/15/21 | 450,000 | 478,125 | ||||||
894,993 | ||||||||
Internet Software & Services–0.90% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/22 | 1,335,000 | 1,446,806 | ||||||
Investment Banking & Brokerage–0.11% | ||||||||
Goldman Sachs Group, Inc. (The), Series L, Jr. Unsec. Sub. Notes, 5.70% (g) | 85,000 | 88,400 | ||||||
Morgan Stanley, Series H, Jr. Unsec. Sub. Global Bonds, 5.45% (g) | 85,000 | 86,700 | ||||||
175,100 | ||||||||
Leisure Facilities–0.15% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 235,000 | 243,225 | ||||||
Marine–0.40% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Notes, 8.13%, 11/15/21(b) | 603,000 | 633,904 | ||||||
Metal & Glass Containers–1.33% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/22 | 300,000 | 309,375 | ||||||
Berry Plastics Corp., Sec. Gtd. Notes, 5.50%, 05/15/22 | 1,272,000 | 1,287,900 | ||||||
Signode Industrial Group Lux S.A./Signode Industrial Group U.S. Inc., Sr. Unsec. Notes, 6.38%, 05/01/22(b) | 514,000 | 522,995 | ||||||
2,120,270 | ||||||||
Movies & Entertainment–0.89% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.88%, 02/15/22 | 335,000 | 350,913 | ||||||
DreamWorks Animation SKG, Inc., Sr. Unsec. Gtd. Notes, 6.88%, 08/15/20(b) | 375,000 | 410,625 | ||||||
Outerwall, Inc., Sr. Unsec. Gtd. Global Notes, 6.00%, 03/15/19 | 630,000 | 658,350 | ||||||
1,419,888 | ||||||||
Oil & Gas Drilling–1.67% | ||||||||
Odebrecht Offshore Drilling Finance Ltd. (Brazil), Sr. Sec. Gtd. Notes, 6.63%, 10/01/22(b) | 197,780 | 210,860 |
Principal Amount | Value | |||||||
Oil & Gas Drilling–(continued) | ||||||||
Parker Drilling Co., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.50%, 08/01/20 | $ | 650,000 | $ | 705,250 | ||||
Sr. Unsec. Gtd. Notes, 6.75%, 07/15/22(b) | 120,000 | 125,400 | ||||||
Pioneer Energy Services Corp., Sr. Unsec. Gtd. Notes, 6.13%, 03/15/22(b) | 574,000 | 597,678 | ||||||
Precision Drilling Corp. (Canada), | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.50%, 12/15/21 | 585,000 | 637,650 | ||||||
Sr. Unsec. Gtd. Notes, 5.25%, 11/15/24(b) | 165,000 | 166,758 | ||||||
Sidewinder Drilling Inc., Sr. Unsec. Notes, 9.75%, 11/15/19(b) | 217,000 | 222,425 | ||||||
2,666,021 | ||||||||
Oil & Gas Equipment & Services–1.43% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | 356,000 | 386,705 | ||||||
Exterran Partners L.P./EXLP Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.00%, 04/01/21 | 745,000 | 756,175 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 10/01/22(b) | 288,000 | 292,320 | ||||||
Gulfmark Offshore Inc., Sr. Unsec. Global Notes, 6.38%, 03/15/22 | 360,000 | 376,200 | ||||||
Hiland Partners L.P./Hiland Partners Finance Corp., Sr. Unsec. Gtd. Notes, 5.50%, 05/15/22(b) | 244,000 | 248,575 | ||||||
Key Energy Services, Inc., Sr. Unsec. Gtd. Notes, 6.75%, 03/01/21 | 74,000 | 77,515 | ||||||
McDermott International Inc., Sec. Gtd. Notes, 8.00%, 05/01/21(b) | 150,000 | 156,375 | ||||||
2,293,865 | ||||||||
Oil & Gas Exploration & Production–6.20% | ||||||||
Antero Resources Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 11/01/21 | 270,000 | 282,825 | ||||||
Approach Resources Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 06/15/21 | 540,000 | 567,675 | ||||||
Athlon Holdings L.P./Athlon Finance Corp., Sr. Unsec. Gtd. Notes, 6.00%, 05/01/22(b) | 326,000 | 339,040 | ||||||
Baytex Energy Corp. (Canada), Sr. Unsec. Gtd. Notes, 5.63%, 06/01/24(b) | 469,000 | 473,506 | ||||||
Berry Petroleum Co. LLC, | ||||||||
Sr. Unsec. Notes, | 267,000 | 285,690 | ||||||
6.75%, 11/01/20 | 178,000 | 190,460 | ||||||
Bonanza Creek Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 04/15/21 | 235,000 | 252,331 | ||||||
Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 11/15/22 | 540,000 | 587,250 | ||||||
Denbury Resources Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 05/01/22 | 393,000 | 404,299 | ||||||
Energy XXI Gulf Coast Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 12/15/21 | 536,000 | 578,880 | ||||||
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | 581,000 | 612,955 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
EXCO Resources, Inc., Sr. Unsec. Gtd. Notes, 8.50%, 04/15/22 | $ | 745,000 | $ | 808,325 | ||||
FTS International, Inc., Sr. Sec. Gtd. Notes, 6.25%, 05/01/22(b) | 214,000 | 220,420 | ||||||
Halcon Resources Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
8.88%, 05/15/21 | 373,000 | 402,840 | ||||||
9.75%, 07/15/20 | 332,000 | 365,200 | ||||||
Laredo Petroleum Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 05/01/22 | 55,000 | 61,669 | ||||||
Lonestar Resources America Inc., Sr. Unsec. Notes, 8.75%, 04/15/19(b) | 336,000 | 341,040 | ||||||
MEG Energy Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.50%, 03/15/21(b) | 280,000 | 298,200 | ||||||
QEP Resources Inc., | ||||||||
Sr. Unsec. Global Notes, 5.25%, 05/01/23 | 215,000 | 222,525 | ||||||
Sr. Unsec. Notes, 5.38%, 10/01/22 | 226,000 | 234,475 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 80,000 | 85,500 | ||||||
Rice Energy Inc., Sr. Unsec. Gtd. Notes, 6.25%, 05/01/22(b) | 969,000 | 1,002,915 | ||||||
Rosetta Resources, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/21 | 146,000 | 150,927 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 06/01/22 | 487,000 | 513,785 | ||||||
Sanchez Energy Corp., Sr. Unsec. Gtd. Notes, 6.13%, 01/15/23(b) | 302,000 | 312,570 | ||||||
SandRidge Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 03/15/21 | 301,000 | 328,090 | ||||||
9,923,392 | ||||||||
Oil & Gas Refining & Marketing–0.63% | ||||||||
Calumet Specialty Products Partners L.P./Calumet Finance Corp., Sr. Unsec. Gtd. Notes, 6.50%, 04/15/21(b) | 986,000 | 1,010,650 | ||||||
Oil & Gas Storage & Transportation–4.87% | ||||||||
Access Midstream Partners L.P./ACMP Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.88%, 05/15/23 | 443,000 | 469,580 | ||||||
Sr. Unsec. Gtd. Notes, 4.88%, 03/15/24 | 257,000 | 273,063 | ||||||
Atlas Pipeline Partners L.P./Atlas Pipeline Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/20 | 705,000 | 756,112 | ||||||
Crestwood Midstream Partners L.P./Crestwood Midstream Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 12/15/20 | 997,000 | 1,051,835 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 888,000 | 1,031,190 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 5.50%, 02/15/23 | 723,000 | 775,417 | ||||||
NGL Energy Partners L.P./NGL Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 10/15/21(b) | 768,000 | 825,600 |
Principal Amount | Value | |||||||
Oil & Gas Storage & Transportation–(continued) | ||||||||
Penn Virginia Resource Partners L.P./Penn Virginia Resource Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.50%, 05/15/21 | $ | 296,000 | $ | 325,600 | ||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.75%, 09/01/20 | 371,000 | 403,463 | ||||||
Targa Resources Partners L.P./Targa Resources Partners Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.38%, 08/01/22 | 83,000 | 90,470 | ||||||
6.88%, 02/01/21 | 538,000 | 585,075 | ||||||
Teekay Corp. (Bermuda), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 160,000 | 185,600 | ||||||
Teekay Offshore Partners L.P./Teekay Offshore Finance Corp. (Bermuda), Sr. Unsec. Global Notes, 6.00%, 07/30/19 | 214,000 | 213,923 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.88%, 10/01/20 | 374,000 | 395,505 | ||||||
6.13%, 10/15/21 | 116,000 | 124,410 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 10/01/20(b) | 272,000 | 286,960 | ||||||
7,793,803 | ||||||||
Other Diversified Financial Services–0.13% | ||||||||
Carlson Travel Holdings, Inc., Sr. Unsec. Notes, 7.50%, 08/15/19(b) | 200,000 | 204,500 | ||||||
Packaged Foods & Meats–3.13% | ||||||||
Bertin S.A./Bertin Finance Ltd. (Brazil), Sr. Unsec. Gtd. Bonds, 10.25%, 10/05/16(b) | 200,000 | 231,000 | ||||||
Chiquita Brands International Inc., Sr. Unsec. Conv. Notes, 4.25%, 08/15/16 | 627,000 | 634,446 | ||||||
Chiquita Brands International Inc./ Chiquita Brands LLC, Sr. Sec. Gtd. Global Notes, 7.88%, 02/01/21 | 108,000 | 118,125 | ||||||
Diamond Foods Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 901,000 | 941,545 | ||||||
FAGE Dairy Industry S.A./FAGE USA Dairy Industry, Inc. (Greece), Sr. Unsec. Gtd. Notes, 9.88%, 02/01/20(b) | 281,000 | 303,129 | ||||||
JBS Investments GmbH (Brazil), | ||||||||
Sr. Unsec. Gtd. Notes, 7.25%, 04/03/24(b) | 400,000 | 418,000 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 7.25%, 04/03/24(b) | 200,000 | 207,500 | ||||||
JBS S.A. (Brazil), | ||||||||
Sr. Unsec. Notes, 10.50%, 08/04/16 (Acquired 08/30/13-02/24/14; Cost $332,440)(b) | 300,000 | 345,000 | ||||||
REGS, Sr. Unsec. Euro Notes, 10.50%, 08/04/16(b) | 300,000 | 348,000 | ||||||
Marfrig Holding Europe B.V. (Brazil), Sr. Unsec. Gtd. Notes, 6.88%, 06/24/19(b) | 204,000 | 208,080 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Post Holdings Inc., | ||||||||
7.38%, 02/15/22 | $ | 427,000 | $ | 463,829 | ||||
Sr. Unsec. Gtd. Notes, | ||||||||
6.00%, 12/15/22(b) | 343,000 | 350,717 | ||||||
6.75%, 12/01/21(b) | 114,000 | 121,267 | ||||||
Smithfield Foods Inc., Sr. Unsec. Notes, | ||||||||
5.25%, 08/01/18(b) | 100,000 | 104,500 | ||||||
5.88%, 08/01/21(b) | 100,000 | 106,250 | ||||||
6.63%, 08/15/22 | 91,000 | 99,759 | ||||||
5,001,147 | ||||||||
Paper Packaging–0.10% | ||||||||
Beverage Packaging Holdings Luxembourg II S.A., | ||||||||
Sr. Unsec. Gtd. Notes, 5.63%, 12/15/16(b) | 61,000 | 62,983 | ||||||
Sr. Unsec. Gtd. Sub. Notes, 6.00%, 06/15/17(b) | 99,000 | 102,217 | ||||||
165,200 | ||||||||
Paper Products–0.53% | ||||||||
Neenah Paper Inc., Sr. Unsec. Gtd. Notes, 5.25%, 05/15/21(b) | 84,000 | 85,680 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 735,000 | 769,913 | ||||||
855,593 | ||||||||
Personal Products–0.49% | ||||||||
Albea Beauty Holdings S.A. (France), Sr. Sec. Gtd. Notes, | 704,000 | 778,467 | ||||||
Pharmaceuticals–1.46% | ||||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/21(b) | 220,000 | 239,800 | ||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.63%, 12/01/21(b) | 706,000 | 726,297 | ||||||
6.38%, 10/15/20(b) | 315,000 | 336,263 | ||||||
6.75%, 08/15/21(b) | 273,000 | 292,110 | ||||||
7.25%, 07/15/22(b) | 116,000 | 126,730 | ||||||
7.50%, 07/15/21(b) | 545,000 | 609,719 | ||||||
2,330,919 | ||||||||
Real Estate Development–0.17% | ||||||||
AV Homes, Inc., Sr. Unsec. Notes, 8.50%, 07/01/19(b) | 270,000 | 275,063 | ||||||
Regional Banks–0.54% | ||||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 750,000 | 862,500 | ||||||
Security & Alarm Services–0.19% | ||||||||
ADT Corp. (The), Sr. Unsec. Global Notes, 6.25%, 10/15/21 | 292,000 | 310,250 |
Principal Amount | Value | |||||||
Semiconductor Equipment–1.34% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, | ||||||||
6.38%, 10/01/22 | $ | 823,000 | $ | 883,696 | ||||
6.63%, 06/01/21 | 705,000 | 757,875 | ||||||
Entegris Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/22(b) | 488,000 | 503,860 | ||||||
2,145,431 | ||||||||
Semiconductors–2.03% | ||||||||
Advanced Micro Devices, Inc., Sr. Unsec. Notes, | ||||||||
6.75%, 03/01/19(b) | 543,000 | 579,653 | ||||||
7.00%, 07/01/24(b) | 82,000 | 84,050 | ||||||
Freescale Semiconductor Inc., | ||||||||
Sr. Sec. Gtd. Notes, 6.00%, 01/15/22(b) | 1,061,000 | 1,137,922 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.05%, 02/01/20 | 349,000 | 380,410 | ||||||
Micron Technology Inc., Sr. Unsec. Notes, 5.88%, 02/15/22(b) | 488,000 | 528,260 | ||||||
NXP B.V./NXP Funding LLC (Netherlands), Sr. Unsec. Gtd. Notes, 5.75%, 02/15/21(b) | 500,000 | 531,720 | ||||||
3,242,015 | ||||||||
Specialized Finance–2.21% | ||||||||
Aircastle Ltd., | ||||||||
Sr. Unsec. Global Notes, 7.63%, 04/15/20 | 584,000 | 680,360 | ||||||
Sr. Unsec. Notes, 5.13%, 03/15/21 | 375,000 | 389,062 | ||||||
CIT Group Inc., | ||||||||
Sr. Unsec. Global Notes, 5.00%, 08/15/22 | 396,000 | 413,820 | ||||||
Sr. Unsec. Notes, | 350,000 | 381,500 | ||||||
Fly Leasing Ltd. (Ireland), Sr. Unsec. Gtd. Global Notes, 6.75%, 12/15/20 | 621,000 | 664,470 | ||||||
International Lease Finance Corp., | ||||||||
Sr. Unsec. Global Notes, 5.88%, 08/15/22 | 265,000 | 290,175 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 585,000 | 724,669 | ||||||
3,544,056 | ||||||||
Specialized REIT’s–0.46% | ||||||||
Crown Castle International Corp., Sr. Unsec. Notes, 4.88%, 04/15/22 | 363,000 | 376,613 | ||||||
MPT Operating Partnership L.P./MPT Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 05/01/21 | 320,000 | 351,200 | ||||||
727,813 | ||||||||
Specialty Chemicals–0.56% | ||||||||
Axalta Coating Systems US Holdings Inc./ Axalta Coating Systems Dutch Holding B.V., Sr. Unsec. Gtd. Notes, 7.38%, 05/01/21(b) | 150,000 | 164,475 | ||||||
Chemtura Corp., Sr. Unsec. Gtd. Notes, 5.75%, 07/15/21 | 211,000 | 220,495 | ||||||
Eagle Spinco Inc., Sr. Unsec. Gtd. Global Notes, 4.63%, 02/15/21 | 75,000 | 75,188 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Specialty Chemicals–(continued) | ||||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/23 | $ | 425,000 | $ | 439,875 | ||||
900,033 | ||||||||
Specialty REITS–0.17% | ||||||||
Weyerhaeuser Real Estate Co., Sr. Unsec. Notes, 5.88%, 06/15/24(b) | 260,000 | 268,125 | ||||||
Specialty Stores–0.80% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Sub. Notes, 5.88%, 12/15/20(b) | 1,009,000 | 1,034,225 | ||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Bonds, 5.50%, 11/01/23 | 236,000 | 244,260 | ||||||
1,278,485 | ||||||||
Steel–2.23% | ||||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | ||||||||
6.00%, 03/01/21 | 725,000 | 786,625 | ||||||
6.75%, 02/25/22 | 290,000 | 325,887 | ||||||
Magnetation LLC/ Mag Finance Corp., Sr. Sec. Gtd. Notes, 11.00%, 05/15/18(b) | 698,000 | 766,055 | ||||||
Steel Dynamics Inc., Sr. Unsec. Gtd. Global Notes, 6.38%, 08/15/22 | 110,000 | 119,900 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, 7.38%, 02/01/20(b) | 903,000 | 965,082 | ||||||
United States Steel Corp., | ||||||||
Sr. Unsec. Global Notes, 7.50%, 03/15/22 | 40,000 | 43,800 | ||||||
Sr. Unsec. Notes, 7.38%, 04/01/20 | 500,000 | 552,500 | ||||||
3,559,849 | ||||||||
Technology Distributors–0.21% | ||||||||
Anixter Inc., Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/19 | 315,000 | 340,200 | ||||||
Technology Hardware, Storage & Peripherals–0.25% | ||||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(b) | 409,000 | 406,444 | ||||||
Trading Companies & Distributors–0.31% | ||||||||
AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (Netherlands), Sr. Unsec. Gtd. Notes, 4.50%, 05/15/21(b) | 230,000 | 235,175 | ||||||
United Rentals North America Inc., Sr. Unsec. Global Notes, 8.25%, 02/01/21 | 235,000 | 262,613 | ||||||
497,788 | ||||||||
Trucking–0.24% | ||||||||
Avis Budget Car Rental LLC/Avis Budget Finance Inc., Sr. Unsec. Gtd. Notes, 5.13%, 06/01/22(b) | 348,000 | 349,740 | ||||||
Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 5.88%, 10/15/20 | 25,000 | 26,344 | ||||||
376,084 |
Principal Amount | Value | |||||||
Wireless Telecommunication Services–6.55% | ||||||||
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, 8.25%, 09/30/20(b) | $ | 400,000 | $ | 441,000 | ||||
Digicel Ltd. (Jamaica), Sr. Unsec. Notes, 6.00%, 04/15/21(b) | 600,000 | 623,250 | ||||||
Intelsat Luxembourg S.A. (Luxembourg), Sr. Unsec. Gtd. Global Bonds, | ||||||||
7.75%, 06/01/21 | 930,000 | 990,450 | ||||||
8.13%, 06/01/23 | 165,000 | 179,025 | ||||||
SBA Communications Corp., | ||||||||
Sr. Unsec. Global Notes, 5.63%, 10/01/19 | 80,000 | 85,100 | ||||||
Sr. Unsec. Notes, 4.88%, 07/15/22(b) | 560,000 | 558,600 | ||||||
Sprint Communications Inc., | ||||||||
Sr. Unsec. Global Notes, 6.00%, 11/15/22 | 591,000 | 604,297 | ||||||
7.00%, 08/15/20 | 336,000 | 371,280 | ||||||
11.50%, 11/15/21 | 150,000 | 204,000 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 03/01/20(b) | 165,000 | 190,987 | ||||||
9.00%, 11/15/18(b) | 350,000 | 426,125 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.25%, 09/15/21(b) | 712,000 | 786,760 | ||||||
7.88%, 09/15/23(b) | 472,000 | 527,460 | ||||||
T-Mobile USA, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.25%, 04/01/21 | 297,000 | 317,419 | ||||||
6.63%, 04/01/23 | 1,796,000 | 1,953,150 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/28/21 | 299,000 | 324,415 | ||||||
6.84%, 04/28/23 | 287,000 | 313,189 | ||||||
Wind Acquisition Finance S.A. (Italy), | ||||||||
Sr. Sec. Notes, 4.75%, 07/15/20(b) | 350,000 | 353,500 | ||||||
Sr. Unsec. Gtd. Notes, 7.38%, 04/23/21(b) | 1,145,000 | 1,232,020 | ||||||
10,482,027 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes |
| 139,720,095 | ||||||
Non-U.S. Dollar Denominated Bonds & Notes–6.16%(h) |
| |||||||
Apparel, Accessories & Luxury Goods–0.28% | ||||||||
Boardriders S.A., Sr. Unsec. Gtd. Notes, 8.88%, 12/15/17(b) | EUR | 315,000 | 451,818 | |||||
Auto Parts & Equipment–0.33% | ||||||||
Autodis S.A. (France), Sr. Sec. Gtd. Notes, 6.50%, 02/01/19(b) | EUR | 360,000 | 522,771 | |||||
Broadcasting–0.19% | ||||||||
CET 21 spol sro (Czech Republic), Sr. Sec. Gtd. Notes, 9.00%, 11/01/17(b) | EUR | 215,000 | 312,063 | |||||
Casinos & Gaming–0.47% | ||||||||
Gala Group Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 8.88%, 09/01/18(b) | GBP | 198,000 | 362,354 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Notes, 6.63%, 07/25/22(b) | CAD | 215,000 | $ | 215,856 | ||||
William Hill PLC (United Kingdom), Sr. Unsec. Gtd. Euro Notes, 4.25%, 06/05/20 | GBP | 100,000 | 169,456 | |||||
747,666 | ||||||||
Construction & Engineering–0.10% | ||||||||
Astaldi SpA (Italy), REGS, Sr. Unsec. Euro Notes, 7.13%, 12/01/20(b) | EUR | 105,000 | 157,608 | |||||
Construction Materials–0.82% | ||||||||
Grupo Isolux Corsan Finance B.V. (Spain), Sr. Unsec. Gtd. Bonds, 6.63%, 04/15/21(b) | EUR | 300,000 | 420,033 | |||||
Manutencoop Facility Management SpA (Italy), | ||||||||
Sr. Sec. Gtd. Notes, 8.50%, 08/01/20(b) | EUR | 230,000 | 344,071 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.50%, 08/01/20(b) | EUR | 100,000 | 149,596 | |||||
Spie BondCo 3 SCA (Luxembourg), REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 11.00%, 08/15/19(b) | EUR | 255,000 | 396,323 | |||||
1,310,023 | ||||||||
Food Distributors–0.58% | ||||||||
Bakkavor Finance 2 PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 02/15/18(b) | GBP | 505,000 | 924,809 | |||||
Hotels, Resorts & Cruise Lines–0.40% | ||||||||
Thomas Cook Finance PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 7.75%, 06/15/20(b) | EUR | 180,000 | 270,782 | |||||
Thomas Cook Group PLC (United Kingdom), Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.75%, 06/22/17 | GBP | 200,000 | 374,391 | |||||
645,173 | ||||||||
Independent Power Producers & Energy Traders–0.23% | ||||||||
Infinis PLC (United Kingdom), Sr. Sec. Notes, 7.00%, 02/15/19(b) | GBP | 200,000 | 369,684 | |||||
Integrated Telecommunication Services–0.24% | ||||||||
Virgin Media Secured Finance PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. Global Notes, 5.50%, 01/15/21 | GBP | 103,000 | 183,882 | |||||
REGS, Sr. Sec. Gtd. Notes, 6.00%, 04/15/21(b) | GBP | 107,000 | 193,661 | |||||
377,543 | ||||||||
Internet Software & Services–0.26% | ||||||||
Adria Bidco B.V. (Serbia), REGS, Sr. Sec. Gtd. Euro Notes, 7.88%, 11/15/20(b) | EUR | 280,000 | 417,910 |
Principal Amount | Value | |||||||
Metal & Glass Containers–0.11% | ||||||||
Greif Neveda Holdings Inc., SCS, REGS, Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.38%, 07/15/21(b) | EUR | 105,000 | $ | 171,813 | ||||
Multi-Sector Holdings–0.36% | ||||||||
Odeon & UCI Finco PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | GBP | 110,000 | 197,923 | |||||
REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, 9.00%, 08/01/18(b) | GBP | 210,000 | 377,853 | |||||
575,776 | ||||||||
Other Diversified Financial Services–1.03% | ||||||||
AG Spring Finance II Ltd. (Spain), Sr. Sec. Notes, 9.50%, 06/01/19(b) | EUR | 120,000 | 156,511 | |||||
Boats Investments Netherlands B.V. (Netherlands), REGS-Series 97, Sr. Sec. PIK Medium-Term Mortgage Euro Notes, 0.00%, 03/31/17(b)(c) | EUR | 106,820 | 65,961 | |||||
Cabot Financial Luxembourg S.A. (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 10.38%, 10/01/19(b) | GBP | 115,000 | 225,000 | |||||
Financiere Gaillon 8 SAS (France), Sr. Unsec. Notes, 7.00%, 09/30/19(b) | EUR | 280,000 | 391,072 | |||||
GCS Holdco Finance I S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 6.50%, 11/15/18(b) | EUR | 127,000 | 185,205 | |||||
Lowell Group Financing PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 10.75%, 04/01/19(b) | GBP | 320,000 | 616,824 | |||||
1,640,573 | ||||||||
Personal Products–0.10% | ||||||||
Albea Beauty Holdings S.A. (France), REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, 8.75%, 11/01/19(b) | EUR | 110,000 | 166,062 | |||||
Pharmaceuticals–0.12% | ||||||||
Rottapharm Ltd. (Italy), REGS, Sr. Unsec. Gtd. Euro Notes, 6.13%, 11/15/19(b) | EUR | 130,000 | 193,273 | |||||
Publishing–0.10% | ||||||||
Johnston Press Bond PLC (United Kingdom), Sr. Sec. Notes, 8.63%, 06/01/19(b) | GBP | 100,000 | 167,941 | |||||
Research & Consulting Services–0.12% | ||||||||
La Financiere Atalian S.A. (Luxembourg), REGS, Sr. Unsec. Gtd. Euro Bonds, 7.25%, 01/15/20(b) | EUR | 130,000 | 194,030 | |||||
Specialized Finance–0.23% | ||||||||
HSS Financing PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. Notes, 6.75%, 08/01/19(b) | GBP | 100,000 | 180,350 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 6.75%, 08/01/19(b) | GBP | 100,000 | 180,349 | |||||
360,699 |
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–0.09% | ||||||||
Matterhorn Mobile Holdings S.A. (Luxembourg), REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, | EUR | 100,000 | $ | 150,281 | ||||
Total Non-U.S. Dollar Denominated Bonds & Notes |
| 9,857,516 | ||||||
Shares | ||||||||
Common Stocks & Other Equity Interests–0.88% |
| |||||||
Automobile Manufacturers–0.52% | ||||||||
General Motors Co.(i) | 14,296 | 518,928 | ||||||
General Motors Co.–Wts. expiring 07/10/16(i)(j) | 5,864 | 156,034 | ||||||
General Motors Co.–Wts. expiring 07/10/19(i)(j) | 5,864 | 108,831 | ||||||
Motors Liquidation Co. GUC Trust(j) | 1,538 | 39,373 | ||||||
823,166 | ||||||||
Broadcasting–0.01% | ||||||||
Adelphia Communications Corp.(k) | 3,280 | 2,558 | ||||||
Adelphia Recovery Trust–Series ACC-1(k) | 318,570 | 3,186 | ||||||
Adelphia Recovery Trust–Series Arahova(k) | 109,170 | 1,310 | ||||||
7,054 | ||||||||
Construction Materials–0.14% | ||||||||
U.S. Concrete, Inc.(j) | 9,253 | 229,012 | ||||||
Forest Products–0.00% | ||||||||
Emerald Plantation Holdings Ltd. (Cayman Islands)(f)(j) | 6,205 | 1,086 | ||||||
Integrated Telecommunication Services–0.15% | ||||||||
Hawaiian Telcom Holdco Inc.–Wts. expiring 10/28/15 (l) | 1,527 | 22,523 | ||||||
Largo Ltd. (Luxembourg)–Class A(j) | 17,563 | 21,885 | ||||||
Largo Ltd. (Luxembourg)–Class B(j) | 158,069 | 196,964 | ||||||
241,372 | ||||||||
Other Diversified Financial Services–0.00% | ||||||||
SW Acquisition L.P.(j) | 1 | 0 |
Shares | Value | |||||||
Paper Products–0.05% | ||||||||
NewPage Holdings Inc. (Acquired 07/21/11-08/29/11; Cost $245,385)(b)(m) | 1,140 | $ | 79,800 | |||||
Semiconductors–0.01% | ||||||||
Magnachip Semiconductor Corp. (South Korea)(j) | 1,372 | 19,345 | ||||||
Total Common Stocks & Other Equity Interests (Cost $2,625,297) |
| 1,400,835 | ||||||
Principal Amount | ||||||||
Variable Rate Senior Loan Interests–0.85% |
| |||||||
Casinos & Gaming–0.09% | ||||||||
Caesars Entertainment Operating Co. Inc., Sr. Sec. Gtd. Term Loan, 9.75%, 01/28/18(n) | $ | 150,000 | 148,236 | |||||
Diversified Real Estate Activities–0.76% | ||||||||
Weyerhaeuser Real Estate Co., Sr. Unsec. Gtd. Term Loan, 0.00%, 11/03/14(n)(o) | 1,215,000 | 1,215,000 | ||||||
Total Variable Rate Senior Loan Interests (Cost $1,363,927) |
| 1,363,236 | ||||||
U.S. Treasury Bills–0.04% |
| |||||||
0.00%, 11/13/14(p) | 30,000 | 29,995 | ||||||
0.05%, 11/13/14(p) | 30,000 | 29,995 | ||||||
Total U.S. Treasury Bills |
| 59,990 | ||||||
Shares | ||||||||
Money Market Funds–8.85% |
| |||||||
Liquid Assets Portfolio–Institutional Class(q) | 7,086,365 | 7,086,365 | ||||||
Premier Portfolio–Institutional Class(q) | 7,086,365 | 7,086,365 | ||||||
Total Money Market Funds |
| 14,172,730 | ||||||
TOTAL INVESTMENTS–104.07% |
| 166,574,402 | ||||||
OTHER ASSETS LESS LIABILITIES–(4.07)% |
| (6,515,579 | ) | |||||
NET ASSETS–100.00% |
| $ | 160,058,823 |
Investment Abbreviations:
CAD | – Canadian Dollar | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
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 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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $70,362,201, which represented 43.96% of the Fund’s Net Assets. |
(c) | All or a portion of this security is Payment-in-Kind. |
Issuer | Cash Rate | PIK Rate | ||||||
Boats Investments Netherlands B.V., REGS, Series 97, Sr. Sec. PIK Medium-Term Mortgage Euro Notes | 0.00 | % | 11.00 | % | ||||
Central European Media Enterprises Ltd., Sr. Sec. Gtd. PIK Global Notes | 0.00 | 15.00 | ||||||
Emerald Plantation Holdings Ltd., Sr. Sec. Gtd. Global PIK Notes | 6.00 | 8.00 | ||||||
Schaeffler Holding Finance B.V., Sr. Sec. Gtd. PIK Notes | 6.88 | 7.63 |
(d) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at June 30, 2014 was $100, which represented less than 1% of the Fund’s Net Assets. |
(e) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(f) | Acquired as part of the Sino-Forest Corp. reorganization. |
(g) | Perpetual bond with no specified maturity date. |
(h) | Foreign denominated security. Principal amount is denominated in currency indicated. |
(i) | Acquired as part of the General Motors reorganization. |
(j) | Non-income producing security. |
(k) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(l) | Non-income producing security acquired as part of the Hawaiian Telcom bankruptcy reorganization. |
(m) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
(n) | Variable rate senior loan interests are, at present, not readily marketable, not registered under the Securities Act of 1933, as amended (the “1933 Act”), and may be subject to contractual and legal restrictions on sale. Senior secured corporate loans and senior secured debt securities in the Fund’s portfolio generally have variable rates which adjust to a base, such as the London Inter-Bank Offered Rate (“LIBOR”), on set dates, typically every 30 days but not greater than one year; and/or have interest rates that float at a margin above a widely recognized base lending rate such as the Prime Rate of a designated U.S. bank. |
(o) | All or a portion of this holding is subject to unfunded loan commitments. Interest rate will be determined at the time of funding. See Note 8. |
(p) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(q) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By credit quality, based on Total Investments as of June 30, 2014
BBB | 1.3 | % | ||
BB | 44.8 | |||
B | 44.1 | |||
CCC | 7.5 | |||
C | 0.2 | |||
Not Rated | 2.1 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $154,712,415) | $ | 152,401,672 | ||
Investments in affiliated money market funds, at value and cost | 14,172,730 | |||
Total investments, at value (Cost $168,885,145) | 166,574,402 | |||
Foreign currencies, at value (Cost $1,564,010) | 1,575,406 | |||
Receivable for: | ||||
Investments sold | 2,063,288 | |||
Fund shares sold | 389,327 | |||
Dividends and interest | 2,456,663 | |||
Investment for trustee deferred compensation and retirement plans | 84,697 | |||
Total assets | 173,143,783 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 4,171,697 | |||
Fund shares reacquired | 145,216 | |||
Amount due custodian | 8,268,639 | |||
Forward foreign currency contracts outstanding | 171,574 | |||
Variation margin — centrally cleared swap agreements | 1,706 | |||
Accrued fees to affiliates | 206,442 | |||
Accrued trustees’ and officers’ fees and benefits | 514 | |||
Accrued other operating expenses | 30,664 | |||
Trustee deferred compensation and retirement plans | 88,508 | |||
Total liabilities | 13,084,960 | |||
Net assets applicable to shares outstanding | $ | 160,058,823 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 158,176,825 | ||
Undistributed net investment income | 10,827,503 | |||
Undistributed net realized gain (loss) | (6,485,977 | ) | ||
Net unrealized appreciation (depreciation) | (2,459,528 | ) | ||
$ | 160,058,823 | |||
Net Assets: |
| |||
Series I | $ | 105,755,887 | ||
Series II | $ | 54,302,936 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 17,640,645 | |||
Series II | 9,110,427 | |||
Series I: | ||||
Net asset value per share | $ | 6.00 | ||
Series II: | ||||
Net asset value per share | $ | 5.96 |
Investment income: |
| |||
Interest | $ | 4,542,797 | ||
Dividends (net of foreign withholding taxes of $21) | 66,058 | |||
Dividends from affiliated money market funds | 969 | |||
Total investment income | 4,609,824 | |||
Expenses: | ||||
Advisory fees | 468,493 | |||
Administrative services fees | 189,371 | |||
Custodian fees | 8,099 | |||
Distribution fees — Series II | 61,397 | |||
Transfer agent fees | 10,613 | |||
Trustees’ and officers’ fees and benefits | 13,480 | |||
Other | 41,972 | |||
Total expenses | 793,425 | |||
Less: Fees waived | (89,747 | ) | ||
Net expenses | 703,678 | |||
Net investment income | 3,906,146 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 3,061,451 | |||
Foreign currencies | (12,279 | ) | ||
Forward foreign currency contracts | (15,879 | ) | ||
Swap agreements | 70,620 | |||
3,103,913 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 768,448 | |||
Foreign currencies | 16,789 | |||
Forward foreign currency contracts | (93,826 | ) | ||
Swap agreements | (55,234 | ) | ||
636,177 | ||||
Net realized and unrealized gain | 3,740,090 | |||
Net increase in net assets resulting from operations | $ | 7,646,236 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 3,906,146 | $ | 7,439,662 | ||||
Net realized gain | 3,103,913 | 2,772,367 | ||||||
Change in net unrealized appreciation (depreciation) | 636,177 | (1,942,674 | ) | |||||
Net increase in net assets resulting from operations | 7,646,236 | 8,269,355 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (4,719,053 | ) | |||||
Series ll | — | (2,040,917 | ) | |||||
Total distributions from net investment income | — | (6,759,970 | ) | |||||
Share transactions–net: | ||||||||
Series l | 2,111,478 | 3,352,924 | ||||||
Series ll | 7,430,706 | 23,475,224 | ||||||
Net increase in net assets resulting from share transactions | 9,542,184 | 26,828,148 | ||||||
Net increase in net assets | 17,188,420 | 28,337,533 | ||||||
Net assets: | ||||||||
Beginning of period | 142,870,403 | 114,532,870 | ||||||
End of period (includes undistributed net investment income of $10,827,503 and $6,921,357, respectively) | $ | 160,058,823 | $ | 142,870,403 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. High Yield Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is total return, comprised of current income and capital appreciation.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Senior secured floating rate loans and senior secured floating rate debt securities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may reflect appropriate factors such as ratings, tranche type, industry, company performance, spread, individual trading characteristics, institution-size trading in similar groups of securities and other market data.
A security listed or traded on an exchange (except convertible securities) 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
Invesco V.I. High Yield Fund
asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service are valued based on a model which may include end of day net present values, spreads, ratings, industry, and company performance.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. High Yield Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
L. | Securities Purchased on a When-Issued and Delayed Delivery Basis — The Fund may purchase and sell interests in corporate loans and corporate debt securities and other portfolio securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Fund actually takes delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities prior to the settlement date. |
M. | Swap Agreements — The Fund may enter into various swap transactions, including interest rate, total return, index, currency exchange rate and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between two parties (“Counterparties”). A swap agreement may be negotiated bilaterally and traded over the counter (OTC) between two parties (“uncleared/OTC”) or, in some instances, must be transacted through a future commission merchant (FCM) and cleared through a clearinghouse that serves as a central Counterparty (“centrally cleared swap”).These agreements may contain among other conditions, events of default and termination events, and various covenants and representations such as provisions that require the Fund to maintain a pre-determined level of net assets, and/or provide limits regarding the decline of the Fund’s NAV over specific periods of time. If the Fund were to trigger such provisions and have open derivative positions at that time, the Counterparty may be able to terminate such agreement and request immediate payment in an amount equal to the net liability positions, if any. |
Interest rate, total return, index, and currency exchange rate swap agreements are two-party contracts entered into primarily to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be
Invesco V.I. High Yield Fund
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.
In a centrally cleared swap, the Fund’s ultimate Counterparty is a central clearinghouse. The Fund initially will enter into centrally cleared swaps through an executing broker. When a Fund enters into a centrally cleared swap, it must deliver to the central Counterparty (via the FCM) an amount referred to as “initial margin.” Initial margin requirements are determined by the central Counterparty, but an FCM may require additional initial margin above the amount required by the central Counterparty. Initial margin deposits required upon entering into centrally cleared swaps are satisfied by cash or securities as collateral at the FCM. Securities deposited as initial margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities. During the term of a cleared swap agreement, a “variation margin” amount may be required to be paid by the Fund or may be received by the Fund, based on the daily change in price of the underlying reference instrument subject to the swap agreement and is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities until the centrally cleared swap is terminated at which time a realized gain or loss is recorded.
A CDS is an agreement between Counterparties to exchange the credit risk of an issuer. A buyer of a CDS is said to buy protection by paying a fixed payment over the life of the agreement and in some situations an upfront payment to the seller of the CDS. If a defined credit event occurs (such as payment default or bankruptcy), the Fund as a protection buyer would cease paying its fixed payment, the Fund would deliver eligible bonds issued by the reference entity to the seller, and the seller would pay the full notional value, or the “par value”, of the referenced obligation to the Fund. A seller of a CDS is said to sell protection and thus would receive a fixed payment over the life of the agreement and an upfront payment, if applicable. If a credit event occurs, the Fund as a protection seller would cease to receive the fixed payment stream, the Fund would pay the buyer “par value” or the full notional value of the referenced obligation, and the Fund would receive the eligible bonds issued by the reference entity. In turn, these bonds may be sold in order to realize a recovery value. Alternatively, the seller of the CDS and its Counterparty may agree to net the notional amount and the market value of the bonds and make a cash payment equal to the difference to the buyer of protection. If no credit event occurs, the Fund receives the fixed payment over the life of the agreement. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the CDS. In connection with these agreements, cash and securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default under the swap agreement or bankruptcy/insolvency of a party to the swap agreement. If a Counterparty becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only limited recovery or may obtain no recovery in such circumstances. The Fund’s maximum risk of loss from Counterparty risk, either as the protection seller or as the protection buyer, is the value of the contract. The risk may be mitigated by having a master netting arrangement between the Fund and the Counterparty and by the designation of collateral by the Counterparty to cover the Fund’s exposure to the Counterparty.
Implied credit spreads represent the current level at which protection could be bought or sold given the terms of the existing CDS contract and serve as an indicator of the current status of the payment/performance risk of the CDS. An implied spread that has widened or increased since entry into the initial contract may indicate a deteriorating credit profile and increased risk of default for the reference entity. A declining or narrowing spread may indicate an improving credit profile or decreased risk of default for the reference entity. Alternatively, credit spreads may increase or decrease reflecting the general tolerance for risk in the credit markets.
Changes in the value of centrally cleared and OTC swap agreements are recognized as unrealized gains (losses) in the Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
N. | Bank Loan Risk Disclosures — Although the resale, or secondary market for floating rate loans has grown substantially over the past decade, both in overall size and number of market participants, there is no organized exchange or board of trade on which floating rate loans are traded. Instead, the secondary market for floating rate loans is a private, unregulated interdealer or interbank resale market. Such a market may therefore be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods. Similar to other asset classes, bank loan funds may be exposed to counterparty credit risk, or the risk than an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. |
O. | Leverage Risk — Leverage exists when a Fund can lose more than it originally invests because it purchases or sells an instrument or enters into a transaction without investing an amount equal to the full economic exposure of the instrument or transaction. |
P. | Other Risks — The Fund invests in corporate loans from U.S. or non-U.S. companies (the “Borrowers”). The investment of the Fund in a corporate loan may take the form of participation interests or assignments. If the Fund purchases a participation interest from a syndicate of lenders (“Lenders”) or one of the participants in the syndicate (“Participant”), one or more of which administers the loan on behalf of all the Lenders (the “Agent Bank”), the Fund would be required to rely on the Lender that sold the participation interest not only for the enforcement of the Fund’s rights against the Borrower but also for the receipt and processing of payments due to the Fund under the corporate loans. As such, the Fund is subject to the credit risk of the Borrower and the Participant. Lenders and Participants interposed between the Fund and a Borrower, together with Agent Banks, are referred to as “Intermediate Participants”. |
Invesco V.I. High Yield Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $200 million | 0 | .625% | ||||
Next $300 million | 0 | .55% | ||||
Next $500 million | 0 | .50% | ||||
Over $1 billion | 0 | .45% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective May 1, 2014, the Adviser has contractually agreed, through at least June 30, 2015, 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 May 1, 2014, 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 0.80% 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 Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $89,747.
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, 2014, Invesco was paid $24,795 for accounting and fund administrative services and reimbursed $164,576 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, 2014, 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, 2014, 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. |
Invesco V.I. High Yield Fund
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 15,269,172 | $ | 304,393 | $ | — | $ | 15,573,565 | ||||||||
Corporate Debt Securities | — | 141,083,331 | — | 141,083,331 | ||||||||||||
Foreign Debt Securities | — | 9,857,516 | — | 9,857,516 | ||||||||||||
Treasury Securities | — | 59,990 | — | 59,990 | ||||||||||||
$ | 15,269,172 | $ | 151,305,230 | — | $ | 166,574,402 | ||||||||||
Forward Foreign Currency Contracts* | — | (171,574 | ) | — | (171,574 | ) | ||||||||||
Swap Agreements* | — | 7,161 | — | 7,161 | ||||||||||||
Total Investments | $ | 15,269,172 | $ | 151,140,817 | $ | — | $ | 166,409,989 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk: | ||||||||
Swap agreements(a) | $ | 7,161 | $ | — | ||||
Currency risk: | ||||||||
Forward foreign currency contracts(b) | 5,024 | (176,598 | ) | |||||
Total | $ | 12,185 | $ | (176,598 | ) |
(a) | Includes cumulative appreciation of centrally cleared swap agreements. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
(b) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||||||
Forward Foreign Currency Contracts | Swap Agreements | |||||||
Realized Gain (Loss): | ||||||||
Credit risk | $ | — | $ | 70,620 | ||||
Currency risk | (15,879 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation): | ||||||||
Credit risk | — | (55,234 | ) | |||||
Currency risk | (93,826 | ) | — | |||||
Total | $ | (109,705 | ) | $ | 15,386 |
The table below summarizes the average notional value of forward foreign currency contracts and swap agreements outstanding during the period.
Forward Foreign Currency Contracts | Swap Agreements | |||||||
Average notional value | $ | 13,924,337 | $ | 554,120 |
Invesco V.I. High Yield Fund
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/25/14 | Citigroup Global Markets Inc | GBP | 1,202,391 | USD | 2,006,495 | $ | 2,057,650 | $ | (51,155 | ) | ||||||||||||||||
07/25/14 | RBC Capital Markets Corp. | CAD | 528,000 | USD | 478,093 | 494,488 | (16,395 | ) | ||||||||||||||||||
07/25/14 | RBC Capital Markets Corp. | USD | 243,997 | CAD | 261,796 | 245,180 | 1,183 | |||||||||||||||||||
09/02/14 | Citigroup Global Markets Inc | EUR | 5,075,000 | USD | 6,905,882 | 6,950,669 | (44,787 | ) | ||||||||||||||||||
09/02/14 | Citigroup Global Markets Inc | USD | 508,370 | EUR | 373,988 | 512,211 | 3,841 | |||||||||||||||||||
09/02/14 | RBC Capital Markets Corp. | GBP | 1,577,088 | USD | 2,633,429 | 2,697,690 | (64,261 | ) | ||||||||||||||||||
Total forward foreign currency contracts — Currency Risk |
| $ | (171,574 | ) |
Currency Abbreviations:
CAD | – Canadian Dollar | |
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Centrally Cleared Credit Default Swap Agreements | ||||||||||||||||||||||||||||||
Counterparty/Clearinghouse | Reference Entity | Buy/ Sell Protection | (Pay)/ Receive Fixed Rate | Expiration Date | Implied Credit Spread(a) | Notional Value | Upfront Payments | Unrealized Appreciation | ||||||||||||||||||||||
Credit Suisse Securities (USA) LLC/CME | Markit CDX North America, High Yield Index | Sell | 5.00 | % | 06/20/2019 | 3.03 | % | $ | 1,231,326 | $ | 90,427 | $ | 7,161 | |||||||||||||||||
Total Credit Default Swap Agreements — Credit Risk |
| $ | 7,161 |
Abbreviations:
CME | – Chicago Mercantile Exchange |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Citigroup Global Markets | $ | 3,841 | $ | (3,841 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Credit Suisse Securities (USA) LLC(b) | 7,161 | — | 7,161 | — | — | 7,161 | ||||||||||||||||||
RBC Capital Markets Corp.(a) | 1,183 | (1,183 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 12,185 | $ | (5,024 | ) | $ | 7,161 | $ | — | $ | — | $ | 7,161 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Citigroup Global Markets | $ | 95,942 | $ | (3,841 | ) | $ | 92,101 | $ | — | $ | — | $ | 92,101 | |||||||||||
RBC Capital Markets Corp.(a) | 80,656 | (1,183 | ) | 79,473 | — | — | 79,473 | |||||||||||||||||
Total | $ | 176,598 | $ | (5,024 | ) | $ | 171,574 | $ | — | $ | — | $ | 171,574 |
(a) | Forward foreign currency contracts Counterparty. |
(b) | Swap agreements Counterparty. |
Invesco V.I. High Yield Fund
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2014, the Fund engaged in securities purchases of $4,546,349.
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 8—Unfunded Loan Commitments
As of June 30, 2014, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements with the following borrowers:
Borrower | Type | Principal Amount | Value | |||||||
Weyerhaeuer Real Estate Co. | Term Loan | $ | 1,215,000 | $ | 1,215,000 |
NOTE 9—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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 4,917,331 | $ | — | $ | 4,917,331 | ||||||
December 31, 2017 | 4,682,142 | — | 4,682,142 | |||||||||
Total capital loss carryforward | $ | 9,599,473 | $ | — | $ | 9,599,473 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
Invesco V.I. High Yield Fund
NOTE 10—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, 2014 was $86,026,207 and $75,467,096, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 6,753,997 | ||
Aggregate unrealized (depreciation) of investment securities | (9,174,134 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (2,420,137 | ) |
Cost of investments for tax purposes is $168,994,539.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,123,041 | $ | 12,425,806 | 6,224,196 | $ | 35,375,283 | ||||||||||
Series II | 1,693,517 | 9,854,183 | 2,847,094 | 16,256,247 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 858,009 | 4,719,053 | ||||||||||||
Series II | — | — | 372,430 | 2,040,917 | ||||||||||||
Issued in connection with acquisitions:(b) | ||||||||||||||||
Series I | — | — | 2,383,944 | 13,917,969 | ||||||||||||
Series II | — | — | 2,020,980 | 11,783,481 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,766,227 | ) | (10,314,328 | ) | (8,855,490 | ) | (50,659,381 | ) | ||||||||
Series II | (415,618 | ) | (2,423,477 | ) | (1,164,125 | ) | (6,605,421 | ) | ||||||||
Net increase in share activity | 1,634,713 | $ | 9,542,184 | 4,687,038 | $ | 26,828,148 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 73% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
(b) | As of the opening of business on April 29, 2013, the Fund acquired all the net assets of Invesco V.I. High Yield Securities Fund (the “Target Fund”) pursuant to a plan of reorganization approved by the Trustees of the Fund on December 6, 2012 and by the shareholders of the Target Fund on March 28, 2013. The acquisition was accomplished by a tax-free exchange of 4,404,924 shares of the Fund for 23,160,520 shares outstanding of the Target Fund as of the close of business on April 26, 2013. Shares of the Target Fund were exchanged for the like class of shares of the Fund, based on the relative net asset value of the Target Fund to the net asset value of the Fund on the close of business, April 26, 2013. The Target Fund’s net assets as of the close of business on April 26, 2013 of $25,701,450, including $(5,548,317) of unrealized appreciation (depreciation), were combined with those of the Fund. The net assets of the Fund immediately before the acquisition were $116,562,405 and $142,263,855 immediately after the acquisition. |
The pro forma results of operations for the year ended December 31, 2013 assuming the reorganization had been completed on January 1, 2013, the beginning of the annual reporting period are as follows: |
Net investment income | $ | 7,875,193 | ||
Net realized/unrealized gains | 1,314,954 | |||
Change in net assets resulting from operations | $ | 9,190,147 |
The combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Target Fund that have been included in the Fund’s Statement of Operations since April 30, 2013. |
Invesco V.I. High Yield Fund
NOTE 12—Senior Loan Participation Commitments
The Fund invests in participations, assignments, or acts as a party to the primary lending syndicate of a Senior Loan interest to corporations, partnerships, and other entities. When the Fund purchases a participation of a Senior Loan interest, the Fund typically enters into a contractual agreement with the lender or other third party selling the participation, but not with the borrower directly. As such, the Fund assumes the credit risk of the borrower, selling participant or other persons interpositioned between the Fund and the borrower.
As of June 30, 2014, the following sets forth the selling participants with respect to interest in Senior Loans purchased by the Fund on a participation basis.
Selling Participant | Principal Amount | Value | ||||||
Credit Suisse First Boston | $ | 150,000 | $ | 148,236 | ||||
Morgan Stanley | 1,215,000 | 1,215,000 | ||||||
Total | $ | 1,365,000 | $ | 1,363,236 |
NOTE 13—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both | Total from operations | Dividends income | Net asset value, end of period | Total return(b) | Net assets, (000’s omitted) | Ratio of to average net assets absorbed | Ratio of fee waivers | Ratio of net to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 5.70 | $ | 0.15 | $ | 0.15 | $ | 0.30 | $ | — | $ | 6.00 | 5.26 | % | $ | 105,756 | 0.86 | %(d) | 0.98 | %(d) | 5.29 | %(d) | 52 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 5.61 | 0.33 | 0.05 | 0.38 | (0.29 | ) | 5.70 | 7.01 | 98,455 | 0.81 | 1.03 | 5.79 | 74 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 5.04 | 0.33 | 0.53 | 0.86 | (0.29 | ) | 5.61 | 17.17 | 93,529 | 0.79 | 1.04 | 6.10 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 5.35 | 0.35 | (0.29 | ) | 0.06 | (0.37 | ) | 5.04 | 0.96 | 106,557 | 0.83 | 1.06 | 6.84 | 71 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.22 | 0.43 | 0.26 | 0.69 | (0.56 | ) | 5.35 | 13.57 | 55,803 | 0.95 | 1.17 | 8.04 | 102 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.69 | 0.47 | 1.47 | 1.94 | (0.41 | ) | 5.22 | 52.79 | 60,649 | 0.95 | 1.22 | 10.29 | 125 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 5.67 | 0.15 | 0.14 | 0.29 | — | 5.96 | 5.11 | 54,303 | 1.11 | (d) | 1.23 | (d) | 5.04 | (d) | 52 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 5.59 | 0.32 | 0.05 | 0.37 | (0.29 | ) | 5.67 | 6.76 | 44,416 | 1.06 | 1.28 | 5.54 | 74 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 5.03 | 0.32 | 0.52 | 0.84 | (0.28 | ) | 5.59 | 16.96 | 21,004 | 1.04 | 1.29 | 5.85 | 58 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 5.35 | 0.33 | (0.29 | ) | 0.04 | (0.36 | ) | 5.03 | 0.61 | 5,363 | 1.08 | 1.31 | 6.59 | 71 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 5.22 | 0.42 | 0.26 | 0.68 | (0.55 | ) | 5.35 | 13.27 | 497 | 1.20 | 1.42 | 7.79 | 102 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 3.68 | 0.46 | 1.48 | 1.94 | (0.40 | ) | 5.22 | 52.77 | 464 | 1.20 | 1.47 | 10.04 | 125 |
(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, 2013, the portfolio turnover calculation excludes the value of securities purchased of $32,385,318 and sold of $10,521,731 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. High Yield Securities Fund into the Fund. For the period ending December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $30,901,742 and sold of $8,109,618 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. High Yield Fund into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $101,636 and $49,525 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/14) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,052.60 | $ | 4.38 | $ | 1,020.53 | $ | 4.31 | 0.86 | % | ||||||||||||
Series II | 1,000.00 | 1,051.10 | 5.65 | 1,019.29 | 5.56 | 1.11 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective May 1, 2014, 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 1.50% and 1.75% 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 0.98% and 1.23% for Series I and Series II shares, respectively. |
3 | The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal half year are $4.99 and $6.26 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 $4.91 and $6.16 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. High Yield Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide
advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds High Yield Funds Index. The Board noted that performance of Series I shares of the Fund was in the second quintile of its performance universe for the one and five year periods and the third quintile for the three year period (the first quintile being the best performing funds and the fifth quintile being the
Invesco V.I. High Yield Fund
worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Board noted that additional analytical resources as well as a high yield trader had been added to the high yield team in 2013. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rates of one mutual fund and one off-shore fund and below the rate of one off-shore fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration
statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that Invesco Advisers operated at a profit from providing advisory services to the Fund, but did not make a profit after considering services provided by subsidiaries. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under
the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
Invesco V.I. High Yield Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. International Growth Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIGR-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.29 | % | |||
Series II Shares | 6.14 | ||||
MSCI EAFE Index‚ (Broad Market Index) | 4.78 | ||||
Custom International Growth Indexn (Style-Specific Index) | 4.77 | ||||
Lipper VUF International Growth Funds Index¨ (Peer Group Index) | 4.39 |
Source(s): ‚FactSet Research Systems Inc.; nInvesco, FactSet Research Systems Inc.;
wLipper Inc.
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom International Growth Index is an index comprised of the MSCI EAFE Growth Index through February 28, 2013, and the MSCI All Country World ex US Growth Index thereafter.
The Lipper VUF International Growth Funds Index is an unmanaged index considered representative of international growth variable insurance underlying funds tracked by Lipper.
The MSCI EAFE® Growth Index is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The MSCI All Country World ex US Growth Index is a market capitalization weighted index that includes growth companies in developed and emerging markets throughout the world, excluding the US. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/5/93) | 8.06 | % | |||
10 Years | 9.65 | ||||
5 Years | 13.42 | ||||
1 Year | 24.50 | ||||
Series II Shares | |||||
Inception (9/19/01) | 8.97 | % | |||
10 Years | 9.37 | ||||
5 Years | 13.13 | ||||
1 Year | 24.16 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II
shares was 1.02% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% 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 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, 2016. See current prospectus for more information. |
Invesco V.I. International Growth Fund
Schedule of Investments
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–93.09% |
| |||||||
Australia–3.22% | ||||||||
Amcor Ltd. | 2,826,648 | $ | 27,801,468 | |||||
Brambles Ltd. | 2,206,719 | 19,123,802 | ||||||
CSL Ltd. | 186,161 | 11,682,841 | ||||||
58,608,111 | ||||||||
Belgium–1.52% | ||||||||
Anheuser-Busch InBev N.V. | 240,744 | 27,657,699 | ||||||
Brazil–3.86% | ||||||||
Banco Bradesco S.A.–ADR | 1,661,413 | 24,123,717 | ||||||
BM&FBovespa S.A. | 5,930,400 | 31,215,457 | ||||||
BRF S.A. | 613,548 | 14,886,765 | ||||||
70,225,939 | ||||||||
Canada–8.62% | ||||||||
Agrium Inc. | 157,129 | 14,394,901 | ||||||
Canadian National Railway Co. | 245,365 | 15,959,073 | ||||||
Cenovus Energy Inc. | 484,842 | 15,717,605 | ||||||
CGI Group Inc.–Class A(a) | 800,212 | 28,363,653 | ||||||
Encana Corp. | 906,527 | 21,477,978 | ||||||
Fairfax Financial Holdings Ltd. | 36,429 | 17,283,120 | ||||||
Suncor Energy, Inc. | 1,023,330 | 43,637,784 | ||||||
156,834,114 | ||||||||
China–3.88% | ||||||||
Baidu, Inc.–ADR(a) | 161,356 | 30,142,914 | ||||||
CNOOC Ltd. | 5,232,000 | 9,396,862 | ||||||
Great Wall Motor Co. Ltd.–Class H | 4,021,500 | 14,943,642 | ||||||
Industrial & Commercial Bank of China Ltd.–Class H | 25,394,000 | 16,054,733 | ||||||
70,538,151 | ||||||||
Denmark–2.47% | ||||||||
Carlsberg AS–Class B | 232,258 | 25,016,862 | ||||||
Novo Nordisk AS–Class B | 430,920 | 19,891,483 | ||||||
44,908,345 | ||||||||
France–4.95% | ||||||||
Publicis Groupe S.A. | 384,762 | 32,633,374 | ||||||
Schneider Electric S.E. | 242,713 | 22,891,280 | ||||||
Total S.A. | 478,654 | 34,593,116 | ||||||
90,117,770 | ||||||||
Germany–6.59% | ||||||||
Adidas AG | 175,778 | 17,804,048 | ||||||
Allianz S.E. | 158,747 | 26,454,205 | ||||||
Deutsche Boerse AG | 310,096 | 24,067,147 | ||||||
Deutsche Post AG | 466,503 | 16,870,247 | ||||||
SAP S.E. | 450,134 | 34,763,183 | ||||||
119,958,830 |
Shares | Value | |||||||
Hong Kong–3.39% | ||||||||
Galaxy Entertainment Group Ltd. | 4,547,000 | $ | 36,374,123 | |||||
Hutchison Whampoa Ltd. | 1,856,000 | 25,383,980 | ||||||
61,758,103 | ||||||||
Ireland–2.29% | ||||||||
Shire PLC | 532,100 | 41,618,494 | ||||||
Israel–2.02% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 701,348 | 36,764,662 | ||||||
Japan–6.44% | ||||||||
Denso Corp. | 258,200 | 12,346,339 | ||||||
FANUC Corp. | 104,600 | 18,074,885 | ||||||
Japan Tobacco, Inc. | 605,600 | 22,116,082 | ||||||
Keyence Corp. | 37,500 | 16,402,061 | ||||||
Komatsu Ltd. | 752,437 | 17,495,976 | ||||||
Toyota Motor Corp. | 510,400 | 30,701,167 | ||||||
117,136,510 | ||||||||
Mexico–1.78% | ||||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR | 92,356 | 8,649,139 | ||||||
Grupo Televisa S.A.B.–ADR | 692,526 | 23,760,567 | ||||||
32,409,706 | ||||||||
Netherlands–1.14% | ||||||||
Unilever N.V. | 472,091 | 20,656,805 | ||||||
Singapore–4.39% | ||||||||
Avago Technologies Ltd. | 398,675 | 28,732,508 | ||||||
Keppel Corp. Ltd. | 2,521,661 | 21,821,094 | ||||||
United Overseas Bank Ltd. | 1,619,000 | 29,240,420 | ||||||
79,794,022 | ||||||||
South Korea–3.03% | ||||||||
Hyundai Mobis Co., Ltd. | 90,465 | 25,391,426 | ||||||
Samsung Electronics Co., Ltd. | 22,717 | 29,680,457 | ||||||
55,071,883 | ||||||||
Spain–1.05% | ||||||||
Amadeus IT Holding S.A.–Class A | 464,891 | 19,153,131 | ||||||
Sweden–2.21% | ||||||||
Investor AB–Class B | 586,305 | 21,976,897 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 1,502,346 | 18,157,039 | ||||||
40,133,936 | ||||||||
Switzerland–7.64% | ||||||||
ABB Ltd. | 934,989 | 21,576,564 | ||||||
Julius Baer Group Ltd. | 379,453 | 15,643,664 | ||||||
Novartis AG | 222,096 | 20,110,858 | ||||||
Roche Holding AG | 119,323 | 35,589,686 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
Switzerland–(continued) | ||||||||
Syngenta AG | 62,271 | $ | 23,265,670 | |||||
UBS AG | 1,245,858 | 22,829,222 | ||||||
139,015,664 | ||||||||
Taiwan–1.83% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,552,877 | 33,216,039 | ||||||
Thailand–1.05% | ||||||||
Kasikornbank PCL–NVDR | 3,051,900 | 19,191,973 | ||||||
Turkey–1.13% | ||||||||
Akbank T.A.S. | 5,586,130 | 20,539,957 | ||||||
United Kingdom–18.59% | ||||||||
Aberdeen Asset Management PLC | 2,425,764 | 18,844,544 | ||||||
British American Tobacco PLC | 677,149 | 40,307,951 | ||||||
British Sky Broadcasting Group PLC | 2,365,194 | 36,594,187 | ||||||
Centrica PLC | 2,719,522 | 14,549,848 | ||||||
Compass Group PLC | 2,424,707 | 42,330,152 | ||||||
Informa PLC | 1,568,643 | 12,911,411 | ||||||
Kingfisher PLC | 2,438,114 | 14,980,467 |
Shares | Value | |||||||
United Kingdom–(continued) | ||||||||
Next PLC | 144,586 | $ | 16,022,967 | |||||
Reed Elsevier PLC | 3,086,330 | 49,606,760 | ||||||
Royal Dutch Shell PLC–Class B | 667,051 | 29,026,649 | ||||||
Smith & Nephew PLC | 1,406,610 | 25,013,021 | ||||||
WPP PLC | 1,746,656 | 38,035,582 | ||||||
338,223,539 | ||||||||
Total Common Stocks & Other Equity Interests |
| 1,693,533,383 | ||||||
Money Market Funds–7.84% |
| |||||||
Liquid Assets Portfolio–Institutional Class(b) | 71,328,080 | 71,328,080 | ||||||
Premier Portfolio–Institutional Class(b) | 71,328,080 | 71,328,080 | ||||||
Total Money Market Funds |
| 142,656,160 | ||||||
TOTAL INVESTMENTS–100.93% |
| 1,836,189,543 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.93)% |
| (17,038,756 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,819,150,787 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
NVDR | – Non-Voting Depositary Receipt |
Notes to Schedule of Investments:
(a) | Non-income producing security. |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Consumer Discretionary | 22.2 | % | ||
Financials | 15.8 | |||
Information Technology | 13.1 | |||
Health Care | 10.5 | |||
Industrials | 9.8 | |||
Consumer Staples | 8.8 | |||
Energy | 8.5 | |||
Materials | 3.6 | |||
Utilities | 0.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 6.9 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $1,110,489,081) | $ | 1,693,533,383 | ||
Investments in affiliated money market funds, at value and cost | 142,656,160 | |||
Total investments, at value (Cost $1,253,145,241) | 1,836,189,543 | |||
Foreign currencies, at value (Cost $3,600,702) | 3,658,590 | |||
Receivable for: | ||||
Fund shares sold | 1,803,906 | |||
Dividends | 5,732,210 | |||
Investment for trustee deferred compensation and retirement plans | 249,201 | |||
Other assets | 191 | |||
Total assets | 1,847,633,641 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 22,471,775 | |||
Fund shares reacquired | 2,214,200 | |||
Accrued fees to affiliates | 2,828,732 | |||
Accrued trustees’ and officers’ fees and benefits | 948 | |||
Accrued other operating expenses | 226,799 | |||
Accrued foreign taxes | 452,272 | |||
Trustee deferred compensation and retirement plans | 288,128 | |||
Total liabilities | 28,482,854 | |||
Net assets applicable to shares outstanding | $ | 1,819,150,787 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,318,608,318 | ||
Undistributed net investment income | 35,288,444 | |||
Undistributed net realized gain (loss) | (117,842,153 | ) | ||
Net unrealized appreciation | 583,096,178 | |||
$ | 1,819,150,787 | |||
Net Assets: |
| |||
Series I | $ | 710,513,318 | ||
Series II | $ | 1,108,637,469 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 18,928,941 | |||
Series II | 29,943,941 | |||
Series I: | ||||
Net asset value per share | $ | 37.54 | ||
Series II: | ||||
Net asset value per share | $ | 37.02 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $2,377,992) | $ | 30,328,259 | ||
Dividends from affiliated money market funds | 25,769 | |||
Total investment income | 30,354,028 | |||
Expenses: | ||||
Advisory fees | 6,169,539 | |||
Administrative services fees | 2,313,480 | |||
Custodian fees | 377,567 | |||
Distribution fees — Series II | 1,336,862 | |||
Transfer agent fees | 55,253 | |||
Trustees’ and officers’ fees and benefits | 24,510 | |||
Other | 79,009 | |||
Total expenses | 10,356,220 | |||
Less: Fees waived | (84,536 | ) | ||
Net expenses | 10,271,684 | |||
Net investment income | 20,082,344 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (net of tax on the sale of foreign investments of $7,215) | 66,776,881 | |||
Foreign currencies | (304,921 | ) | ||
66,471,960 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes on holdings of $445,057) | 21,820,452 | |||
Foreign currencies | (13,693 | ) | ||
21,806,759 | ||||
Net realized and unrealized gain | 88,278,719 | |||
Net increase in net assets resulting from operations | $ | 108,361,063 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 20,082,344 | $ | 19,018,143 | ||||
Net realized gain | 66,471,960 | 56,339,312 | ||||||
Change in net unrealized appreciation | 21,806,759 | 199,236,580 | ||||||
Net increase in net assets resulting from operations | 108,361,063 | 274,594,035 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (7,786,744 | ) | |||||
Series ll | — | (10,137,283 | ) | |||||
Total distributions from net investment income | — | (17,924,027 | ) | |||||
Share transactions–net: | ||||||||
Series l | (17,613,546 | ) | (8,312,424 | ) | ||||
Series ll | (20,830,395 | ) | 82,024,719 | |||||
Net increase (decrease) in net assets resulting from share transactions | (38,443,941 | ) | 73,712,295 | |||||
Net increase in net assets | 69,917,122 | 330,382,303 | ||||||
Net assets: | ||||||||
Beginning of period | 1,749,233,665 | 1,418,851,362 | ||||||
End of period (includes undistributed net investment income of $35,288,444 and $15,206,100, respectively) | $ | 1,819,150,787 | $ | 1,749,233,665 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. International Growth Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. International Growth Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.75% | |||
Over $250 million | 0.70% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.25% and Series II shares to 2.50% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $84,536.
Invesco V.I. International Growth Fund
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2014, Invesco was paid $190,289 for accounting and fund administrative services and reimbursed $2,123,191 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, 2014, 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, 2014, 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, 2014. 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, 2014, there were transfers from Level 1 to Level 2 of $74,787,619 and from Level 2 to Level 1 of $566,627,006, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | 58,608,111 | $ | — | $ | — | $ | 58,608,111 | ||||||||
Belgium | 27,657,699 | — | — | 27,657,699 | ||||||||||||
Brazil | 70,225,939 | — | — | 70,225,939 | ||||||||||||
Canada | 156,834,114 | — | — | 156,834,114 | ||||||||||||
China | 70,538,151 | — | — | 70,538,151 | ||||||||||||
Denmark | 25,016,862 | 19,891,483 | — | 44,908,345 | ||||||||||||
France | 67,226,490 | 22,891,280 | — | 90,117,770 | ||||||||||||
Germany | 119,958,830 | — | — | 119,958,830 | ||||||||||||
Hong Kong | 61,758,103 | — | — | 61,758,103 | ||||||||||||
Ireland | 41,618,494 | — | — | 41,618,494 | ||||||||||||
Israel | 36,764,662 | — | — | 36,764,662 | ||||||||||||
Japan | — | 117,136,510 | — | 117,136,510 | ||||||||||||
Mexico | 32,409,706 | — | — | 32,409,706 | ||||||||||||
Netherlands | 20,656,805 | — | — | 20,656,805 | ||||||||||||
Singapore | 79,794,022 | — | — | 79,794,022 | ||||||||||||
South Korea | 55,071,883 | — | — | 55,071,883 | ||||||||||||
Spain | — | 19,153,131 | — | 19,153,131 | ||||||||||||
Sweden | 18,157,039 | 21,976,897 | — | 40,133,936 | ||||||||||||
Switzerland | 71,344,208 | 67,671,456 | — | 139,015,664 |
Invesco V.I. International Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Taiwan | $ | 33,216,039 | $ | — | $ | — | $ | 33,216,039 | ||||||||
Thailand | 19,191,973 | — | — | 19,191,973 | ||||||||||||
Turkey | 20,539,957 | — | — | 20,539,957 | ||||||||||||
United Kingdom | 195,339,634 | 142,883,905 | — | 338,223,539 | ||||||||||||
United States | 142,656,160 | — | — | 142,656,160 | ||||||||||||
Total Investments | $ | 1,424,584,881 | $ | 411,604,662 | $ | — | $ | 1,836,189,543 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 8,033,622 | $ | — | $ | 8,033,622 | ||||||
December 31, 2017 | 123,514,234 | — | 123,514,234 | |||||||||
December 31, 2018 | 37,802,555 | — | 37,802,555 | |||||||||
$ | 169,350,411 | $ | — | $ | 169,350,411 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $222,189,904 and $261,587,410, 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 | $ | 566,645,478 | ||
Aggregate unrealized (depreciation) of investment securities | (7,380,590 | ) | ||
Net unrealized appreciation of investment securities | $ | 559,264,888 |
Cost of investments for tax purposes is $1,276,924,655.
Invesco V.I. International Growth Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,579,297 | $ | 56,192,339 | 3,847,472 | $ | 123,710,056 | ||||||||||
Series II | 2,313,665 | 81,079,700 | 5,793,394 | 183,196,471 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 231,886 | 7,786,744 | ||||||||||||
Series II | — | — | 305,524 | 10,137,283 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,081,415 | ) | (73,805,885 | ) | (4,344,114 | ) | (139,809,224 | ) | ||||||||
Series II | (2,842,320 | ) | (101,910,095 | ) | (3,499,681 | ) | (111,309,035 | ) | ||||||||
Net increase (decrease) in share activity | (1,030,773 | ) | $ | (38,443,941 | ) | 2,334,481 | $ | 73,712,295 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 39% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 35.32 | $ | 0.43 | $ | 1.79 | $ | 2.22 | $ | — | $ | 37.54 | 6.29 | % | $ | 710,513 | 1.02 | %(d) | 1.03 | %(d) | 2.46 | %(d) | 14 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 30.03 | 0.44 | 5.25 | 5.69 | (0.40 | ) | 35.32 | 19.01 | 686,305 | 1.01 | 1.02 | 1.37 | 24 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 26.37 | 0.35 | 3.73 | 4.08 | (0.42 | ) | 30.03 | 15.53 | 591,491 | 1.00 | 1.01 | 1.24 | 24 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 28.69 | 0.50 | (2.38 | ) | (1.88 | ) | (0.44 | ) | 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 | ) | 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 | ) | 26.01 | 35.24 | 556,883 | 1.02 | 1.04 | 1.47 | 27 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 34.88 | 0.38 | 1.76 | 2.14 | — | 37.02 | 6.14 | 1,108,637 | 1.27 | (d) | 1.28 | (d) | 2.21 | (d) | 14 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 29.68 | 0.36 | 5.18 | 5.54 | (0.34 | ) | 34.88 | 18.72 | 1,062,929 | 1.26 | 1.27 | 1.12 | 24 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 26.08 | 0.28 | 3.69 | 3.97 | (0.37 | ) | 29.68 | 15.26 | 827,361 | 1.25 | 1.26 | 0.99 | 24 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 28.35 | 0.42 | (2.36 | ) | (1.94 | ) | (0.33 | ) | 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 | ) | 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 | ) | 25.63 | 34.91 | 1,500,514 | 1.27 | 1.29 | 1.22 | 27 |
(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 $681,124 and $1,078,353 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,062.90 | $ | 5.22 | $ | 1,019.74 | $ | 5.11 | 1.02 | % | ||||||||||||
Series II | 1,000.00 | 1,061.40 | 6.49 | 1,018.50 | 6.36 | 1.27 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. International Growth Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Fund International Growth Funds Index. The Board noted that performance of Series I shares of the Fund was in the third quintile of the performance universe for the one year period and the second quintile for the three and five year periods (the first quintile
Invesco V.I. International Growth Fund
being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other funds or client accounts using a similar investment process.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual
breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may
reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. International Growth Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Managed Volatility Fund | ||||
Effective April 30, 2014, Invesco V.I. Utilities Fund was renamed Invesco V.I. Managed Volatility Fund. |
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VIMGV-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 17.67 | % | |||
Series II Shares | 17.49 | ||||
Russell 1000 Value Index‚ (Broad Market Index)* | 8.28 | ||||
S&P 500 Index‚ (Former Broad Market Index)* | 7.14 | ||||
Barclays U.S. Government/Credit Index‚ (Style-Specific Index)** | 3.94 | ||||
S&P 500 Utilities Index‚ (Former Style-Specific Index)** | 18.65 | ||||
Lipper VUF Equity Income Funds Indexn (Peer Group Index)*** | 7.57 | ||||
Lipper VUF Utility Funds Classification Averagen (Former Peer Group)*** | 17.20 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
* | The Fund has elected to use the Russell 1000 Value Index to represent its broad market benchmark rather than the S&P 500 Index because the Russell 1000 Value Index more closely reflects the performance of the types of securities in which the Fund invests. |
** | The Fund has elected to use the Barclays U.S. Government/Credit Index to represent its style-specific benchmark rather than the S&P 500 Utilities Index because the Barclays U.S. Government/Credit Index more closely reflects the performance of the types of securities in which the Fund invests. |
*** | The Fund has elected to use the Lipper VUF Equity Income Funds Index to represent its peer group benchmark rather than the Lipper VUF Utility Funds Classification Average because the Lipper VUF Equity Income Funds Index more closely reflects the performance of the types of securities in which the Fund invests. |
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 S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Barclays U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
The S&P 500® Utilities Index is an unmanaged index considered representative of the utilities market.
The Lipper VUF Equity Income Funds Index is an unmanaged index considered representative of equity income variable insurance underlying funds tracked by Lipper.
The Lipper VUF Utility Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Utility Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in
net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% and 1.28%, 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
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (12/30/94) | 7.76 | % | |||
10 Years | 10.71 | ||||
5 Years | 13.90 | ||||
1 Year | 20.44 | ||||
Series II Shares | |||||
Inception (4/30/04) | 10.53 | % | |||
10 Years | 10.43 | ||||
5 Years | 13.60 | ||||
1 Year | 20.14 |
shares was 1.09% and 1.34%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Managed Volatility Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
1 | Total annual Fund operating expenses after any contractual fee waivers and/or expense reimbursements by the adviser in effect through at least April 30, 2015. See current prospectus for more information. |
2 | Total annual Fund operating expenses after any contractual fee waivers by the adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Managed Volatility Fund |
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–64.48% |
| |||||||
Aerospace & Defense–0.72% | ||||||||
General Dynamics Corp. | 4,582 | $ | 534,032 | |||||
Agricultural Products–0.65% | ||||||||
Archer-Daniels-Midland Co. | 10,943 | 482,696 | ||||||
Apparel Retail–0.77% | ||||||||
Abercrombie & Fitch Co.–Class A | 13,300 | 575,225 | ||||||
Application Software–1.70% | ||||||||
Adobe Systems Inc.(b) | 12,869 | 931,201 | ||||||
Citrix Systems, Inc.(b) | 5,326 | 333,141 | ||||||
�� | 1,264,342 | |||||||
Asset Management & Custody Banks–1.39% | ||||||||
Northern Trust Corp. | 7,497 | 481,382 | ||||||
State Street Corp. | 8,280 | 556,913 | ||||||
1,038,295 | ||||||||
Automobile Manufacturers–0.89% | ||||||||
General Motors Co. | 18,330 | 665,379 | ||||||
Biotechnology–0.70% | ||||||||
Amgen Inc. | 4,434 | 524,853 | ||||||
Cable & Satellite–2.14% | ||||||||
Comcast Corp.–Class A | 14,793 | 794,088 | ||||||
Time Warner Cable Inc. | 5,429 | 799,692 | ||||||
1,593,780 | ||||||||
Construction Machinery & Heavy Trucks–1.05% | ||||||||
Caterpillar Inc. | 7,177 | 779,925 | ||||||
Diversified Banks–5.05% | ||||||||
Bank of America Corp. | 36,755 | 564,924 | ||||||
Comerica Inc. | 9,777 | 490,414 | ||||||
JPMorgan Chase & Co. | 36,093 | 2,079,679 | ||||||
Wells Fargo & Co. | 11,894 | 625,149 | ||||||
3,760,166 | ||||||||
Diversified Chemicals–0.81% | ||||||||
Dow Chemical Co. (The) | 11,727 | 603,471 | ||||||
Diversified Metals & Mining–0.61% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 12,415 | 453,147 | ||||||
Electric Utilities–0.92% | ||||||||
Edison International | 4,357 | 253,185 | ||||||
Pinnacle West Capital Corp. | 7,451 | 430,966 | ||||||
684,151 | ||||||||
Electronic Components–0.86% | ||||||||
Corning Inc. | 29,038 | 637,384 | ||||||
Health Care Equipment–0.55% | ||||||||
Medtronic, Inc. | 6,382 | 406,916 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–0.90% | ||||||||
Carnival Corp. | 17,800 | $ | 670,170 | |||||
Household Products–0.61% | ||||||||
Procter & Gamble Co. (The) | 5,820 | 457,394 | ||||||
Industrial Conglomerates–1.67% | ||||||||
General Electric Co. | 47,426 | 1,246,355 | ||||||
Industrial Machinery–0.83% | ||||||||
Ingersoll-Rand PLC | 9,900 | 618,849 | ||||||
Insurance Brokers–2.16% | ||||||||
Aon PLC | 5,111 | 460,450 | ||||||
Marsh & McLennan Cos., Inc. | 15,405 | 798,287 | ||||||
Willis Group Holdings PLC | 8,156 | 353,155 | ||||||
1,611,892 | ||||||||
Integrated Oil & Gas–4.38% | ||||||||
Exxon Mobil Corp. | 4,929 | 496,252 | ||||||
Occidental Petroleum Corp. | 5,598 | 574,523 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 32,200 | 1,332,842 | ||||||
Total S.A. (France) | 11,928 | 862,056 | ||||||
3,265,673 | ||||||||
Integrated Telecommunication Services–1.10% | ||||||||
Koninklijke (Royal) KPN N.V. (Netherlands)(b) | 19,952 | 72,699 | ||||||
Orange S.A. (France) | 5,969 | 94,070 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 55,832 | 70,717 | ||||||
Telefonica S.A. (Spain) | 5,516 | 94,564 | ||||||
Verizon Communications Inc. | 9,924 | 485,581 | ||||||
817,631 | ||||||||
Internet Software & Services–1.21% | ||||||||
eBay Inc.(b) | 18,018 | 901,981 | ||||||
Investment Banking & Brokerage–3.07% | ||||||||
Charles Schwab Corp. (The) | 27,780 | 748,115 | ||||||
Goldman Sachs Group, Inc. (The) | 2,926 | 489,929 | ||||||
Morgan Stanley | 32,511 | 1,051,081 | ||||||
2,289,125 | ||||||||
IT Consulting & Other Services–0.78% | ||||||||
Amdocs Ltd. | 12,568 | 582,275 | ||||||
Managed Health Care–2.04% | ||||||||
Cigna Corp. | 4,520 | 415,705 | ||||||
UnitedHealth Group Inc. | 5,907 | 482,897 | ||||||
WellPoint, Inc. | 5,805 | 624,676 | ||||||
1,523,278 | ||||||||
Movies & Entertainment–1.65% | ||||||||
Time Warner Inc. | 4,098 | 287,885 | ||||||
Viacom Inc.–Class B | 10,822 | 938,592 | ||||||
1,226,477 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Shares | Value | |||||||
Multi-Utilities–0.47% | ||||||||
PG&E Corp. | 7,251 | $ | 348,193 | |||||
Oil & Gas Equipment & Services–1.08% | ||||||||
Baker Hughes Inc. | 10,783 | 802,794 | ||||||
Oil & Gas Exploration & Production–2.49% | ||||||||
Anadarko Petroleum Corp. | 4,955 | 542,424 | ||||||
Apache Corp. | 5,977 | 601,406 | ||||||
Canadian Natural Resources Ltd. (Canada) | 15,466 | 710,682 | ||||||
1,854,512 | ||||||||
Other Diversified Financial Services–3.18% | ||||||||
Citigroup Inc. | 40,488 | 1,906,985 | ||||||
Voya Financial, Inc. | 12,651 | 459,737 | ||||||
2,366,722 | ||||||||
Packaged Foods & Meats–1.31% | ||||||||
Mondelez International Inc.–Class A | 16,676 | 627,185 | ||||||
Unilever N.V.-New York Shares (Netherlands) | 8,007 | 350,386 | ||||||
977,571 | ||||||||
Personal Products–1.13% | ||||||||
Avon Products, Inc. | 57,841 | 845,057 | ||||||
Pharmaceuticals–5.21% | ||||||||
Bristol-Myers Squibb Co. | 5,357 | 259,868 | ||||||
Eli Lilly and Co. | 10,063 | 625,617 | ||||||
Hospira, Inc.(b) | 1,836 | 94,315 | ||||||
Merck & Co., Inc. | 13,644 | 789,306 | ||||||
Novartis AG (Switzerland) | 7,865 | 712,178 | ||||||
Pfizer Inc. | 12,352 | 366,607 | ||||||
Sanofi (France) | 3,831 | 407,477 | ||||||
Teva Pharmaceutical Industries Ltd.– | 11,989 | 628,463 | ||||||
3,883,831 | ||||||||
Property & Casualty Insurance–0.04% | ||||||||
Chubb Corp. (The) | 283 | 26,084 | ||||||
Publishing–0.54% | ||||||||
Thomson Reuters Corp. | 11,038 | 401,905 | ||||||
Railroads–0.70% | ||||||||
CSX Corp. | 16,934 | 521,737 | ||||||
Regional Banks–2.37% | ||||||||
BB&T Corp. | 11,352 | 447,609 | ||||||
Fifth Third Bancorp | 20,298 | 433,362 | ||||||
PNC Financial Services Group, Inc. (The) | 9,950 | 886,048 | ||||||
1,767,019 | ||||||||
Security & Alarm Services–1.16% | ||||||||
Tyco International Ltd. | 19,000 | 866,400 | ||||||
Semiconductor Equipment–1.38% | ||||||||
Applied Materials, Inc. | 45,513 | 1,026,318 |
Shares | Value | |||||||
Semiconductors–1.31% | ||||||||
Broadcom Corp.–Class A | 11,287 | $ | 418,973 | |||||
Intel Corp. | 4,193 | 129,564 | ||||||
Texas Instruments Inc. | 8,915 | 426,048 | ||||||
974,585 | ||||||||
Specialized Finance–0.51% | ||||||||
CME Group Inc.–Class A | 5,388 | 382,279 | ||||||
Specialty Chemicals–0.32% | ||||||||
PPG Industries, Inc. | 1,144 | 240,412 | ||||||
Systems Software–1.56% | ||||||||
Microsoft Corp. | 13,102 | 546,354 | ||||||
Symantec Corp. | 26,898 | 615,964 | ||||||
1,162,318 | ||||||||
Wireless Telecommunication Services–0.51% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 11,381 | 380,012 | ||||||
Total Common Stocks & Other Equity Interests |
| 48,042,611 | ||||||
Principal Amount | ||||||||
Bonds and Notes–16.02% |
| |||||||
Aerospace & Defense–0.20% | ||||||||
L-3 Communications Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 05/28/24 | $ | 150,000 | 151,490 | |||||
Air Freight & Logistics–0.25% | ||||||||
UTi Worldwide Inc., Sr. Unsec. Conv. Notes, 4.50%, 03/01/19(c) | 174,000 | 185,963 | ||||||
Application Software–0.38% | ||||||||
Citrix Systems Inc., Sr. Unsec. Conv. Notes, 0.50%, 04/15/19(c) | 268,000 | 284,080 | ||||||
Asset Management & Custody Banks–0.48% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(c) | 40,000 | 40,233 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, 5.00%, 06/15/44(c) | 150,000 | 155,536 | ||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(c) | 160,000 | 162,680 | ||||||
358,449 | ||||||||
Biotechnology–0.44% | ||||||||
Celgene Corp., Sr. Unsec. Global Notes, 4.63%, 05/15/44 | 100,000 | 100,627 | ||||||
Cubist Pharmaceuticals Inc., | ||||||||
Sr. Unsec. Conv. Bonds, | 124,000 | 141,670 | ||||||
Sr. Unsec. Conv. Notes, | 75,000 | 84,563 | ||||||
326,860 | ||||||||
Broadcasting–0.68% | ||||||||
Grupo Televisa S.A.B. (Mexico), Sr. Unsec. Global Notes, 5.00%, 05/13/45 | 200,000 | 198,902 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Broadcasting–(continued) | ||||||||
Liberty Media Corp., Sr. Unsec. Conv. Notes, 1.38%, 10/15/23(c) | $ | 299,000 | $ | 303,859 | ||||
502,761 | ||||||||
Cable & Satellite–0.72% | ||||||||
COX Communications Inc., Sr. Unsec. Notes, 8.38%, 03/01/39(c) | 150,000 | 211,307 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.15%, 03/15/42 | 150,000 | 158,084 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 150,000 | 168,467 | ||||||
537,858 | ||||||||
Casinos & Gaming–0.35% | ||||||||
MGM Resorts International, Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 178,000 | 261,771 | ||||||
Catalog Retail–0.16% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Bonds, 0.75%, 03/30/23(d) | 88,000 | 118,360 | ||||||
Communications Equipment–0.49% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(c) | 160,000 | 222,500 | ||||||
JDS Uniphase Corp., Sr. Unsec. Conv. Bond., 0.63%, 08/15/18(c)(d) | 138,000 | 138,690 | ||||||
361,190 | ||||||||
Construction Machinery & Heavy Trucks–0.08% | ||||||||
Greenbrier Cos., Inc. (The), Sr. Unsec. Conv. Notes, 3.50%, 04/01/18 | 34,000 | �� | 57,163 | |||||
Construction Materials–0.63% | ||||||||
Cemex S.A.B. de C.V. (Mexico), Unsec. Sub. Conv. Notes, 4.88%, 03/15/15 | 372,000 | 466,627 | ||||||
Diversified Banks–0.81% | ||||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(c) | 150,000 | 147,915 | ||||||
JPMorgan Chase & Co., Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 150,000 | 149,813 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, | 200,000 | 210,918 | ||||||
Wells Fargo & Co., Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/26 | 95,000 | 96,177 | ||||||
604,823 | ||||||||
Fertilizers & Agricultural Chemicals–0.03% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, | ||||||||
2.13%, 07/15/19 | 15,000 | 15,051 | ||||||
3.38%, 07/15/24 | 10,000 | 10,082 | ||||||
25,133 | ||||||||
Health Care Distributors–0.07% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Bonds, 3.40%, 05/15/24 | 50,000 | 49,799 |
Principal Amount | Value | |||||||
Health Care Equipment–0.89% | ||||||||
CareFusion Corp., Sr. Unsec. Global Notes, | ||||||||
3.88%, 05/15/24 | $ | 165,000 | $ | 166,845 | ||||
4.88%, 05/15/44 | 170,000 | 171,845 | ||||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 94,000 | 107,982 | ||||||
Volcano Corp., Sr. Unsec. Conv. Notes, 1.75%, 12/01/17 | 224,000 | 217,420 | ||||||
664,092 | ||||||||
Health Care Facilities–0.67% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | 174,000 | 237,619 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/20(d) | 235,000 | 258,647 | ||||||
496,266 | ||||||||
Health Care Services–0.88% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/19 | 50,000 | 49,899 | ||||||
Omnicare, Inc., | ||||||||
3.50%, 02/15/44 | 128,000 | 145,600 | ||||||
3.75%, 04/01/42 | 204,000 | 338,512 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Deb., 3.25%, 12/15/15(d) | 114,000 | 121,838 | ||||||
655,849 | ||||||||
Integrated Telecommunication Services–0.26% | ||||||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/36 | 150,000 | 190,025 | ||||||
Investment Banking & Brokerage–0.06% | ||||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/17(d) | 39,000 | 41,852 | ||||||
Managed Health Care–0.58% | ||||||||
Wellpoint Inc., Sr. Unsec. Conv. Bond, 2.75%, 10/15/42 | 281,000 | 431,862 | ||||||
Movies & Entertainment–0.04% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Notes, 2.50%, 05/15/19(c) | 26,000 | 27,138 | ||||||
Multi-Line Insurance–0.26% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 150,000 | 195,630 | ||||||
Multi-Utilities–0.27% | ||||||||
Enable Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 2.40%, 05/15/19(c) | 200,000 | 200,426 | ||||||
Office REIT’s–0.20% | ||||||||
Highwoods Realty L.P., Sr. Unsec. Notes, 3.20%, 06/15/21 | 150,000 | 148,535 | ||||||
Oil & Gas Equipment & Services–0.15% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(d) | 84,000 | 113,610 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–0.65% | ||||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/19 | $ | 287,000 | $ | 265,116 | ||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17 | 174,000 | 221,089 | ||||||
486,205 | ||||||||
Other Diversified Financial Services–0.07% | ||||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/19(c) | 50,000 | 49,927 | ||||||
Packaged Foods & Meats–0.27% | ||||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Notes, 3.88%, 06/27/24(c) | 200,000 | 199,707 | ||||||
Pharmaceuticals–0.67% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Notes, 4.85%, 06/15/44(c) | 150,000 | 151,068 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19 | 178,000 | 350,326 | ||||||
501,394 | ||||||||
Renewable Electricity–0.20% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 150,000 | 152,069 | ||||||
Retail REIT’s–0.20% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/18 | 150,000 | 150,749 | ||||||
Semiconductor Equipment–0.66% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | 198,000 | 271,507 | ||||||
Novellus Systems Inc., Sr. Unsec. Gtd. Conv. Notes, 2.63%, 05/15/41 | 110,000 | 223,163 | ||||||
494,670 | ||||||||
Semiconductors–0.82% | ||||||||
Micron Technology Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/28(d) | 219,000 | 283,194 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Notes, 1.00%, 12/01/18(c) | 297,000 | 329,299 | ||||||
612,493 | ||||||||
Specialized Finance–0.22% | ||||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.88%, 02/15/24 | 150,000 | 160,904 | ||||||
Specialized REIT’s–0.22% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(c) | 150,000 | 167,460 | ||||||
Steel–0.28% | ||||||||
United States Steel Corp., Sr. Unsec. Conv. Notes, 2.75%, 04/01/19 | 170,000 | 211,969 | ||||||
Systems Software–0.31% | ||||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, 0.25%, 06/01/18 | 162,000 | 166,961 |
Principal Amount | Value | |||||||
Systems Software–(continued) | ||||||||
Oracle Corp., Sr. Unsec. Gtd. Global Notes, 4.30%, 07/08/34 | $ | 65,000 | $ | 64,974 | ||||
231,935 | ||||||||
Technology Hardware, Storage & Peripherals–0.86% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Notes, 0.50%, 10/15/20(c) | 348,000 | 439,567 | ||||||
Seagate HDD Cayman, Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(c) | 200,000 | 198,750 | ||||||
638,317 | ||||||||
Thrifts & Mortgage Finance–0.56% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
2.00%, 04/01/20 | 46,000 | 68,712 | ||||||
5.00%, 05/01/17 | 170,000 | 198,900 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
2.25%, 03/01/19 | 30,000 | 45,113 | ||||||
3.00%, 11/15/17 | 72,000 | 104,490 | ||||||
417,215 | ||||||||
Total Bonds and Notes |
| 11,932,626 | ||||||
U.S. Treasury Securities–9.44% |
| |||||||
U.S. Treasury Notes–8.46% | ||||||||
0.50%, 06/30/16 | 3,000,000 | 3,002,567 | ||||||
1.63%, 06/30/19 | 3,191,000 | 3,190,883 | ||||||
2.50%, 05/15/24 | 115,000 | 114,792 | ||||||
6,308,242 | ||||||||
U.S. Treasury Bonds–0.98% | ||||||||
4.50%, 02/15/36 | 600,000 | 727,632 | ||||||
Total U.S. Treasury Securities |
| 7,035,874 | ||||||
Shares | ||||||||
Preferred Stocks–0.16% |
| |||||||
Asset Management & Custody Banks–0.16% | ||||||||
AMG Capital Trust II, $2.58 Jr. Gtd. Sub. Conv. Pfd. (Cost $118,793) | 1,900 | 119,819 | ||||||
Money Market Funds–9.94% |
| |||||||
Liquid Assets Portfolio–Institutional Class(f) | 3,702,803 | 3,702,803 | ||||||
Premier Portfolio–Institutional Class(f) | 3,702,804 | 3,702,804 | ||||||
Total Money Market Funds |
| 7,405,607 | ||||||
TOTAL INVESTMENTS–100.04% |
| 74,536,537 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.04)% |
| (26,565 | ) | |||||
NET ASSETS–100.00% |
| $ | 74,509,972 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $4,053,256, which represented 5.44% of the Fund’s Net Assets. |
(d) | Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. |
(e) | Perpetual bond with no specified maturity date. |
(f) | 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, 2014
Financials | 20.8 | % | ||
Health Care | 12.7 | |||
Information Technology | 12.3 | |||
U.S. Treasury Securities | 9.4 | |||
Consumer Discretionary | 8.8 | |||
Energy | 8.7 | |||
Industrials | 6.7 | |||
Consumer Staples | 4.0 | |||
Materials | 2.7 | |||
Telecommunication Services | 2.1 | |||
Utilities | 1.9 | |||
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 V.I. Managed Volatility Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $64,412,498) | $ | 67,130,930 | ||
Investments in affiliated money market funds, at value and cost | 7,405,607 | |||
Total investments, at value (Cost $71,818,105) | 74,536,537 | |||
Foreign currencies, at value (Cost $13,171) | 13,227 | |||
Receivable for: | ||||
Investments sold | 6,787,783 | |||
Fund shares sold | 8,541 | |||
Dividends and interest | 155,288 | |||
Investment for trustee deferred compensation and retirement plans | 74,658 | |||
Total assets | 81,576,034 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 6,507,099 | |||
Fund shares reacquired | 195,705 | |||
Amount due custodian | 148,730 | |||
Forward foreign currency contracts outstanding | 32,088 | |||
Accrued fees to affiliates | 78,224 | |||
Accrued trustees’ and officers’ fees and benefits | 631 | |||
Accrued other operating expenses | 24,722 | |||
Trustee deferred compensation and retirement plans | 78,863 | |||
Total liabilities | 7,066,062 | |||
Net assets applicable to shares outstanding | $ | 74,509,972 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 44,384,749 | ||
Undistributed net investment income | 2,315,978 | |||
Undistributed net realized gain | 25,123,537 | |||
Net unrealized appreciation | 2,685,708 | |||
$ | 74,509,972 | |||
Net Assets: |
| |||
Series I | $ | 72,754,336 | ||
Series II | $ | 1,755,636 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,630,553 | |||
Series II | 88,304 | |||
Series I: | ||||
Net asset value per share | $ | 20.04 | ||
Series II: | ||||
Net asset value per share | $ | 19.88 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $7,535) | $ | 850,175 | ||
Dividends from affiliated money market funds | 912 | |||
Interest | 54,592 | |||
Total investment income | 905,679 | |||
Expenses: | ||||
Advisory fees | 202,935 | |||
Administrative services fees | 103,045 | |||
Custodian fees | 2,573 | |||
Distribution fees — Series II | 2,120 | |||
Transfer agent fees | 10,667 | |||
Trustees’ and officers’ fees and benefits | 12,976 | |||
Professional services fees | 19,795 | |||
Other | 8,520 | |||
Total expenses | 362,631 | |||
Less: Fees waived | (8,520 | ) | ||
Net expenses | 354,111 | |||
Net investment income | 551,568 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 22,314,320 | |||
Foreign currencies | 3,911 | |||
Forward foreign currency contracts | (19,299 | ) | ||
22,298,932 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (11,696,994 | ) | ||
Foreign currencies | (528 | ) | ||
Forward foreign currency contracts | (32,088 | ) | ||
(11,729,610 | ) | |||
Net realized and unrealized gain | 10,569,322 | |||
Net increase in net assets resulting from operations | $ | 11,120,890 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 551,568 | $ | 1,836,834 | ||||
Net realized gain | 22,298,932 | 3,092,855 | ||||||
Change in net unrealized appreciation (depreciation) | (11,729,610 | ) | 2,119,618 | |||||
Net increase in net assets resulting from operations | 11,120,890 | 7,049,307 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,140,730 | ) | |||||
Series ll | — | (43,877 | ) | |||||
Total distributions from net investment income | — | (2,184,607 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (1,490,858 | ) | |||||
Series ll | — | (33,701 | ) | |||||
Total distributions from net realized gains | — | (1,524,559 | ) | |||||
Share transactions–net: | ||||||||
Series l | 104,696 | (5,600,398 | ) | |||||
Series ll | (185,537 | ) | (64,627 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (80,841 | ) | (5,665,025 | ) | ||||
Net increase (decrease) in net assets | 11,040,049 | (2,324,884 | ) | |||||
Net assets: | ||||||||
Beginning of period | 63,469,923 | 65,794,807 | ||||||
End of period (includes undistributed net investment income of $2,315,978 and $1,764,410, respectively) | $ | 74,509,972 | $ | 63,469,923 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Managed Volatility Fund (the “Fund”), formerly Invesco V.I. Utilities Fund, is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is both capital appreciation and current income while managing portfolio volatility.
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 securities) 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. Managed Volatility Fund
Debt obligations (including convertible securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
Invesco V.I. Managed Volatility Fund
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
K. | Other Risks — The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile. |
The Fund may invest a large percentage of its assets in a limited number of securities or other instruments, which could negatively affect the value of the Fund.
The following factors may affect the Fund’s investments in the utilities sector: governmental regulation, economic factors, ability of the issuer to obtain financing, prices of natural resources and risks associated with nuclear power.
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of 0.60% of the Fund’s average daily net assets.
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective April 30, 2014, the Adviser has contractually agreed, through at least April 30, 2015, 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 1.03% and Series II shares to 1.28% of average daily net assets. Prior to April 30, 2014, the Adviser had contractually agreed to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25%
Invesco V.I. Managed Volatility Fund
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 Invesco continues the fee waiver agreement, it will terminate on April 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $8,520.
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, 2014, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $78,251 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $726 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 54,946,671 | $ | 621,366 | $ | — | $ | 55,568,037 | ||||||||
U.S. Treasury Securities | — | 7,035,874 | — | 7,035,874 | ||||||||||||
Corporate Debt Securities | — | 11,932,626 | — | 11,932,626 | ||||||||||||
$ | 54,946,671 | $ | 19,589,866 | $ | — | $ | 74,536,537 | |||||||||
Forward Foreign Currency Contracts* | — | (32,088 | ) | — | (32,088 | ) | ||||||||||
Total Investments | $ | 54,946,671 | $ | 19,557,778 | $ | — | $ | 74,504,449 |
* | Unrealized appreciation (depreciation). |
Invesco V.I. Managed Volatility Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk | ||||||||
Forward foreign currency contracts(a) | $ | — | $ | (32,088 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the six months ended June 30, 2014
The table below summarizes the gains (losses) on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain (Loss) on Statement of Operations | ||||
Forward Foreign Currency Contracts | ||||
Realized Gain (Loss) | ||||
Currency risk | $ | (19,299 | ) | |
Change in Unrealized Appreciation (Depreciation) | ||||
Currency risk | $ | (32,088 | ) | |
Total | $ | (51,387 | ) |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 1,478,825 |
Open Forward Foreign Currency Contracts at Period-End | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | CAD | 443,751 | USD | 412,887 | $ | 415,586 | $ | (2,699 | ) | ||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | CAD | 444,257 | USD | 413,323 | 416,060 | (2,737 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | CHF | 237,567 | USD | 265,462 | 267,965 | (2,503 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | CHF | 238,567 | USD | 266,827 | 269,307 | (2,480 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | EUR | 538,000 | USD | 731,416 | 736,736 | (5,320 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | EUR | 542,153 | USD | 737,068 | 742,424 | (5,356 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | GBP | 374,998 | USD | 636,525 | 641,659 | (5,134 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | GBP | 374,741 | USD | 636,059 | 641,219 | (5,160 | ) | ||||||||||||||||||
07/25/14 | State Street Bank and Trust Co. | ILS | 1,388,824 | USD | 403,963 | 404,578 | (615 | ) | ||||||||||||||||||
07/25/14 | Bank of New York Mellon (The) | ILS | 236,855 | USD | 68,914 | 68,998 | (84 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk |
| $ | (32,088 | ) |
Currency Abbreviations:
CAD | – Canadian Dollar | |
CHF | – Swiss Franc |
EUR | – Euro | |
GBP | – British Pound Sterling |
ILS | – Israeli Shekel | |
USD | – U.S. Dollar |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
Invesco V.I. Managed Volatility Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Liabilities: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets and Liabilities | Collateral Pledged | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 15,717 | $ | — | $ | 15,717 | $ | — | $ | — | $ | 15,717 | ||||||||||||
State Street Bank and Trust Co. | 16,371 | — | 16,371 | — | — | 16,371 | ||||||||||||||||||
Total | $ | 32,088 | $ | — | $ | 32,088 | $ | — | $ | — | $ | 32,088 |
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $60,025,389 and $71,879,320, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $24,575,796 and $17,532,995, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 2,601,160 | ||
Aggregate unrealized (depreciation) of investment securities | (336,314 | ) | ||
Net unrealized appreciation of investment securities | $ | 2,264,846 |
Cost of investments for tax purposes is $72,271,691.
Invesco V.I. Managed Volatility Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 365,179 | $ | 6,836,715 | 891,055 | $ | 15,490,334 | ||||||||||
Series II | 4,711 | 84,761 | 5,955 | 102,148 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 219,299 | 3,631,588 | ||||||||||||
Series II | — | — | 4,713 | 77,578 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (364,726 | ) | (6,732,019 | ) | (1,440,447 | ) | (24,722,320 | ) | ||||||||
Series II | (14,781 | ) | (270,298 | ) | (13,991 | ) | (244,353 | ) | ||||||||
Net increase (decrease) in share activity | (9,617 | ) | $ | (80,841 | ) | (333,416 | ) | $ | (5,665,025 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 54% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 17.03 | $ | 0.15 | $ | 2.86 | $ | 3.01 | $ | — | $ | — | $ | — | $ | 20.04 | 17.67 | % | $ | 72,754 | 1.04 | %(d) | 1.07 | %(d) | 1.64 | %(d) | 132 | % | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.20 | 0.47 | 1.25 | 1.72 | (0.52 | ) | (0.37 | ) | (0.89 | ) | 17.03 | 10.76 | 61,806 | 1.07 | 1.08 | 2.73 | 15 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.74 | 0.52 | 0.10 | 0.62 | (0.54 | ) | (0.62 | ) | (1.16 | ) | 16.20 | 3.61 | 64,158 | 0.99 | 1.03 | 3.10 | 3 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.87 | 0.51 | 1.90 | 2.41 | (0.54 | ) | — | (0.54 | ) | 16.74 | 16.45 | 70,956 | 0.92 | 1.04 | 3.23 | 14 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 14.51 | 0.47 | 0.43 | 0.90 | (0.54 | ) | — | (0.54 | ) | 14.87 | 6.30 | 63,945 | 0.92 | 1.04 | 3.25 | 13 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.38 | 0.45 | 1.53 | 1.98 | (0.68 | ) | (0.17 | ) | (0.85 | ) | 14.51 | 14.93 | 70,671 | 0.93 | 1.04 | 3.35 | 14 | |||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 16.91 | 0.13 | 2.84 | 2.97 | — | — | — | 19.88 | 17.56 | 1,756 | 1.29 | (d) | 1.32 | (d) | 1.39 | (d) | 132 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.09 | 0.43 | 1.23 | 1.66 | (0.47 | ) | (0.37 | ) | (0.84 | ) | 16.91 | 10.45 | 1,664 | 1.32 | �� | 1.33 | 2.48 | 15 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.63 | 0.47 | 0.10 | 0.57 | (0.49 | ) | (0.62 | ) | (1.11 | ) | 16.09 | 3.34 | 1,637 | 1.24 | 1.28 | 2.85 | 3 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.78 | 0.47 | 1.88 | 2.35 | (0.50 | ) | — | (0.50 | ) | 16.63 | 16.15 | 1,878 | 1.17 | 1.29 | 2.98 | 14 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 14.43 | 0.43 | 0.42 | 0.85 | (0.50 | ) | — | (0.50 | ) | 14.78 | 6.01 | 1,706 | 1.17 | 1.29 | 3.00 | 13 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 13.30 | 0.41 | 1.52 | 1.93 | (0.63 | ) | (0.17 | ) | (0.80 | ) | 14.43 | 14.61 | 1,702 | 1.18 | 1.29 | 3.10 | 14 |
(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 $66,495 and $1,710 for Series I and Series II shares, respectively. |
Invesco V.I. Managed Volatility 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio2 | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2,3 | Ending Account Value (06/30/14) | Expenses Paid During Period2,4 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,176.70 | $ | 5.61 | $ | 1,019.64 | $ | 5.21 | 1.04 | % | ||||||||||||
Series II | 1,000.00 | 1,174.90 | 6.96 | 1,018.40 | 6.46 | 1.29 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. Effective April 30, 2014, 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 1.03% and 1.28% 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 1.03% and 1.28% 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 $5.56 and $6.90 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 $5.16 and $6.41 for Series I and Series II shares, respectively. |
Invesco V.I. Managed Volatility Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Managed Volatility Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund. The Board noted that the Fund had changed its investment strategy from a utilities fund to a managed volatility fund effective on April 30, 2014 and that the Lipper performance and comparative contractual management fee information was for the historical utilities mandate.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA
Invesco V.I. Managed Volatility Fund
Underlying Funds Utility Funds Index. The Board noted that performance of Series I shares of the Fund was in the fifth quintile of the Lipper performance universe for the one year period and the fourth quintile for the three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2015 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 as of December 31, 2013, Invesco Advisers and the Affiliated Sub-Advisers did not manage other mutual funds or client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisors to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board noted that the Fund does not benefit from economies of scale through contractual breakpoints, but does share directly in economies of scale through lower fees charged by third party service providers based on the combined size of
the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated
Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Managed Volatility Fund
Proxy Results
A Special Meeting (“Meeting”) of Shareholders of Invesco V.I. Managed Volatility Fund (formerly known as Invesco V.I. Utilities Fund) was held on March 26, 2014. The Meeting was held for the following purpose:
(1) | Elimination of the Fund’s fundamental investment restriction that requires the Fund to concentrate its investments in the securities of issuers engaged primarily in utilities-related industries. |
The results of the voting on the above matter were as follows:
Matter | Votes For | Votes Against | Votes Abstain | Broker Non-Votes | ||||||||||||||
(1) | Elimination of the Fund’s fundamental investment restriction that requires the Fund to concentrate its investments in the securities of issuers engaged primarily in utilities-related industries | 2,044,023 | 244,325 | 113,978 | 0 |
Invesco V.I. Managed Volatility Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Mid Cap Core Equity Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIMCCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 7.60 | % | |||
Series II Shares | 7.49 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell Midcap Index‚ (Style-Specific Index) | 8.67 | ||||
Lipper VUF Mid-Cap Core Funds Indexn (Peer Group Index) | 7.57 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell Midcap Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Core Funds Index is an unmanaged index considered representative of mid-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (9/10/01) | 8.29 | % | |||
10 Years | 7.76 | ||||
5 Years | 14.84 | ||||
1 Year | 22.76 | ||||
Series II Shares | |||||
Inception (9/10/01) | 8.03 | % | |||
10 Years | 7.49 | ||||
5 Years | 14.56 | ||||
1 Year | 22.42 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.04% and 1.29%, 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 1.07% and 1.32%, respectively. The expense ratios presented
above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Mid Cap Core Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance 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, 2016. See current prospectus for more information. |
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–86.20% |
| |||||||
Air Freight & Logistics–0.86% | ||||||||
C.H. Robinson Worldwide, Inc. | 56,515 | $ | 3,605,092 | |||||
Apparel Retail–1.11% | ||||||||
Abercrombie & Fitch Co.–Class A | 106,727 | 4,615,943 | ||||||
Apparel, Accessories & Luxury Goods–0.93% | ||||||||
Prada S.p.A. (Italy) | 549,700 | 3,890,257 | ||||||
Asset Management & Custody Banks–1.73% | ||||||||
Northern Trust Corp. | 112,326 | 7,212,452 | ||||||
Auto Parts & Equipment–1.77% | ||||||||
Dana Holding Corp. | 301,728 | 7,368,198 | ||||||
Brewers–1.39% | ||||||||
Molson Coors Brewing Co.–Class B | 78,291 | 5,806,061 | ||||||
Communications Equipment–2.55% | ||||||||
F5 Networks, Inc.(b) | 61,671 | 6,872,616 | ||||||
Riverbed Technology, Inc.(b) | 183,404 | 3,783,625 | ||||||
10,656,241 | ||||||||
Computer & Electronics Retail–0.95% | ||||||||
GameStop Corp.–Class A | 97,761 | 3,956,388 | ||||||
Construction & Engineering–1.33% | ||||||||
Chicago Bridge & Iron Co. N.V. | 81,227 | 5,539,681 | ||||||
Construction Machinery & Heavy Trucks–1.85% | ||||||||
Joy Global Inc. | 55,807 | 3,436,595 | ||||||
Terex Corp. | 104,082 | 4,277,770 | ||||||
7,714,365 | ||||||||
Construction Materials–1.44% | ||||||||
CRH PLC (Ireland) | 233,484 | 6,012,286 | ||||||
Consumer Electronics–0.88% | ||||||||
Harman International Industries, Inc. | 34,054 | 3,658,421 | ||||||
Data Processing & Outsourced Services–0.69% | ||||||||
Jack Henry & Associates, Inc. | 48,706 | 2,894,598 | ||||||
Department Stores–0.77% | ||||||||
Macy’s, Inc. | 55,314 | 3,209,318 | ||||||
Education Services–0.43% | ||||||||
Houghton Mifflin Harcourt Co.(b) | 93,419 | 1,789,908 | ||||||
Electrical Components & Equipment–1.04% | ||||||||
Regal-Beloit Corp. | 55,475 | 4,358,116 | ||||||
Electronic Components–1.56% | ||||||||
Amphenol Corp.–Class A | 67,418 | 6,495,050 | ||||||
Environmental & Facilities Services–2.22% | ||||||||
Clean Harbors, Inc.(b) | 63,329 | 4,068,888 | ||||||
Republic Services, Inc. | 137,243 | 5,211,117 | ||||||
9,280,005 | ||||||||
Fertilizers & Agricultural Chemicals–1.10% | ||||||||
Mosaic Co. (The) | 93,202 | 4,608,839 |
Shares | Value | |||||||
Footwear–0.91% | ||||||||
Wolverine World Wide, Inc. | 145,127 | $ | 3,782,010 | |||||
Health Care Distributors–1.15% | ||||||||
Cardinal Health, Inc. | 59,966 | 4,111,269 | ||||||
Patterson Cos. Inc. | 17,756 | 701,539 | ||||||
4,812,808 | ||||||||
Health Care Equipment–1.09% | ||||||||
ResMed Inc. | 90,098 | 4,561,662 | ||||||
Health Care Facilities–2.55% | ||||||||
Community Health Systems Inc.(b) | 124,336 | 5,641,124 | ||||||
Tenet Healthcare Corp.(b) | 106,277 | 4,988,643 | ||||||
10,629,767 | ||||||||
Homebuilding–0.87% | ||||||||
D.R. Horton, Inc. | 147,080 | 3,615,226 | ||||||
Hotels, Resorts & Cruise Lines–0.89% | ||||||||
Norwegian Cruise Line Holdings Ltd.(b) | 117,253 | 3,716,920 | ||||||
Industrial Machinery–4.27% | ||||||||
ITT Corp. | 40,646 | 1,955,072 | ||||||
Kennametal Inc. | 91,413 | 4,230,594 | ||||||
Stanley Black & Decker Inc. | 67,829 | 5,956,743 | ||||||
Timken Co. (The) | 83,812 | 5,685,806 | ||||||
17,828,215 | ||||||||
Insurance Brokers–1.80% | ||||||||
Marsh & McLennan Cos., Inc. | 145,297 | 7,529,291 | ||||||
Internet Software & Services–0.54% | ||||||||
Equinix, Inc.(b) | 10,636 | 2,234,517 | ||||||
Life & Health Insurance–2.00% | ||||||||
Torchmark Corp. | 102,154 | 8,368,456 | ||||||
Life Sciences Tools & Services–2.08% | ||||||||
Agilent Technologies, Inc. | 93,493 | 5,370,238 | ||||||
Waters Corp.(b) | 31,749 | 3,315,865 | ||||||
8,686,103 | ||||||||
Marine–1.55% | ||||||||
Kirby Corp.(b) | 55,181 | 6,463,902 | ||||||
Multi-Utilities–0.87% | ||||||||
CMS Energy Corp. | 116,127 | 3,617,356 | ||||||
Oil & Gas Drilling–2.26% | ||||||||
Nabors Industries Ltd. | 207,238 | 6,086,580 | ||||||
Rowan Cos. PLC–Class A | 104,238 | 3,328,319 | ||||||
9,414,899 | ||||||||
Oil & Gas Equipment & Services–5.11% | ||||||||
Cameron International Corp.(b) | 96,634 | 6,543,088 | ||||||
Dresser-Rand Group, Inc.(b) | 53,974 | 3,439,763 | ||||||
TETRA Technologies, Inc.(b) | 346,151 | 4,077,659 | ||||||
Weatherford International PLC(b) | 315,108 | 7,247,484 | ||||||
21,307,994 |
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 | |||||||
Oil & Gas Exploration & Production–3.55% | ||||||||
Concho Resources Inc.(b) | 47,683 | $ | 6,890,193 | |||||
Rosetta Resources, Inc.(b) | 80,562 | 4,418,826 | ||||||
Vermilion Energy, Inc. (Canada) | 50,239 | 3,496,013 | ||||||
14,805,032 | ||||||||
Packaged Foods & Meats–2.26% | ||||||||
Hain Celestial Group, Inc. (The)(b) | 44,051 | 3,909,086 | ||||||
JM Smucker Co. (The) | 51,757 | 5,515,743 | ||||||
9,424,829 | ||||||||
Paper Packaging–1.47% | ||||||||
Packaging Corp. of America | 86,087 | 6,154,360 | ||||||
Pharmaceuticals–3.64% | ||||||||
Endo International PLC(b) | 78,440 | 5,492,369 | ||||||
Perrigo Co. PLC | 29,628 | 4,318,577 | ||||||
Shire PLC–ADR (Ireland) | 22,828 | 5,375,766 | ||||||
15,186,712 | ||||||||
Property & Casualty Insurance–3.24% | ||||||||
Arch Capital Group Ltd.(b) | 89,692 | 5,151,909 | ||||||
Progressive Corp. (The) | 330,726 | 8,387,211 | ||||||
13,539,120 | ||||||||
Regional Banks–1.10% | ||||||||
First Republic Bank | 83,493 | 4,591,280 | ||||||
Restaurants–1.03% | ||||||||
Brinker International, Inc. | 88,623 | 4,311,509 | ||||||
Semiconductor Equipment–3.61% | ||||||||
KLA-Tencor Corp. | 42,722 | 3,103,326 | ||||||
Lam Research Corp. | 68,487 | 4,628,351 | ||||||
Teradyne, Inc. | 373,303 | 7,316,739 | ||||||
15,048,416 | ||||||||
Semiconductors–4.47% | ||||||||
Hittite Microwave Corp. | 21,497 | 1,675,691 |
Shares | Value | |||||||
Semiconductors–(continued) | ||||||||
Linear Technology Corp. | 200,510 | $ | 9,438,006 | |||||
Xilinx, Inc. | 159,559 | 7,548,736 | ||||||
18,662,433 | ||||||||
Specialized Finance–1.79% | ||||||||
Moody’s Corp. | 85,062 | 7,456,535 | ||||||
Specialty Chemicals–3.51% | ||||||||
Albemarle Corp. | 58,683 | 4,195,835 | ||||||
International Flavors & Fragrances Inc. | 51,197 | 5,338,823 | ||||||
Sigma-Aldrich Corp. | 50,505 | 5,125,247 | ||||||
14,659,905 | ||||||||
Specialty Stores–1.07% | ||||||||
Dick’s Sporting Goods, Inc. | 95,598 | 4,451,043 | ||||||
Steel–0.81% | ||||||||
Allegheny Technologies, Inc. | 75,368 | 3,399,097 | ||||||
Technology Hardware, Storage & Peripherals–1.41% | ||||||||
NetApp, Inc. | 160,800 | 5,872,416 | ||||||
Trading Companies & Distributors–0.70% | ||||||||
WESCO International, Inc.(b) | 33,769 | 2,916,966 | ||||||
Total Common Stocks & Other Equity Interests |
| 359,719,998 | ||||||
Money Market Funds–9.68% |
| |||||||
Liquid Assets Portfolio– | 20,202,036 | 20,202,036 | ||||||
Premier Portfolio– | 20,202,036 | 20,202,036 | ||||||
Total Money Market Funds |
| 40,404,072 | ||||||
TOTAL INVESTMENTS–95.88% |
| 400,124,070 | ||||||
OTHER ASSETS LESS LIABILITIES–4.12% |
| 17,184,123 | ||||||
NET ASSETS–100.00% |
| $ | 417,308,193 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Information Technology | 14.8 | % | ||
Consumer Discretionary | 13.0 | |||
Industrials | 12.4 | |||
Financials | 11.7 | |||
Energy | 10.9 | |||
Health Care | 10.5 | |||
Materials | 8.3 | |||
Consumer Staples | 3.7 | |||
Utilities | 0.9 | |||
Money Market Funds Plus Other Assets Less Liabilities | 13.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $245,266,193) | $ | 359,719,998 | ||
Investments in affiliated money market funds, at value and cost | 40,404,072 | |||
Total investments, at value (Cost $285,670,265) | 400,124,070 | |||
Foreign currencies, at value (Cost $98) | 100 | |||
Receivable for: | ||||
Investments sold | 17,552,935 | |||
Fund shares sold | 267,822 | |||
Dividends | 305,316 | |||
Investment for trustee deferred compensation and retirement plans | 112,446 | |||
Total assets | 418,362,689 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 320,777 | |||
Accrued fees to affiliates | 578,607 | |||
Accrued trustees’ and officers’ fees and benefits | 776 | |||
Accrued other operating expenses | 24,893 | |||
Trustee deferred compensation and retirement plans | 129,443 | |||
Total liabilities | 1,054,496 | |||
Net assets applicable to shares outstanding | $ | 417,308,193 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 249,259,921 | ||
Undistributed net investment income | 477,338 | |||
Undistributed net realized gain | 53,117,084 | |||
Net unrealized appreciation | 114,453,850 | |||
$ | 417,308,193 | |||
Net Assets: | ||||
Series I | $ | 288,141,800 | ||
Series II | $ | 129,166,393 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 17,698,928 | |||
Series II | 8,038,678 | |||
Series I: | ||||
Net asset value per share | $ | 16.28 | ||
Series II: | ||||
Net asset value per share | $ | 16.07 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $19,921) | $ | 2,674,656 | ||
Dividends from affiliated money market funds | 13,896 | |||
Total investment income | 2,688,552 | |||
Expenses: | ||||
Advisory fees | 1,459,298 | |||
Administrative services fees | 550,916 | |||
Custodian fees | 6,708 | |||
Distribution fees — Series II | 151,036 | |||
Transfer agent fees | 21,069 | |||
Trustees’ and officers’ fees and benefits | 15,268 | |||
Other | 35,487 | |||
Total expenses | 2,239,782 | |||
Less: Fees waived | (52,836 | ) | ||
Net expenses | 2,186,946 | |||
Net investment income | 501,606 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 9,579,669 | |||
Foreign currencies | (1,814 | ) | ||
9,577,855 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 19,663,567 | |||
Foreign currencies | 45 | |||
19,663,612 | ||||
Net realized and unrealized gain | 29,241,467 | |||
Net increase in net assets resulting from operations | $ | 29,743,073 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 501,606 | $ | 85,685 | ||||
Net realized gain | 9,577,855 | 44,561,331 | ||||||
Change in net unrealized appreciation | 19,663,612 | 54,390,971 | ||||||
Net increase in net assets resulting from operations | 29,743,073 | 99,037,987 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (2,003,552 | ) | |||||
Series ll | — | (528,944 | ) | |||||
Total distributions from net investment income | — | (2,532,496 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (20,224,718 | ) | |||||
Series ll | — | (7,352,936 | ) | |||||
Total distributions from net realized gains | — | (27,577,654 | ) | |||||
Share transactions–net: | ||||||||
Series l | (23,148,539 | ) | (47,972,492 | ) | ||||
Series ll | 2,943,814 | 9,558,731 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (20,204,725 | ) | (38,413,761 | ) | ||||
Net increase in net assets | 9,538,348 | 30,514,076 | ||||||
Net assets: | ||||||||
Beginning of period | 407,769,845 | 377,255,769 | ||||||
End of period (includes undistributed net investment income of $477,338 and $(24,268), respectively) | $ | 417,308,193 | $ | 407,769,845 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Mid Cap Core Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Mid Cap Core Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $500 million | 0 | .725% | ||||
Next $500 million | 0 | .700% | ||||
Next $500 million | 0 | .675% | ||||
Over $1.5 billion | 0 | .65% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset
Invesco V.I. Mid Cap Core Equity Fund
arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $52,836.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by 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, 2014, Invesco was paid $48,774 for accounting and fund administrative services and reimbursed $502,142 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $55 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 394,111,784 | $ | 6,012,286 | $ | — | $ | 400,124,070 |
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 were eligible to participate in a retirement plan that provided 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 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $51,246,167 and $40,385,293, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 115,323,143 | ||
Aggregate unrealized (depreciation) of investment securities | (1,285,945 | ) | ||
Net unrealized appreciation of investment securities | $ | 114,037,198 |
Cost of investments for tax purposes is $286,086,872.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 431,725 | $ | 6,708,995 | 991,645 | $ | 14,071,664 | ||||||||||
Series II | 1,248,039 | 19,020,301 | 2,245,959 | 32,080,534 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 1,553,338 | 22,228,269 | ||||||||||||
Series II | — | — | 557,023 | 7,881,880 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,936,673 | ) | (29,857,534 | ) | (5,884,978 | ) | (84,272,425 | ) | ||||||||
Series II | (1,049,430 | ) | (16,076,487 | ) | (2,167,628 | ) | (30,403,683 | ) | ||||||||
Net increase (decrease) in share activity | (1,306,339 | ) | $ | (20,204,725 | ) | (2,704,641 | ) | $ | (38,413,761 | ) |
(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. Mid Cap Core Equity Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 15.13 | $ | 0.02 | $ | 1.13 | $ | 1.15 | $ | — | $ | — | $ | — | $ | 16.28 | 7.60 | % | $ | 288,142 | 1.01 | %(d) | 1.04 | %(d) | 0.33 | %(d) | 12 | % | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.71 | 0.01 | 3.59 | 3.60 | (0.11 | ) | (1.07 | ) | (1.18 | ) | 15.13 | 28.81 | 290,550 | 1.01 | 1.04 | 0.09 | 34 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.56 | 0.09 | 1.18 | 1.27 | (0.01 | ) | (0.11 | ) | (0.12 | ) | 12.71 | 10.96 | 286,607 | 1.02 | 1.05 | 0.69 | 59 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.39 | 0.01 | (0.80 | ) | (0.79 | ) | (0.04 | ) | — | (0.04 | ) | 11.56 | (6.38 | ) | 322,102 | 1.01 | 1.03 | 0.08 | 57 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.92 | 0.03 | 1.50 | 1.53 | (0.06 | ) | — | (0.06 | ) | 12.39 | 14.11 | 411,812 | 1.01 | 1.03 | 0.27 | 61 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.59 | 0.06 | 2.53 | 2.59 | (0.13 | ) | (0.13 | ) | (0.26 | ) | 10.92 | 30.21 | 432,233 | 1.02 | 1.04 | 0.60 | 41 | |||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 14.95 | 0.01 | 1.11 | 1.12 | — | — | — | 16.07 | 7.49 | 129,166 | 1.26 | (d) | 1.29 | (d) | 0.08 | (d) | 12 | |||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.58 | (0.02 | ) | 3.54 | 3.52 | (0.08 | ) | (1.07 | ) | (1.15 | ) | 14.95 | 28.46 | 117,219 | 1.26 | 1.29 | (0.16 | ) | 34 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.47 | 0.06 | 1.16 | 1.22 | — | (0.11 | ) | (0.11 | ) | 12.58 | 10.62 | 90,648 | 1.27 | 1.30 | 0.44 | 59 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.28 | (0.02 | ) | (0.78 | ) | (0.80 | ) | (0.01 | ) | — | (0.01 | ) | 11.47 | (6.50 | ) | 65,196 | 1.26 | 1.28 | (0.17 | ) | 57 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.83 | 0.00 | 1.49 | 1.49 | (0.04 | ) | — | (0.04 | ) | 12.28 | 13.78 | 61,587 | 1.26 | 1.28 | 0.02 | 61 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.52 | 0.03 | 2.51 | 2.54 | (0.10 | ) | (0.13 | ) | (0.23 | ) | 10.83 | 29.85 | 56,129 | 1.27 | 1.29 | 0.35 | 41 |
(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 $284,071 and $121,830 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,076.00 | $ | 5.20 | $ | 1,019.79 | $ | 5.06 | 1.01 | % | ||||||||||||
Series II | 1,000.00 | 1,074.90 | 6.48 | 1,018.55 | 6.31 | 1.26 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Core Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Mid-Cap Core 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, 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 noted that fund performance was consistent with the Fund’s investment process and market
Invesco V.I. Mid Cap Core Equity Fund
environment, which includes being defensively biased. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process that is substantially similar to the process used for the Fund. The Board noted that the Fund’s rate was above the rate of one such mutual fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to other client accounts that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers
by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information
regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Mid Cap Core Equity Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Mid Cap Growth Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIMCG-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.79 | % | |||
Series II Shares | 5.63 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell Midcap Growth Index‚ (Style-Specific Index) | 6.51 | ||||
Lipper VUF Mid-Cap Growth Funds Indexn (Peer Group Index) | 2.91 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper 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) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
10 Years | 8.51 | % | |||
5 Years | 19.01 | ||||
1 Year | 28.56 | ||||
Series II Shares | |||||
Inception (9/25/00) | 0.35 | % | |||
10 Years | 8.43 | ||||
5 Years | 18.85 | ||||
1 Year
| 28.22 |
Effective June 1, 2010, Class II shares of the predecessor fund, Van Kampen Life Investment Trust Mid Cap Growth Portfolio, advised by Van Kampen Asset Management were reorganized into Series II shares of Invesco Van Kampen V.I. Mid Cap Growth Fund (renamed Invesco V.I. Mid Cap Growth Fund on April 29, 2013). Returns shown above for Series II shares are blended returns of the predecessor fund and Invesco V.I. Mid Cap Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
Series I shares incepted on June 1, 2010. Series I share 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 share 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 V.I. Mid Cap Growth Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect
actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Mid Cap Growth Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.97% |
| |||||||
Aerospace & Defense–2.93% | ||||||||
B/E Aerospace, Inc.(b) | 65,272 | $ | 6,037,007 | |||||
DigitalGlobe Inc.(b) | 82,700 | 2,299,060 | ||||||
8,336,067 | ||||||||
Airlines–2.43% | ||||||||
Alaska Air Group, Inc. | 28,865 | 2,743,618 | ||||||
Delta Air Lines, Inc. | 107,774 | 4,173,010 | ||||||
6,916,628 | ||||||||
Apparel Retail–1.06% | ||||||||
Ross Stores, Inc. | 45,676 | 3,020,554 | ||||||
Apparel, Accessories & Luxury Goods–2.09% | ||||||||
Michael Kors Holdings Ltd.(b) | 26,067 | 2,310,840 | ||||||
Under Armour, Inc.–Class A(b) | 60,982 | 3,627,819 | ||||||
5,938,659 | ||||||||
Application Software–2.87% | ||||||||
Aspen Technology, Inc.(b) | 70,807 | 3,285,445 | ||||||
Cadence Design Systems, Inc.(b) | 128,286 | 2,243,722 | ||||||
Salesforce.com, Inc.(b) | 45,242 | 2,627,655 | ||||||
8,156,822 | ||||||||
Asset Management & Custody Banks–2.65% | ||||||||
Affiliated Managers Group, Inc.(b) | 14,925 | 3,065,595 | ||||||
Ameriprise Financial, Inc. | 37,354 | 4,482,480 | ||||||
7,548,075 | ||||||||
Automobile Manufacturers–1.14% | ||||||||
Tesla Motors, Inc.(b) | 13,463 | 3,231,928 | ||||||
Automotive Retail–1.67% | ||||||||
O’Reilly Automotive, Inc.(b) | 31,525 | 4,747,665 | ||||||
Biotechnology–4.55% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 35,593 | 5,561,406 | ||||||
Medivation Inc.(b) | 56,206 | 4,332,359 | ||||||
Synageva BioPharma Corp.(b)(c) | 29,161 | 3,056,073 | ||||||
12,949,838 | ||||||||
Broadcasting–0.48% | ||||||||
Discovery Communications, Inc.–Class A(b) | 18,504 | 1,374,477 | ||||||
Building Products–3.64% | ||||||||
A.O. Smith Corp. | 70,126 | 3,476,847 | ||||||
Lennox International Inc. | 47,074 | 4,216,418 | ||||||
Owens Corning Inc. | 68,714 | 2,657,858 | ||||||
10,351,123 | ||||||||
Casinos & Gaming–1.89% | ||||||||
Wynn Resorts Ltd. | 25,879 | 5,371,445 |
Shares | Value | |||||||
Commodity Chemicals–0.97% | ||||||||
LyondellBasell Industries N.V.–Class A | 28,340 | $ | 2,767,401 | |||||
Communications Equipment–1.25% | ||||||||
Palo Alto Networks, Inc.(b) | 42,435 | 3,558,175 | ||||||
Computer & Electronics Retail–0.60% | ||||||||
Best Buy Co., Inc. | 54,870 | 1,701,519 | ||||||
Construction & Engineering–2.82% | ||||||||
Foster Wheeler AG (Switzerland) | 111,367 | 3,794,274 | ||||||
KBR, Inc. | 54,078 | 1,289,760 | ||||||
MasTec Inc.(b) | 95,135 | 2,932,061 | ||||||
8,016,095 | ||||||||
Construction Machinery & Heavy Trucks–1.18% | ||||||||
Manitowoc Co., Inc. (The) | 102,241 | 3,359,639 | ||||||
Consumer Electronics–1.78% | ||||||||
Harman International Industries, Inc. | 47,269 | 5,078,109 | ||||||
Consumer Finance–1.69% | ||||||||
Discover Financial Services | 77,419 | 4,798,430 | ||||||
Data Processing & Outsourced Services–1.44% | ||||||||
Alliance Data Systems Corp.(b) | 14,524 | 4,084,875 | ||||||
Distillers & Vintners–1.65% | ||||||||
Constellation Brands, Inc.–Class A(b) | 53,179 | 4,686,665 | ||||||
Distributors–1.45% | ||||||||
LKQ Corp.(b) | 154,513 | 4,123,952 | ||||||
Diversified Support Services–0.93% | ||||||||
KAR Auction Services Inc. | 83,045 | 2,646,644 | ||||||
Electrical Components & Equipment–1.00% | ||||||||
AMETEK, Inc. | 54,453 | 2,846,803 | ||||||
Electronic Components–1.88% | ||||||||
Amphenol Corp.–Class A | 55,436 | 5,340,704 | ||||||
Electronic Equipment & Instruments–1.53% | ||||||||
Cognex Corp.(b) | 113,257 | 4,349,069 | ||||||
Food Retail–0.78% | ||||||||
Kroger Co. (The) | 44,792 | 2,214,069 | ||||||
Health Care Facilities–1.70% | ||||||||
Universal Health Services, Inc.–Class B | 50,630 | 4,848,329 | ||||||
Health Care Services–2.16% | ||||||||
Omnicare, Inc. | 50,340 | 3,351,134 | ||||||
Team Health Holdings, Inc.(b) | 56,022 | 2,797,738 | ||||||
6,148,872 | ||||||||
Homebuilding–1.01% | ||||||||
Lennar Corp.–Class A | 68,807 | 2,888,518 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Household Appliances–0.91% | ||||||||
Whirlpool Corp. | 18,697 | $ | 2,602,996 | |||||
Household Products–0.48% | ||||||||
Church & Dwight Co., Inc. | 19,491 | 1,363,395 | ||||||
Housewares & Specialties–1.38% | ||||||||
Jarden Corp.(b) | 66,190 | 3,928,376 | ||||||
Industrial Conglomerates–1.23% | ||||||||
Carlisle Cos. Inc. | 40,563 | 3,513,567 | ||||||
Industrial Machinery–3.93% | ||||||||
Flowserve Corp. | 62,038 | 4,612,525 | ||||||
ITT Corp. | 81,780 | 3,933,618 | ||||||
Pentair PLC (United Kingdom) | 36,425 | 2,626,971 | ||||||
11,173,114 | ||||||||
Internet Retail–0.66% | ||||||||
Netflix Inc.(b) | 4,262 | 1,877,837 | ||||||
Internet Software & Services–3.31% | ||||||||
Cornerstone OnDemand, Inc.(b) | 54,558 | 2,510,759 | ||||||
Pandora Media Inc.(b) | 118,912 | 3,507,904 | ||||||
Yelp Inc.(b) | 44,358 | 3,401,372 | ||||||
9,420,035 | ||||||||
IT Consulting & Other Services–0.92% | ||||||||
Gartner, Inc.(b) | 37,137 | 2,618,901 | ||||||
Leisure Products–1.18% | ||||||||
Brunswick Corp. | 80,008 | 3,370,737 | ||||||
Life Sciences Tools & Services–1.57% | ||||||||
Illumina, Inc.(b) | 25,016 | 4,466,357 | ||||||
Movies & Entertainment–1.53% | ||||||||
Cinemark Holdings, Inc. | 123,375 | 4,362,540 | ||||||
Oil & Gas Equipment & Services–2.70% | ||||||||
Baker Hughes Inc. | 58,169 | 4,330,682 | ||||||
Superior Energy Services, Inc. | 92,441 | 3,340,818 | ||||||
7,671,500 | ||||||||
Oil & Gas Exploration & Production–3.95% | ||||||||
EQT Corp. | 39,424 | 4,214,426 | ||||||
Gulfport Energy Corp.(b) | 60,349 | 3,789,917 | ||||||
Stone Energy Corp.(b) | 69,481 | 3,251,016 | ||||||
11,255,359 | ||||||||
Packaged Foods & Meats–1.52% | ||||||||
Mead Johnson Nutrition Co. | 46,477 | 4,330,262 | ||||||
Pharmaceuticals–5.28% | ||||||||
Actavis PLC(b) | 34,676 | 7,734,482 | ||||||
Pacira Pharmaceuticals, Inc.(b) | 35,529 | 3,263,694 | ||||||
Shire PLC–ADR (Ireland) | 17,081 | 4,022,404 | ||||||
15,020,580 |
Shares | Value | |||||||
Railroads–0.51% | ||||||||
Kansas City Southern | 13,640 | �� | $ | 1,466,436 | ||||
Regional Banks–1.36% | ||||||||
SVB Financial Group(b) | 33,204 | 3,872,250 | ||||||
Restaurants–0.50% | ||||||||
Panera Bread Co.–Class A(b) | 9,526 | 1,427,281 | ||||||
Semiconductor Equipment–1.22% | ||||||||
Applied Materials, Inc. | 153,528 | 3,462,056 | ||||||
Semiconductors–2.95% | ||||||||
Cavium Inc.(b) | 48,239 | 2,395,549 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 90,683 | 6,001,401 | ||||||
8,396,950 | ||||||||
Specialized Finance–1.83% | ||||||||
Intercontinental Exchange, Inc. | 27,634 | 5,220,063 | ||||||
Specialty Chemicals–1.97% | ||||||||
PPG Industries, Inc. | 26,673 | 5,605,331 | ||||||
Specialty Stores–1.24% | ||||||||
Tractor Supply Co. | 58,522 | 3,534,729 | ||||||
Steel–0.48% | ||||||||
Nucor Corp. | 27,548 | 1,356,739 | ||||||
Systems Software–1.45% | ||||||||
ServiceNow, Inc.(b) | 66,410 | 4,114,764 | ||||||
Trucking–0.92% | ||||||||
J.B. Hunt Transport Services, Inc. | 35,471 | 2,617,050 | ||||||
Wireless Telecommunication Services–1.77% | ||||||||
SBA Communications Corp.– | 49,248 | 5,038,070 | ||||||
Total Common Stocks & Other Equity Interests |
| 284,488,424 | ||||||
Money Market Funds–0.21% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 298,783 | 298,783 | ||||||
Premier Portfolio–Institutional Class(d) | 298,783 | 298,783 | ||||||
Total Money Market Funds |
| 597,566 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.18% |
| 285,085,990 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.80% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,286,165)(d)(e) | 2,286,165 | 2,286,165 | ||||||
TOTAL INVESTMENTS–100.98% |
| 287,372,155 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.98)% |
| (2,797,238 | ) | |||||
NET ASSETS–100.00% |
| $ | 284,574,917 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at June 30, 2014. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. The following table presents the Fund’s gross and net amount of assets available for offset by the Fund as of June 30, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 2,291,976 | $ | (2,286,165 | ) | $ | 5,811 |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Industrials | 21.5 | % | ||
Consumer Discretionary | 20.6 | |||
Information Technology | 18.8 | |||
Health Care | 15.3 | |||
Financials | 7.5 | |||
Energy | 6.7 | |||
Consumer Staples | 4.4 | |||
Materials | 3.4 | |||
Telecommunication Services | 1.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $197,225,229)* | $ | 284,488,424 | ||
Investments in affiliated money market funds, at value and cost | 2,883,731 | |||
Total investments, at value (Cost $200,108,960) | 287,372,155 | |||
Receivable for: | ||||
Fund shares sold | 33,231 | |||
Dividends | 113,011 | |||
Investment for trustee deferred compensation and retirement plans | 123,660 | |||
Other assets | 75,037 | |||
Total assets | 287,717,094 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 253,842 | |||
Collateral upon return of securities loaned | 2,286,165 | |||
Accrued fees to affiliates | 440,344 | |||
Accrued trustees’ and officers’ fees and benefits | 365 | |||
Accrued other operating expenses | 25,773 | |||
Trustee deferred compensation and retirement plans | 135,688 | |||
Total liabilities | 3,142,177 | |||
Net assets applicable to shares outstanding | $ | 284,574,917 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 198,484,214 | ||
Undistributed net investment income (loss) | (846,936 | ) | ||
Undistributed net realized gain (loss) | (325,556 | ) | ||
Net unrealized appreciation | 87,263,195 | |||
$ | 284,574,917 | |||
Net Assets: | ||||
Series I | $ | 111,325,855 | ||
Series II | $ | 173,249,062 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 19,680,344 | |||
Series II | 30,781,479 | |||
Series I: | ||||
Net asset value per share | $ | 5.66 | ||
Series II: | ||||
Net asset value per share | $ | 5.63 |
* | At June 30, 2014, securities with an aggregate value of $2,291,976 were on loan to brokers. |
Investment income: |
| |||
Dividends | $ | 974,533 | ||
Dividends from affiliated money market funds (includes securities lending income of $2,407) | 3,015 | |||
Total investment income | 977,548 | |||
Expenses: | ||||
Advisory fees | 1,046,975 | |||
Administrative services fees | 369,864 | |||
Custodian fees | 7,737 | |||
Distribution fees — Series II | 209,254 | |||
Transfer agent fees | 29,078 | |||
Trustees’ and officers’ fees and benefits | 14,250 | |||
Other | 33,941 | |||
Total expenses | 1,711,099 | |||
Less: Fees waived | (2,191 | ) | ||
Net expenses | 1,708,908 | |||
Net investment income (loss) | (731,360 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities | 18,835,927 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (2,972,153 | ) | ||
Net realized and unrealized gain | 15,863,774 | |||
Net increase in net assets resulting from operations | $ | 15,132,414 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (731,360 | ) | $ | (1,440,830 | ) | ||
Net realized gain | 18,835,927 | 33,231,759 | ||||||
Change in net unrealized appreciation (depreciation) | (2,972,153 | ) | 48,244,861 | |||||
Net increase in net assets resulting from operations | 15,132,414 | 80,035,790 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (407,098 | ) | |||||
Series ll | — | (340,975 | ) | |||||
Total distributions from net investment income | — | (748,073 | ) | |||||
Share transactions–net: | ||||||||
Series l | (9,970,899 | ) | (3,506,135 | ) | ||||
Series ll | (8,382,849 | ) | (19,663,937 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (18,353,748 | ) | (23,170,072 | ) | ||||
Net increase (decrease) in net assets | (3,221,334 | ) | 56,117,645 | |||||
Net assets: | ||||||||
Beginning of period | 287,796,251 | 231,678,606 | ||||||
End of period (includes undistributed net investment income (loss) of $(846,936) and $(115,576), respectively) | $ | 284,574,917 | $ | 287,796,251 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco 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-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to seek capital growth.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Mid Cap Growth Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. Mid Cap Growth Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed 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 $500 million | 0.75% | |||
Next $500 million | 0.70% | |||
Over $1 billion | 0.65% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Effective July 1, 2014, the Adviser has contractually agreed, through at least June 30, 2015, 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, 2014, 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 1.09% and Series II shares to 1.34% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on 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 Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $2,191.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants;
Invesco V.I. Mid Cap Growth Fund
and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2014, Invesco was paid $34,587 for accounting and fund administrative services and reimbursed $335,277 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $1,603 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2014, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. Mid Cap Growth 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 6,354,721 | $ | — | $ | 6,354,721 | ||||||
December 31, 2016 | 12,567,919 | — | 12,567,919 | |||||||||
$ | 18,922,640 | $ | — | $ | 18,922,640 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $107,557,288 and $124,487,110, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 88,698,852 | ||
Aggregate unrealized (depreciation) of investment securities | (1,674,500 | ) | ||
Net unrealized appreciation of investment securities | $ | 87,024,352 |
Cost of investments for tax purposes is $200,347,803.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014 | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,816,109 | $ | 9,948,107 | 4,453,038 | $ | 21,048,421 | ||||||||||
Series II | 2,109,268 | 11,430,392 | 3,279,959 | 15,349,740 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 82,576 | 407,098 | ||||||||||||
Series II | — | — | 69,304 | 340,975 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,687,002 | ) | (19,919,006 | ) | (5,431,033 | ) | (24,961,654 | ) | ||||||||
Series II | (3,682,511 | ) | (19,813,241 | ) | (7,695,456 | ) | (35,354,652 | ) | ||||||||
Net increase (decrease) in share activity | (3,444,136 | ) | $ | (18,353,748 | ) | (5,241,612 | ) | $ | (23,170,072 | ) |
(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. |
Invesco V.I. Mid Cap Growth Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 5.35 | $ | (0.01 | ) | $ | 0.32 | $ | 0.31 | $ | — | $ | — | $ | — | $ | 5.66 | 5.79 | % | $ | 111,326 | 1.08 | %(d) | 1.08 | %(d) | (0.37 | )%(d) | 38 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 3.92 | (0.02 | ) | 1.47 | 1.45 | (0.02 | ) | — | (0.02 | ) | 5.35 | 37.01 | 115,319 | 1.08 | 1.08 | (0.41 | ) | 76 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 3.69 | 0.02 | (e) | 0.41 | 0.43 | — | (0.20 | ) | (0.20 | ) | 3.92 | 11.60 | 88,091 | 1.06 | 1.12 | 0.54 | (e) | 92 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 4.05 | (0.01 | ) | (0.35 | ) | (0.36 | ) | — | — | — | 3.69 | (8.89 | ) | 11 | 1.00 | 1.14 | (0.36 | ) | 137 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(f) | 3.30 | (0.00 | )(g) | 0.75 | 0.75 | — | — | — | 4.05 | 22.73 | 12 | 1.01 | (h) | 1.12 | (h) | (0.18 | )(h) | 105 | ||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 5.33 | (0.02 | ) | 0.32 | 0.30 | — | — | — | 5.63 | 5.63 | 173,249 | 1.33 | (d) | 1.33 | (d) | (0.62 | )(d) | 38 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 3.91 | (0.03 | ) | 1.46 | 1.43 | (0.01 | ) | — | (0.01 | ) | 5.33 | 36.60 | 172,478 | 1.33 | 1.33 | (0.66 | ) | 76 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 3.68 | 0.01 | (e) | 0.42 | 0.43 | — | (0.20 | ) | (0.20 | ) | 3.91 | 11.63 | 143,588 | 1.31 | 1.37 | 0.29 | (e) | 92 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 4.06 | (0.02 | ) | (0.36 | ) | (0.38 | ) | — | — | — | 3.68 | (9.36 | ) | 65,080 | 1.25 | 1.39 | (0.61 | ) | 137 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 3.19 | (0.02 | ) | 0.89 | 0.87 | — | — | — | 4.06 | 27.27 | 79,461 | 1.26 | 1.37 | (0.53 | ) | 105 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 2.04 | (0.01 | ) | 1.16 | 1.15 | — | — | — | 3.19 | 56.37 | 45,451 | 1.26 | 1.52 | (0.36 | ) | 42 |
(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, 2012, the portfolio turnover calculation excludes the value of securities purchased of $158,450,343 and sold of $99,449,268 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Development Fund into the Fund. |
(d) | Ratios are annualized and based on average daily net assets (000’s omitted) of $112,716 and $168,791 for Series I and Series II shares, respectively. |
(e) | Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include special cash dividends received of $3.92 per share owned of Aveta Inc. on August 16, 2012. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $0.01 and 0.28% and $0.00 and 0.03% for Series I and Series II shares, respectively. |
(f) | Commencement date of June 1, 2010. |
(g) | Amount is less than $0.01 per share. |
(h) | Annualized. |
Invesco V.I. Mid Cap Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,057.90 | $ | 5.51 | $ | 1,019.44 | $ | 5.41 | 1.08 | % | ||||||||||||
Series II | 1,000.00 | 1,056.30 | 6.78 | 1,018.20 | 6.66 | 1.33 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Growth Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Mid Cap Growth Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Mid-Cap Growth Funds Index. The Board noted that performance of Series II shares of the Fund was in the third quintile of the performance universe for the one and five year periods and the fifth quintile for the
Invesco V.I. Mid Cap Growth Fund
three year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series II shares of the Fund was 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. Invesco Advisers noted that abrupt market changes over the past three years created a challenging environment for the trend driven process employed by the portfolio management team. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series II shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rates of one other mutual fund managed using a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using a similar investment process.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted
that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or
similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Mid Cap Growth Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Money Market Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIMKT-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
About your Fund
Invesco V.I. Money Market Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses, performance would have been lower.
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, 2014
(Unaudited)
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Commercial Paper–50.24%(a) | ||||||||||||||||
Asset-Backed Securities–Consumer Receivables–6.56% | ||||||||||||||||
Barton Capital LLC(b)(c) | 0.16 | % | 09/29/14 | $ | 5,000 | $ | 5,000,000 | |||||||||
Old Line Funding, LLC(b) | 0.23 | % | 07/15/14 | 1,500 | 1,499,866 | |||||||||||
Old Line Funding, LLC(b) | 0.17 | % | 08/01/14 | 8,000 | 7,998,829 | |||||||||||
Old Line Funding, LLC(b) | 0.18 | % | 09/17/14 | 3,000 | 2,998,830 | |||||||||||
Sheffield Receivables Corp.(b) | 0.18 | % | 07/11/14 | 1,500 | 1,499,925 | |||||||||||
Sheffield Receivables Corp.(b) | 0.18 | % | 07/15/14 | 2,400 | 2,399,832 | |||||||||||
Sheffield Receivables Corp.(b) | 0.18 | % | 09/04/14 | 6,000 | 5,998,050 | |||||||||||
Sheffield Receivables Corp.(b) | 0.18 | % | 09/05/14 | 1,000 | 999,670 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.23 | % | 07/15/14 | 600 | 599,946 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.25 | % | 09/05/14 | 1,900 | 1,899,129 | |||||||||||
30,894,077 | ||||||||||||||||
Asset-Backed Securities–Fully Supported–1.51% | ||||||||||||||||
Fairway Finance Co. LLC (CEP–Bank of Montreal)(b)(d) | 0.14 | % | 07/21/14 | 2,000 | 1,999,845 | |||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(d) | 0.20 | % | 07/16/14 | 2,000 | 1,999,833 | |||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(d) | 0.20 | % | 07/14/14 | 700 | 699,949 | |||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(d) | 0.21 | % | 08/06/14 | 2,400 | 2,399,496 | |||||||||||
7,099,123 | ||||||||||||||||
Asset-Backed Securities–Fully Supported Bank–7.94% | ||||||||||||||||
Alpine Securitization Corp. (CEP–Credit Suisse AG)(b)(d) | 0.14 | % | 07/09/14 | 5,000 | 4,999,845 | |||||||||||
Atlantic Asset Securitization LLC (CEP–Credit Agricole Corporate & Investment Bank S.A.)(b)(c)(d) | 0.17 | % | 08/06/14 | 2,800 | 2,800,000 | |||||||||||
Atlantic Asset Securitization LLC (CEP–Credit Agricole Corporate & Investment Bank S.A.)(b)(c)(d) | 0.23 | % | 02/20/15 | 6,000 | 6,000,000 | |||||||||||
Cancara Asset Securitisation, LLC (CEP–Lloyds Bank PLC)(b)(d) | 0.14 | % | 08/04/14 | 1,300 | 1,299,828 | |||||||||||
Crown Point Capital Co. LLC (Multi-CEP’s–Guggenheim Treasury Services, LLC)(b)(d) | 0.20 | % | 07/09/14 | 2,100 | 2,099,907 | |||||||||||
Lexington Parker Capital Co., LLC (Multi-CEP’s–Guggenheim Treasury Services, LLC)(b)(d) | 0.20 | % | 07/09/14 | 900 | 899,960 | |||||||||||
Lexington Parker Capital Co., LLC (Multi-CEP’s–Guggenheim Treasury Services, LLC)(b)(d) | 0.20 | % | 07/11/14 | 10,000 | 9,999,444 | |||||||||||
Manhattan Asset Funding Co., LLC (CEP–Sumitomo Mitsui Financial Group Inc.)(b)(d) | 0.19 | % | 07/23/14 | 3,300 | 3,299,617 | |||||||||||
Ridgefield Funding Co. LLC (CEP–BNP Paribas, S.A.)(b)(d) | 0.18 | % | 07/08/14 | 5,000 | 4,999,825 | |||||||||||
Working Capital Management Co. (CEP–Mizuho Corporate Bank Ltd.)(b)(d) | 0.17 | % | 08/12/14 | 1,000 | 999,802 | |||||||||||
37,398,228 | ||||||||||||||||
Asset-Backed Securities–Multi-Purpose–13.28% | ||||||||||||||||
Chariot Funding, LLC(b) | 0.22 | % | 09/12/14 | 5,000 | 4,997,769 | |||||||||||
Chariot Funding, LLC(b) | 0.21 | % | 12/01/14 | 3,000 | 2,997,322 | |||||||||||
Chariot Funding, LLC(b) | 0.21 | % | 12/05/14 | 3,000 | 2,997,253 | |||||||||||
Chariot Funding, LLC(b) | 0.21 | % | 12/17/14 | 1,000 | 999,014 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.22 | % | 07/15/14 | 300 | 299,974 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.22 | % | 10/01/14 | 800 | 799,550 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.21 | % | 12/05/14 | 10,000 | 9,990,842 | |||||||||||
Mont Blanc Capital Corp.(b)(d) | 0.19 | % | 07/11/14 | 4,000 | 3,999,789 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(d) | 0.14 | % | 07/10/14 | 1,400 | 1,399,951 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(d) | 0.16 | % | 08/12/14 | 1,400 | 1,399,739 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(d) | 0.16 | % | 09/02/14 | 1,700 | 1,699,524 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(d) | 0.17 | % | 09/05/14 | 10,000 | 9,996,883 | |||||||||||
Regency Markets No. 1 LLC(b)(d) | 0.13 | % | 07/15/14 | 3,000 | 2,999,848 | |||||||||||
Regency Markets No. 1 LLC(b)(d) | 0.15 | % | 07/16/14 | 1,000 | 999,938 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Asset-Backed Securities–Multi-Purpose–(continued) | ||||||||||||||||
Regency Markets No. 1 LLC(b)(d) | 0.14 | % | 07/21/14 | $ | 7,000 | $ | 6,999,456 | |||||||||
Versailles Commercial Paper LLC(b) | 0.17 | % | 07/21/14 | 10,000 | 9,999,056 | |||||||||||
62,575,908 | ||||||||||||||||
Diversified Banks–11.86% | ||||||||||||||||
ANZ New Zealand Int’l Ltd.(b)(d) | 0.21 | % | 07/10/14 | 800 | 799,958 | |||||||||||
Collateralized Commercial Paper Co., LLC | 0.30 | % | 08/18/14 | 4,300 | 4,298,280 | |||||||||||
Collateralized Commercial Paper Co., LLC | 0.26 | % | 09/09/14 | 2,600 | 2,598,686 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.18 | % | 10/01/14 | 3,400 | 3,400,002 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.18 | % | 10/07/14 | 1,400 | 1,400,000 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.17 | % | 11/17/14 | 2,300 | 2,299,927 | |||||||||||
Dexia Credit Local S.A.(d) | 0.23 | % | 07/08/14 | 3,800 | 3,799,830 | |||||||||||
Dexia Credit Local S.A.(d) | 0.32 | % | 08/18/14 | 1,600 | 1,599,317 | |||||||||||
Dexia Credit Local S.A.(d) | 0.24 | % | 08/19/14 | 1,500 | 1,499,510 | |||||||||||
DNB Bank ASA(b)(d) | 0.17 | % | 07/11/14 | 2,900 | 2,899,867 | |||||||||||
ING (US) Funding LLC(d) | 0.19 | % | 07/07/14 | 700 | 699,978 | |||||||||||
J.P. Morgan Securities LLC(b) | 0.40 | % | 08/12/14 | 3,000 | 2,998,600 | |||||||||||
Mizuho Funding, LLC(b)(d) | 0.19 | % | 08/04/14 | 1,600 | 1,599,713 | |||||||||||
Mizuho Funding, LLC(b)(d) | 0.22 | % | 09/08/14 | 2,600 | 2,598,929 | |||||||||||
National Australia Funding Delaware Inc.(b)(d) | 0.20 | % | 07/07/14 | 600 | 599,980 | |||||||||||
National Australia Funding Delaware Inc.(b)(d) | 0.19 | % | 07/14/14 | 800 | 799,945 | |||||||||||
National Australia Funding Delaware Inc.(b)(d) | 0.18 | % | 11/03/14 | 4,800 | 4,797,083 | |||||||||||
National Australia Funding Delaware Inc.(b)(d) | 0.16 | % | 11/04/14 | 1,100 | 1,099,384 | |||||||||||
PNC Bank, N.A. | 0.28 | % | 10/06/14 | 800 | 800,000 | |||||||||||
Standard Chartered Bank(b)(d) | 0.17 | % | 08/04/14 | 1,700 | 1,699,727 | |||||||||||
Standard Chartered Bank(b)(d) | 0.17 | % | 08/11/14 | 5,000 | 4,999,032 | |||||||||||
Standard Chartered Bank(b)(d) | 0.19 | % | 09/02/14 | 6,000 | 5,998,005 | |||||||||||
Westpac Banking Corp.(b)(c)(d) | 0.22 | % | 09/23/14 | 2,600 | 2,600,417 | |||||||||||
55,886,170 | ||||||||||||||||
Other Diversified Financial Services–0.34% | ||||||||||||||||
General Electric Capital Corp. | 0.20 | % | 07/09/14 | 1,600 | 1,599,929 | |||||||||||
Regional Banks–6.03% | ||||||||||||||||
Banque et Caisse d’Epargne de l’Etat(d) | 0.16 | % | 09/11/14 | 1,600 | 1,599,488 | |||||||||||
BNZ International Funding Ltd.(b)(d) | 0.20 | % | 11/12/14 | 2,000 | 1,998,548 | |||||||||||
BNZ International Funding Ltd.(b)(d) | 0.21 | % | 11/26/14 | 10,000 | 9,991,572 | |||||||||||
Landesbank Hessen-Thueringen Girozentrale(b)(d) | 0.13 | % | 07/09/14 | 2,000 | 1,999,942 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(b)(d) | 0.24 | % | 07/28/14 | 1,700 | 1,699,694 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(b)(d) | 0.19 | % | 09/09/14 | 5,000 | 4,998,153 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(d) | 0.21 | % | 07/07/14 | 1,200 | 1,199,958 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(d) | 0.25 | % | 08/05/14 | 1,400 | 1,399,660 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(d) | 0.24 | % | 10/10/14 | 1,000 | 999,327 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(d) | 0.25 | % | 11/03/14 | 2,500 | 2,497,830 | |||||||||||
28,384,172 | ||||||||||||||||
Soft Drinks–1.02% | ||||||||||||||||
Coca-Cola Co. (The)(b) | 0.16 | % | 09/09/14 | 3,000 | 2,999,067 | |||||||||||
Coca-Cola Co. (The)(b) | 0.17 | % | 11/04/14 | 1,800 | 1,798,929 | |||||||||||
4,797,996 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Specialized Finance–1.70% | ||||||||||||||||
Caisse des Depots et Consignations LLC(b)(d) | 0.16 | % | 09/09/14 | $ | 5,000 | $ | 4,998,493 | |||||||||
CDP Financial Inc.(b)(d) | 0.19 | % | 08/05/14 | 1,000 | 999,815 | |||||||||||
CDP Financial Inc.(b)(d) | 0.19 | % | 12/11/14 | 2,000 | 1,998,280 | |||||||||||
7,996,588 | ||||||||||||||||
Total Commercial Paper (Cost $236,632,191) | 236,632,191 | |||||||||||||||
Certificates of Deposit–16.39% | ||||||||||||||||
Australia & New Zealand Banking Group, Ltd.(d) | 0.17 | % | 08/01/14 | 1,300 | 1,300,000 | |||||||||||
Bank of Montreal(d) | 0.15 | % | 07/15/14 | 700 | 700,000 | |||||||||||
Bank of Montreal(d) | 0.17 | % | 09/10/14 | 3,000 | 3,000,000 | |||||||||||
Bank of Montreal(d) | 0.17 | % | 09/13/14 | 7,000 | 7,000,000 | |||||||||||
Bank of Nova Scotia(d) | 0.18 | % | 09/02/14 | 2,400 | 2,400,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.31 | % | 11/28/14 | 4,000 | 4,000,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.32 | % | 07/30/15 | 700 | 700,000 | |||||||||||
Bank of Tokyo-Mitsubishi UFJ, Ltd. (The)(d) | 0.20 | % | 08/11/14 | 4,300 | 4,300,000 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(d) | 0.20 | % | 09/02/14 | 4,000 | 4,000,000 | |||||||||||
Mizuho Bank Ltd.(d) | 0.20 | % | 07/16/14 | 2,100 | 2,100,000 | |||||||||||
Natixis(d) | 0.11 | % | 07/03/14 | �� | 2,500 | 2,500,000 | ||||||||||
Nordea Bank Finland PLC(d) | 0.01 | % | 07/03/14 | 10,000 | 9,999,999 | |||||||||||
Norinchukin Bank (The)(d) | 0.21 | % | 07/08/14 | 5,000 | 5,000,000 | |||||||||||
Norinchukin Bank (The)(c)(d) | 0.23 | % | 07/09/14 | 3,200 | 3,200,000 | |||||||||||
Norinchukin Bank (The)(d) | 0.25 | % | 08/08/14 | 1,200 | 1,200,000 | |||||||||||
Oversea-Chinese Banking Corp. Ltd.(d) | 0.16 | % | 08/08/14 | 2,700 | 2,700,000 | |||||||||||
Royal Bank of Canada(c)(d) | 0.32 | % | 07/02/15 | 2,000 | 2,000,000 | |||||||||||
Societe Generale(c)(d) | 0.23 | % | 11/13/14 | 1,300 | 1,300,000 | |||||||||||
Sumitomo Mitsui Banking Corp.(d) | 0.21 | % | 07/02/14 | 2,100 | 2,100,000 | |||||||||||
Sumitomo Mitsui Trust Bank Ltd.(d) | 0.25 | % | 07/14/14 | 600 | 600,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.20 | % | 07/28/14 | 700 | 700,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.19 | % | 10/10/14 | 5,000 | 5,000,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.19 | % | 11/07/14 | 1,200 | 1,200,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.10 | % | 07/11/14 | 4,000 | 4,000,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.15 | % | 09/08/14 | 1,700 | 1,700,000 | |||||||||||
Toronto-Dominion Bank (The)(d) | 0.15 | % | 09/17/14 | 4,500 | 4,500,000 | |||||||||||
Total Certificates of Deposit (Cost $77,199,999) | 77,199,999 | |||||||||||||||
Variable Rate Demand Notes–5.17%(e) | ||||||||||||||||
Credit Enhanced–5.17% | ||||||||||||||||
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC–Wells Fargo Bank, N.A.)(f) | 0.15 | % | 10/01/33 | 4,500 | 4,499,999 | |||||||||||
Benjamin Rose Institute (The) (Kethley House); Series 2005, VRD Taxable Notes (LOC–JPMorgan Chase Bank, N.A.)(f) | 0.13 | % | 12/01/28 | 3,360 | 3,360,000 | |||||||||||
Collier (County of), Florida Industrial Development Authority (Allete, Inc.); Series 2006, Ref. VRD IDR (LOC–Wells Fargo Bank, N.A.)(f) | 0.10 | % | 10/01/25 | 1,000 | 1,000,000 | |||||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC–PNC Bank, N.A.)(f) | 0.06 | % | 05/15/17 | 600 | 600,000 | |||||||||||
Keep Memory Alive; Series 2013, VRD Taxable Bonds (LOC–PNC Bank, N.A.)(f) | 0.11 | % | 05/01/37 | 3,720 | 3,720,000 | |||||||||||
M3 Realty, LLC; Series 2007, VRD RN (LOC–General Electric Capital Corp.)(b)(f) | 0.22 | % | 01/01/33 | 2,100 | 2,100,000 | |||||||||||
Massachusetts (State of) Development Finance Agency (Milton Academy); Series 2009 B, VRD Taxable RB (LOC–TD Bank, N.A.)(f) | 0.15 | % | 03/01/39 | 1,500 | 1,500,000 | |||||||||||
Nuevo Oaxaca LLC (Village by the Park Apartments); Series 2013 A, MFH Taxable VRD RB (LOC–FHLB of San Francisco)(f) | 0.13 | % | 03/01/53 | 4,500 | 4,500,000 | |||||||||||
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC–Wells Fargo Bank, N.A.)(f) | 0.15 | % | 12/01/27 | 2,225 | 2,225,000 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Credit Enhanced–(continued) | ||||||||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight); Series 1998 A, VRD Priority RB (LOC–U.S. Bank, N.A.)(f) | 0.20 | % | 12/01/18 | $ | 230 | $ | 230,000 | |||||||||
St. Jean Industries, Inc.; Series 2006, VRD Taxable Notes (LOC–General Electric Capital Corp.)(b)(f) | 0.15 | % | 10/01/21 | 600 | 600,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $24,334,999) | 24,334,999 | |||||||||||||||
Bonds & Notes–3.20% | ||||||||||||||||
Diversified Banks–1.71% | ||||||||||||||||
Commonwealth Bank of Australia, Sr. Unsec. Notes(b)(d) | 3.75 | % | 10/15/14 | 5,000 | 5,051,284 | |||||||||||
Wells Fargo Bank, N.A., Unsec. Floating Rate Medium-Term Notes(c) | 0.32 | % | 07/20/15 | 3,000 | 3,000,000 | |||||||||||
8,051,284 | ||||||||||||||||
Other Diversified Financial Services–1.49% | ||||||||||||||||
General Electric Capital Corp., Sr. Unsec. Floating Rate Medium-Term Notes(c) | 0.61 | % | 01/09/15 | 7,000 | 7,014,922 | |||||||||||
Total Bonds & Notes (Cost $15,066,206) | 15,066,206 | |||||||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–75.00% (Cost $353,233,395) | 353,233,395 | |||||||||||||||
Repurchase Amount | ||||||||||||||||
Repurchase Agreements–24.66%(g) | ||||||||||||||||
Goldman, Sachs & Co., Joint agreement dated 06/30/14, aggregate maturing value of $500,001,250 (collateralized by Agency Mortgage-backed securities valued at $510,000,000; 2.50%-7.00%, 02/01/26-06/01/44) | 0.09 | % | 07/01/14 | 66,178,314 | 66,178,149 | |||||||||||
Merrill Lynch Pierce Fenner & Smith, Inc., Term agreement dated 06/30/14, maturing value of $10,007,167 (collateralized by Domestic and Foreign Non-Agency Asset-backed securities, Non-Agency Mortgage-backed securities, Domestic Corporate obligations, Sovereign debt & Municipal obligations valued at $10,819,177; 0%-12.75%, 05/01/16-10/11/42)(c)(h) | 0.43 | % | 08/29/14 | 10,007,167 | 10,000,000 | |||||||||||
RBC Capital Markets Corp., Joint agreement dated 06/30/14, aggregate maturing value of $250,000,625 (collateralized by Agency Mortgage-backed securities valued at $255,000,000; 0%-8.25%, 10/01/15-06/20/44) | 0.09 | % | 07/01/14 | 20,000,050 | 20,000,000 | |||||||||||
Wells Fargo Securities, LLC., Joint agreement dated 06/30/14, aggregate maturing value of $600,001,667 (collateralized by Agency Mortgage-backed securities valued at $612,000,000; 0.60%-5.49%, 02/01/20-07/01/44) | 0.10 | % | 07/01/14 | 20,000,056 | 20,000,000 | |||||||||||
Total Repurchase Agreements (Cost $116,178,149) | 116,178,149 | |||||||||||||||
TOTAL INVESTMENTS(i)(j)–99.66% (Cost $469,411,544) | 469,411,544 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–0.34% | 1,585,013 | |||||||||||||||
NET ASSETS–100.00% | $ | 470,996,557 |
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
FHLB | – Federal Home Loan Bank | |
IDR | – Industrial Development Revenue Bonds | |
LOC | – Letter of Credit | |
MFH | – Multi-Family Housing | |
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 “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2014 was $225,888,457, which represented 47.96% of the Fund’s Net Assets. |
(c) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2014. |
(d) | The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: Japan: 9.30%; Canada: 8.90%; Australia: 7.67%; United Kingdom: 7.62%; other countries less than 5% each: 17.00%. |
(e) | 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, 2014. |
(f) | Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. |
(g) | Principal amount equals value at period end. See Note 1I. |
(h) | The Fund may demand payment of the term repurchase agreement upon one to seven business days’ notice depending on the timing of the demand. |
(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%. |
Portfolio Composition by Maturity
In days, as of June 30, 2014
1-7 | 33.6 | % | ||
8-30 | 19.9 | |||
31-60 | 11.2 | |||
61-90 | 17.2 | |||
91-180 | 15.4 | |||
181+ | 2.7 |
The | number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 under 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, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, excluding repurchase agreements, at value and cost | $ | 353,233,395 | ||
Repurchase agreements, at value and cost | 116,178,149 | |||
Total investments, at value and cost | 469,411,544 | |||
Receivable for: | ||||
Investments sold | 100,000 | |||
Fund shares sold | 2,518,923 | |||
Interest | 75,418 | |||
Investment for trustee deferred compensation and retirement plans | 64,984 | |||
Total assets | 472,170,869 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 603,840 | |||
Dividends | 166 | |||
Accrued fees to affiliates | 474,808 | |||
Accrued trustees’ and officers’ fees and benefits | 598 | |||
Accrued other operating expenses | 24,369 | |||
Trustee deferred compensation and retirement plans | 70,531 | |||
Total liabilities | 1,174,312 | |||
Net assets applicable to shares outstanding | $ | 470,996,557 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 471,000,650 | ||
Undistributed net investment income | (2,496 | ) | ||
Undistributed net realized gain (loss) | (1,597 | ) | ||
$ | 470,996,557 | |||
Net Assets: |
| |||
Series I | $ | 453,755,768 | ||
Series II | $ | 17,240,789 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 453,755,933 | |||
Series II | 17,240,795 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 |
Investment income: |
| |||
Interest | $ | 399,935 | ||
Expenses: | ||||
Advisory fees | 875,251 | |||
Administrative services fees | 157,199 | |||
Custodian fees | 9,525 | |||
Distribution fees — Series II | 21,536 | |||
Transfer agent fees | 6,222 | |||
Trustees’ and officers’ fees and benefits | 15,963 | |||
Other | 41,628 | |||
Total expenses | 1,127,324 | |||
Less: Fees waived and expenses reimbursed | (755,413 | ) | ||
Net expenses | 371,911 | |||
Net investment income | 28,024 | |||
Net realized gain (loss) from investment securities | (150 | ) | ||
Net increase in net assets resulting from operations | $ | 27,874 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 28,024 | $ | 90,966 | ||||
Net realized gain (loss) | (150 | ) | (702 | ) | ||||
Net increase in net assets resulting from operations | 27,874 | 90,264 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (26,992 | ) | (89,711 | ) | ||||
Series ll | (1,032 | ) | (1,255 | ) | ||||
Total distributions from net investment income | (28,024 | ) | (90,966 | ) | ||||
Share transactions–net: | ||||||||
Series l | 31,264,709 | 265,560,533 | ||||||
Series ll | 1,357,897 | 15,137,429 | ||||||
Net increase in net assets resulting from share transactions | 32,622,606 | 280,697,962 | ||||||
Net increase in net assets | 32,622,456 | 280,697,260 | ||||||
Net assets: | ||||||||
Beginning of period | 438,374,101 | 157,676,841 | ||||||
End of period (includes undistributed net investment income of $(2,496) and $(2,496), respectively) | $ | 470,996,557 | $ | 438,374,101 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Money Market Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — The Fund’s securities are recorded on the basis of amortized cost which approximates value as permitted by Rule 2a-7 under the 1940 Act. This method values a security at its cost on the date of purchase and, thereafter, assumes a constant amortization to maturity of any premiums or accretion of any discounts. |
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s 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 (net of withholding tax, if any), adjusted for amortization of premiums and accretion of discounts on investments, is recorded on the accrual basis from settlement date. Paydown gains and losses on mortgage and asset-backed securities are recorded as adjustments to interest income. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized gains
Invesco V.I. Money Market Fund
(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 declared and paid annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Repurchase Agreements — The Fund may enter into repurchase agreements. Collateral on repurchase agreements, including the Fund’s pro-rata interest in joint repurchase agreements, is taken into possession by the Fund upon entering into the repurchase agreement. Collateral consisting of U.S. Government Securities and U.S. Government Sponsored Agency Securities is marked to market daily to ensure its market value is at least 102% of the sales price of the repurchase agreement. Collateral consisting of nongovernment securities is marked to market daily to ensure its market value is at least 105% of the sales price of the repurchase agreement. The investments in some repurchase agreements, pursuant to procedures approved by the Board of Trustees, are through participation with other mutual funds, private accounts and certain non-registered investment companies managed by the investment advisor or its affiliates (“Joint repurchase agreements”). The principal amount of the repurchase agreement is equal to the value at period-end. If the seller of a repurchase agreement fails to repurchase the security in accordance with the terms of the agreement, the Fund might incur expenses in enforcing its rights, and could experience losses, including a decline in the value of the collateral and loss of income. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $250 million | 0.40% | |||
Over $250 million | 0.35% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
Invesco V.I. Money Market Fund
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual operating expenses after fee waivers and/or expense reimbursements (excluding certain items discussed below) of Series I shares to 1.50% and Series II shares to 1.75% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual operating expenses after fee waivers and/or expense reimbursements to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. The Adviser did not waive fees and/or reimburse expenses during the period under this limitation.
The Adviser and/or Invesco Distributors, Inc., (“IDI”) voluntarily agreed to waive fees and/or reimburse expenses in order to increase the Fund’s yield. Voluntary fee waivers and/or reimbursements may be modified at any time upon consultation with the Board of Trustees without further notice to investors.
For the six months ended June 30, 2014, Invesco voluntarily waived advisory fees of $733,877 and reimbursed class level expenses of $21,536 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, 2014, Invesco was paid $55,923 for accounting and fund administrative services and reimbursed $101,276 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2014, all of the securities in this Fund were valued based on Level 2 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
Invesco V.I. Money Market Fund
NOTE 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2018 | $ | 745 | $ | — | $ | 745 | ||||||
Not subject to expiration | 702 | — | 702 | |||||||||
$ | 1,447 | $ | — | $ | 1,447 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any reorganization. |
NOTE 7—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 419,299,495 | $ | 419,299,495 | 1,037,143,323 | $ | 1,037,143,323 | ||||||||||
Series II | 21,640,476 | 21,640,476 | 29,306,348 | 29,306,348 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 25,765 | 25,765 | 82,613 | 82,613 | ||||||||||||
Series II | 1,032 | 1,032 | 1,255 | 1,255 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (388,060,551 | ) | (388,060,551 | ) | (771,665,403 | ) | (771,665,403 | ) | ||||||||
Series II | (20,283,611 | ) | (20,283,611 | ) | (14,170,174 | ) | (14,170,174 | ) | ||||||||
Net increase in share activity | 32,622,606 | $ | 32,622,606 | 280,697,962 | $ | 280,697,962 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 92% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Money Market Fund
NOTE 8—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | ||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 1.00 | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.01 | % | $ | 453,756 | 0.16 | %(c) | 0.48 | %(c) | 0.01 | %(c) | ||||||||||||||||||||
Year ended 12/31/13 | 1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.03 | 422,491 | 0.16 | 0.70 | 0.03 | |||||||||||||||||||||||||||||||
Year ended 12/31/12 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 156,931 | 0.23 | 0.54 | 0.03 | ||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.05 | 198,533 | 0.17 | 0.57 | 0.05 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 25,578 | 0.16 | 1.01 | 0.18 | |||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.11 | 33,486 | 0.65 | 0.90 | 0.11 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.01 | 17,241 | 0.16 | (c) | 0.73 | (c) | 0.01 | (c) | ||||||||||||||||||||||||||||
Year ended 12/31/13 | 1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.03 | 15,883 | 0.16 | 0.95 | 0.03 | |||||||||||||||||||||||||||||||
Year ended 12/31/12 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.03 | 746 | 0.23 | 0.79 | 0.03 | ||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.05 | 1,022 | 0.17 | 0.82 | 0.05 | ||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 1.00 | 0.00 | (0.00 | ) | 0.00 | (0.00 | ) | 1.00 | 0.18 | 1,024 | 0.16 | 1.26 | 0.18 | |||||||||||||||||||||||||||||||
Year ended 12/31/09 | 1.00 | 0.00 | — | 0.00 | (0.00 | ) | 1.00 | 0.06 | 1,690 | 0.70 | 1.15 | 0.06 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Ratios are annualized and based on average daily net assets (000’s omitted) of $451,203 and $17,371 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.10 | $ | 0.79 | $ | 1,024.00 | $ | 0.80 | 0.16 | % | ||||||||||||
Series II | 1,000.00 | 1,000.10 | 0.79 | 1,024.00 | 0.80 | 0.16 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Money Market Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Money Market Funds Index. The Board noted that performance of Series I shares of the Fund was in the first quintile of its performance universe for the one and three year periods and the second quintile for the five year period (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
Invesco V.I. Money Market Fund
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was above the median contractual management fee rate of funds in its expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was below the rate of one such mutual fund. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of
the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds. The Board noted that in the current low interest rate environment, Invesco Advisers and its subsidiaries did not make a profit from managing 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 transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. Invesco Advisers noted that the Fund does not execute brokerage transactions through “soft dollar” arrangements to any significant degree.
The Board considered that the Fund’s uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Advisers pursuant to procedures approved by the Board. The Board noted that
Invesco Advisers receives advisory fees from these affiliated money market funds attributable to such investments, although Invesco Advisers has contractually agreed to waive through varying periods the advisory fees payable by the Invesco Funds with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
Invesco V.I. Money Market Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. S&P 500 Index Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. MS-VISPI-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.96 | % | |||
Series II Shares | 6.82 | ||||
S&P 500 Index‚ (Broad Market/Style-Specific Index) | 7.14 | ||||
Lipper VUF S&P 500 Funds Indexn (Peer Group Index) | 6.95 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Lipper VUF S&P 500 Funds Index is an unmanaged index considered representative of S&P 500 variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/18/98) | 5.22 | % | |||
10 Years | 7.54 | ||||
5 Years | 18.52 | ||||
1 Year | 24.14 | ||||
Series II Shares | |||||
Inception (6/5/00) | 3.49 | % | |||
10 Years | 7.28 | ||||
5 Years | 18.23 | ||||
1 Year | 23.91 |
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 0.41% and 0.66%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. S&P 500 Index Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.18% |
| |||||||
Advertising–0.15% | ||||||||
Interpublic Group of Cos., Inc. (The) | 2,465 | $ | 48,092 | |||||
Omnicom Group Inc. | 1,465 | 104,337 | ||||||
152,429 | ||||||||
Aerospace & Defense–2.59% | ||||||||
Boeing Co. (The) | 3,828 | 487,037 | ||||||
General Dynamics Corp. | 1,858 | 216,550 | ||||||
Honeywell International Inc. | 4,468 | 415,301 | ||||||
L-3 Communications Holdings, Inc. | 487 | 58,805 | ||||||
Lockheed Martin Corp. | 1,521 | 244,470 | ||||||
Northrop Grumman Corp. | 1,220 | 145,949 | ||||||
Precision Castparts Corp. | 824 | 207,978 | ||||||
Raytheon Co. | 1,785 | 164,666 | ||||||
Rockwell Collins, Inc. | 767 | 59,933 | ||||||
Textron Inc. | 1,603 | 61,379 | ||||||
United Technologies Corp. | 4,812 | 555,545 | ||||||
2,617,613 | ||||||||
Agricultural & Farm Machinery–0.19% | ||||||||
Deere & Co. | 2,075 | 187,891 | ||||||
Agricultural Products–0.16% | ||||||||
Archer-Daniels-Midland Co. | 3,717 | 163,957 | ||||||
Air Freight & Logistics–0.75% | ||||||||
C.H. Robinson Worldwide, Inc. | 842 | 53,711 | ||||||
Expeditors International of Washington, Inc. | 1,125 | 49,680 | ||||||
FedEx Corp. | 1,584 | 239,786 | ||||||
United Parcel Service, Inc.–Class B | 4,022 | 412,899 | ||||||
756,076 | ||||||||
Airlines–0.29% | ||||||||
Delta Air Lines, Inc. | 4,815 | 186,437 | ||||||
Southwest Airlines Co. | 3,947 | 106,016 | ||||||
292,453 | ||||||||
Aluminum–0.10% | ||||||||
Alcoa Inc. | 6,648 | 98,989 | ||||||
Apparel Retail–0.45% | ||||||||
Gap, Inc. (The) | 1,503 | 62,480 | ||||||
L Brands, Inc. | 1,384 | 81,185 | ||||||
Ross Stores, Inc. | 1,220 | 80,679 | ||||||
TJX Cos., Inc. (The) | 3,996 | 212,387 | ||||||
Urban Outfitters, Inc.(b) | 581 | 19,673 | ||||||
456,404 | ||||||||
Apparel, Accessories & Luxury Goods–0.45% | ||||||||
Coach, Inc. | 1,575 | 53,849 | ||||||
Fossil Group, Inc.(b) | 272 | 28,430 | ||||||
Michael Kors Holdings Ltd.(b) | 1,018 | 90,246 | ||||||
PVH Corp. | 463 | 53,986 | ||||||
Ralph Lauren Corp. | 335 | 53,831 | ||||||
Under Armour, Inc.–Class A(b) | 913 | 54,314 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–(continued) | ||||||||
VF Corp. | 1,963 | $ | 123,669 | |||||
458,325 | ||||||||
Application Software–0.63% | ||||||||
Adobe Systems Inc.(b) | 2,636 | 190,741 | ||||||
Autodesk, Inc.(b) | 1,289 | 72,674 | ||||||
Citrix Systems, Inc.(b) | 930 | 58,171 | ||||||
Intuit Inc. | 1,608 | 129,492 | ||||||
Salesforce.com, Inc.(b) | 3,222 | 187,134 | ||||||
638,212 | ||||||||
Asset Management & Custody Banks–1.28% | �� | |||||||
Affiliated Managers Group, Inc.(b) | 315 | 64,701 | ||||||
Ameriprise Financial, Inc. | 1,083 | 129,960 | ||||||
Bank of New York Mellon Corp. (The) | 6,507 | 243,882 | ||||||
BlackRock, Inc. | 713 | 227,875 | ||||||
Franklin Resources, Inc. | 2,291 | 132,511 | ||||||
Invesco Ltd.(c) | 2,458 | 92,790 | ||||||
Legg Mason, Inc. | 586 | 30,068 | ||||||
Northern Trust Corp. | 1,266 | 81,290 | ||||||
State Street Corp. | 2,450 | 164,787 | ||||||
T. Rowe Price Group Inc. | 1,487 | 125,517 | ||||||
1,293,381 | ||||||||
Auto Parts & Equipment–0.38% | ||||||||
BorgWarner, Inc. | 1,294 | 84,356 | ||||||
Delphi Automotive PLC (United Kingdom) | 1,582 | 108,746 | ||||||
Johnson Controls, Inc. | 3,790 | 189,235 | ||||||
382,337 | ||||||||
Automobile Manufacturers–0.65% | ||||||||
Ford Motor Co. | 22,565 | 389,020 | ||||||
General Motors Co. | 7,506 | 272,468 | ||||||
661,488 | ||||||||
Automotive Retail–0.28% | ||||||||
AutoNation, Inc.(b) | 374 | 22,320 | ||||||
AutoZone, Inc.(b) | 191 | 102,422 | ||||||
CarMax, Inc.(b) | 1,267 | 65,897 | ||||||
O’Reilly Automotive, Inc.(b) | 603 | 90,812 | ||||||
281,451 | ||||||||
Biotechnology–2.46% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 1,123 | 175,469 | ||||||
Amgen Inc. | 4,319 | 511,240 | ||||||
Biogen Idec Inc.(b) | 1,353 | 426,615 | ||||||
Celgene Corp.(b) | 4,568 | 392,300 | ||||||
Gilead Sciences, Inc.(b) | 8,763 | 726,540 | ||||||
Regeneron Pharmaceuticals, Inc.(b) | 454 | 128,241 | ||||||
Vertex Pharmaceuticals Inc.(b) | 1,338 | 126,682 | ||||||
2,487,087 | ||||||||
Brewers–0.07% | ||||||||
Molson Coors Brewing Co.–Class B | 898 | 66,596 |
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 | |||||||
Broadcasting–0.33% | ||||||||
CBS Corp.–Class B | 3,015 | $ | 187,352 | |||||
Discovery Communications, Inc.–Class A(b) | 1,243 | 92,330 | ||||||
Scripps Networks Interactive Inc.–Class A | 611 | 49,577 | ||||||
329,259 | ||||||||
Building Products–0.07% | ||||||||
Allegion PLC | 509 | 28,850 | ||||||
Masco Corp. | 1,994 | 44,267 | ||||||
73,117 | ||||||||
Cable & Satellite–1.27% | ||||||||
Cablevision Systems Corp.–Class A | 1,229 | 21,692 | ||||||
Comcast Corp.–Class A | 14,835 | 796,343 | ||||||
DIRECTV(b) | 2,673 | 227,232 | ||||||
Time Warner Cable Inc. | 1,589 | 234,059 | ||||||
1,279,326 | ||||||||
Casinos & Gaming–0.09% | ||||||||
Wynn Resorts Ltd. | 459 | 95,270 | ||||||
Coal & Consumable Fuels–0.08% | ||||||||
CONSOL Energy Inc. | 1,300 | 59,891 | ||||||
Peabody Energy Corp. | 1,499 | 24,509 | ||||||
84,400 | ||||||||
Commodity Chemicals–0.23% | ||||||||
LyondellBasell Industries N.V.–Class A | 2,376 | 232,016 | ||||||
Communications Equipment–1.72% | ||||||||
Cisco Systems, Inc. | 29,244 | 726,713 | ||||||
F5 Networks, Inc.(b) | 431 | 48,031 | ||||||
Harris Corp. | 618 | 46,813 | ||||||
Juniper Networks, Inc.(b) | 2,687 | 65,939 | ||||||
Motorola Solutions, Inc. | 1,282 | 85,343 | ||||||
QUALCOMM, Inc. | 9,631 | 762,775 | ||||||
1,735,614 | ||||||||
Computer & Electronics Retail–0.07% | ||||||||
Best Buy Co., Inc. | 1,551 | 48,096 | ||||||
GameStop Corp.–Class A | 657 | 26,589 | ||||||
74,685 | ||||||||
Construction & Engineering–0.15% | ||||||||
Fluor Corp. | 910 | 69,979 | ||||||
Jacobs Engineering Group, Inc.(b) | 748 | 39,853 | ||||||
Quanta Services, Inc.(b) | 1,236 | 42,741 | ||||||
152,573 | ||||||||
Construction Machinery & Heavy Trucks–0.69% | ||||||||
Caterpillar Inc. | 3,561 | 386,974 | ||||||
Cummins Inc. | 975 | 150,433 | ||||||
Joy Global Inc. | 579 | 35,655 | ||||||
PACCAR Inc. | 2,011 | 126,351 | ||||||
699,413 | ||||||||
Construction Materials–0.05% | ||||||||
Vulcan Materials Co. | 741 | 47,239 |
Shares | Value | |||||||
Consumer Electronics–0.08% | ||||||||
Garmin Ltd. | 697 | $ | 42,447 | |||||
Harman International Industries, Inc. | 384 | 41,253 | ||||||
83,700 | ||||||||
Consumer Finance–0.96% | ||||||||
American Express Co. | 5,187 | 492,091 | ||||||
Capital One Financial Corp. | 3,251 | 268,532 | ||||||
Discover Financial Services | 2,673 | 165,672 | ||||||
Navient Corp. | 2,422 | 42,894 | ||||||
969,189 | ||||||||
Data Processing & Outsourced Services–1.78% | ||||||||
Alliance Data Systems Corp.(b) | 309 | 86,906 | ||||||
Automatic Data Processing, Inc. | 2,750 | 218,020 | ||||||
Computer Sciences Corp. | 827 | 52,266 | ||||||
Fidelity National Information Services, Inc. | 1,650 | 90,321 | ||||||
Fiserv, Inc.(b) | 1,422 | 85,775 | ||||||
MasterCard, Inc.–Class A | 5,733 | 421,204 | ||||||
Paychex, Inc. | 1,840 | 76,470 | ||||||
Total System Services, Inc. | 938 | 29,463 | ||||||
Visa Inc.–Class A | 2,868 | 604,322 | ||||||
Western Union Co. (The) | 3,061 | 53,078 | ||||||
Xerox Corp. | 6,223 | 77,414 | ||||||
1,795,239 | ||||||||
Department Stores–0.23% | ||||||||
Kohl’s Corp. | 1,111 | 58,528 | ||||||
Macy’s, Inc. | 2,056 | 119,289 | ||||||
Nordstrom, Inc. | 812 | 55,159 | ||||||
232,976 | ||||||||
Distillers & Vintners–0.17% | ||||||||
Brown-Forman Corp.–Class B | 920 | 86,636 | ||||||
Constellation Brands, Inc.–Class A(b) | 962 | 84,781 | ||||||
171,417 | ||||||||
Distributors–0.08% | ||||||||
Genuine Parts Co. | 872 | 76,562 | ||||||
Diversified Banks–4.06% | ||||||||
Bank of America Corp. | 59,996 | 922,139 | ||||||
Comerica Inc. | 1,033 | 51,815 | ||||||
JPMorgan Chase & Co. | 21,615 | 1,245,456 | ||||||
U.S. Bancorp | 10,346 | 448,189 | ||||||
Wells Fargo & Co. | 27,350 | 1,437,516 | ||||||
4,105,115 | ||||||||
Diversified Chemicals–0.82% | ||||||||
Dow Chemical Co. (The) | 6,870 | 353,530 | ||||||
E. I. du Pont de Nemours and Co. | 5,240 | 342,906 | ||||||
Eastman Chemical Co. | 865 | 75,558 | ||||||
FMC Corp. | 754 | 53,677 | ||||||
825,671 | ||||||||
Diversified Metals & Mining–0.21% | ||||||||
Freeport-McMoRan Copper & Gold Inc. | 5,894 | 215,131 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Diversified REIT’s–0.10% | ||||||||
Vornado Realty Trust | 988 | $ | 105,449 | |||||
Diversified Support Services–0.07% | ||||||||
Cintas Corp. | 571 | 36,281 | ||||||
Iron Mountain Inc. | 967 | 34,280 | ||||||
70,561 | ||||||||
Drug Retail–0.86% | ||||||||
CVS Caremark Corp. | 6,671 | 502,793 | ||||||
Walgreen Co. | 5,010 | 371,392 | ||||||
874,185 | ||||||||
Education Services–0.02% | ||||||||
Graham Holdings Co.–Class B | 26 | 18,671 | ||||||
Electric Utilities–1.75% | ||||||||
American Electric Power Co., Inc. | 2,769 | 154,427 | ||||||
Duke Energy Corp. | 4,035 | 299,357 | ||||||
Edison International | 1,849 | 107,445 | ||||||
Entergy Corp. | 1,013 | 83,157 | ||||||
Exelon Corp. | 4,899 | 178,715 | ||||||
FirstEnergy Corp. | 2,377 | 82,529 | ||||||
NextEra Energy, Inc. | 2,487 | 254,868 | ||||||
Northeast Utilities | 1,790 | 84,613 | ||||||
Pepco Holdings, Inc. | 1,422 | 39,077 | ||||||
Pinnacle West Capital Corp. | 625 | 36,150 | ||||||
PPL Corp. | 3,604 | 128,050 | ||||||
Southern Co. (The) | 5,083 | 230,667 | ||||||
Xcel Energy, Inc. | 2,864 | 92,307 | ||||||
1,771,362 | ||||||||
Electrical Components & Equipment–0.64% | ||||||||
AMETEK, Inc. | 1,391 | 72,721 | ||||||
Eaton Corp. PLC | 2,720 | 209,930 | ||||||
Emerson Electric Co. | 4,004 | 265,705 | ||||||
Rockwell Automation, Inc. | 787 | 98,501 | ||||||
646,857 | ||||||||
Electronic Components–0.25% | ||||||||
Amphenol Corp.–Class A | 898 | 86,513 | ||||||
Corning Inc. | 7,428 | 163,045 | ||||||
249,558 | ||||||||
Electronic Equipment & Instruments–0.03% | ||||||||
FLIR Systems, Inc. | 816 | 28,340 | ||||||
Electronic Manufacturing Services–0.16% | ||||||||
Jabil Circuit, Inc. | 1,024 | 21,402 | ||||||
TE Connectivity Ltd. (Switzerland) | 2,328 | 143,963 | ||||||
165,365 | ||||||||
Environmental & Facilities Services–0.22% | ||||||||
Republic Services, Inc. | 1,535 | 58,284 | ||||||
Stericycle, Inc.(b) | 482 | 57,079 | ||||||
Waste Management, Inc. | 2,454 | 109,767 | ||||||
225,130 | ||||||||
Fertilizers & Agricultural Chemicals–0.53% | ||||||||
CF Industries Holdings, Inc. | 295 | 70,956 |
Shares | Value | |||||||
Fertilizers & Agricultural Chemicals–(continued) | ||||||||
Monsanto Co. | 2,990 | $ | 372,973 | |||||
Mosaic Co. (The) | 1,845 | 91,235 | ||||||
535,164 | ||||||||
Food Distributors–0.12% | ||||||||
Sysco Corp. | 3,320 | 124,334 | ||||||
Food Retail–0.27% | ||||||||
Kroger Co. (The) | 2,907 | 143,693 | ||||||
Safeway Inc. | 1,334 | 45,809 | ||||||
Whole Foods Market, Inc. | 2,111 | 81,548 | ||||||
271,050 | ||||||||
Footwear–0.32% | ||||||||
NIKE, Inc.–Class B | 4,213 | 326,718 | ||||||
Gas Utilities–0.04% | ||||||||
AGL Resources Inc. | 674 | 37,090 | ||||||
General Merchandise Stores–0.40% | ||||||||
Dollar General Corp.(b) | 1,730 | 99,233 | ||||||
Dollar Tree, Inc.(b) | 1,181 | 64,317 | ||||||
Family Dollar Stores, Inc. | 542 | 35,848 | ||||||
Target Corp. | 3,614 | 209,431 | ||||||
408,829 | ||||||||
Gold–0.07% | ||||||||
Newmont Mining Corp. | 2,826 | 71,893 | ||||||
Health Care Distributors–0.49% | ||||||||
AmerisourceBergen Corp. | 1,301 | 94,530 | ||||||
Cardinal Health, Inc. | 1,946 | 133,418 | ||||||
McKesson Corp. | 1,315 | 244,866 | ||||||
Patterson Cos. Inc. | 466 | 18,412 | ||||||
491,226 | ||||||||
Health Care Equipment–2.03% | ||||||||
Abbott Laboratories | 8,570 | 350,513 | ||||||
Baxter International Inc. | 3,083 | 222,901 | ||||||
Becton, Dickinson and Co. | 1,095 | 129,538 | ||||||
Boston Scientific Corp.(b) | 7,517 | 95,992 | ||||||
C.R. Bard, Inc. | 440 | 62,924 | ||||||
CareFusion Corp.(b) | 1,182 | 52,422 | ||||||
Covidien PLC | 2,572 | 231,943 | ||||||
Edwards Lifesciences Corp.(b) | 608 | 52,191 | ||||||
Intuitive Surgical, Inc.(b) | 216 | 88,949 | ||||||
Medtronic, Inc. | 5,681 | 362,221 | ||||||
St. Jude Medical, Inc. | 1,611 | 111,562 | ||||||
Stryker Corp. | 1,687 | 142,248 | ||||||
Varian Medical Systems, Inc.(b) | 599 | 49,801 | ||||||
Zimmer Holdings, Inc. | 961 | 99,809 | ||||||
2,053,014 | ||||||||
Health Care Facilities–0.03% | ||||||||
Tenet Healthcare Corp.(b) | 569 | 26,709 | ||||||
Health Care REIT’s–0.32% | ||||||||
HCP, Inc. | 2,595 | 107,381 | ||||||
Health Care REIT, Inc. | 1,747 | 109,485 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Health Care REIT’s–(continued) | ||||||||
Ventas, Inc. | 1,670 | $ | 107,047 | |||||
323,913 | ||||||||
Health Care Services–0.47% | ||||||||
DaVita HealthCare Partners Inc.(b) | 1,004 | 72,609 | ||||||
Express Scripts Holding Co.(b) | 4,400 | 305,052 | ||||||
Laboratory Corp. of America Holdings(b) | 484 | 49,562 | ||||||
Quest Diagnostics Inc. | 819 | 48,067 | ||||||
475,290 | ||||||||
Health Care Supplies–0.04% | ||||||||
DENTSPLY International Inc. | 805 | 38,117 | ||||||
Health Care Technology–0.09% | ||||||||
Cerner Corp.(b) | 1,679 | 86,603 | ||||||
Home Entertainment Software–0.06% | ||||||||
Electronic Arts Inc.(b) | 1,794 | 64,351 | ||||||
Home Furnishings–0.07% | ||||||||
Leggett & Platt, Inc. | 788 | 27,013 | ||||||
Mohawk Industries, Inc.(b) | 353 | 48,834 | ||||||
75,847 | ||||||||
Home Improvement Retail–0.89% | ||||||||
Home Depot, Inc. (The) | 7,806 | 631,974 | ||||||
Lowe’s Cos., Inc. | 5,690 | 273,063 | ||||||
905,037 | ||||||||
Homebuilding–0.12% | ||||||||
D.R. Horton, Inc. | 1,674 | 41,147 | ||||||
Lennar Corp.–Class A | 997 | 41,854 | ||||||
PulteGroup Inc. | 1,894 | 38,183 | ||||||
121,184 | ||||||||
Homefurnishing Retail–0.07% | ||||||||
Bed Bath & Beyond Inc.(b) | 1,163 | 66,733 | ||||||
Hotel and Resort REIT’s–0.09% | ||||||||
Host Hotels & Resorts Inc. | 4,288 | 94,379 | ||||||
Hotels, Resorts & Cruise Lines–0.31% | ||||||||
Carnival Corp. | 2,487 | 93,636 | ||||||
Marriott International Inc.–Class A | 1,255 | 80,445 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,089 | 88,013 | ||||||
Wyndham Worldwide Corp. | 727 | 55,048 | ||||||
317,142 | ||||||||
Household Appliances–0.06% | ||||||||
Whirlpool Corp. | 439 | 61,118 | ||||||
Household Products–1.84% | ||||||||
Clorox Co. (The) | 737 | 67,362 | ||||||
Colgate-Palmolive Co. | 4,955 | 337,832 | ||||||
Kimberly-Clark Corp. | 2,153 | 239,457 | ||||||
Procter & Gamble Co. (The) | 15,441 | 1,213,508 | ||||||
1,858,159 | ||||||||
Housewares & Specialties–0.05% | ||||||||
Newell Rubbermaid Inc. | 1,583 | 49,057 |
Shares | Value | |||||||
Human Resource & Employment Services–0.04% | ||||||||
Robert Half International, Inc. | 780 | $ | 37,237 | |||||
Hypermarkets & Super Centers–0.97% | ||||||||
Costco Wholesale Corp. | 2,496 | 287,439 | ||||||
Wal-Mart Stores, Inc. | 9,184 | 689,443 | ||||||
976,882 | ||||||||
Independent Power Producers & Energy Traders–0.13% | ||||||||
AES Corp. (The) | 3,739 | 58,142 | ||||||
NRG Energy, Inc. | 1,947 | 72,428 | ||||||
130,570 | ||||||||
Industrial Conglomerates–2.34% | ||||||||
3M Co. | 3,546 | 507,929 | ||||||
Danaher Corp. | 3,432 | 270,201 | ||||||
General Electric Co.(d) | 57,223 | 1,503,820 | ||||||
Roper Industries, Inc. | 565 | 82,496 | ||||||
2,364,446 | ||||||||
Industrial Gases–0.41% | ||||||||
Air Products and Chemicals, Inc. | 1,210 | 155,630 | ||||||
Airgas, Inc. | 385 | 41,931 | ||||||
Praxair, Inc. | 1,668 | 221,577 | ||||||
419,138 | ||||||||
Industrial Machinery–0.81% | ||||||||
Dover Corp. | 949 | 86,312 | ||||||
Flowserve Corp. | 781 | 58,067 | ||||||
Illinois Tool Works Inc. | 2,165 | 189,567 | ||||||
Ingersoll-Rand PLC | 1,432 | 89,514 | ||||||
Pall Corp. | 623 | 53,198 | ||||||
Parker Hannifin Corp. | 846 | 106,368 | ||||||
Pentair PLC (United Kingdom) | 1,120 | 80,774 | ||||||
Snap-on Inc. | 336 | 39,823 | ||||||
Stanley Black & Decker Inc. | 883 | 77,545 | ||||||
Xylem, Inc. | 1,048 | 40,956 | ||||||
822,124 | ||||||||
Industrial REIT’s–0.12% | ||||||||
Prologis, Inc. | 2,836 | 116,531 | ||||||
Insurance Brokers–0.31% | ||||||||
Aon PLC | 1,691 | 152,342 | ||||||
Marsh & McLennan Cos., Inc. | 3,135 | 162,456 | ||||||
314,798 | ||||||||
Integrated Oil & Gas–4.44% | ||||||||
Chevron Corp. | 10,862 | 1,418,034 | ||||||
Exxon Mobil Corp. | 24,505 | 2,467,163 | ||||||
Hess Corp. | 1,505 | 148,830 | ||||||
Occidental Petroleum Corp. | 4,482 | 459,988 | ||||||
4,494,015 | ||||||||
Integrated Telecommunication Services–2.36% | ||||||||
AT&T Inc. | 29,616 | 1,047,222 | ||||||
CenturyLink Inc. | 3,280 | 118,736 | ||||||
Frontier Communications Corp. | 5,674 | 33,136 | ||||||
Verizon Communications Inc. | 23,630 | 1,156,216 |
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 | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Windstream Holdings Inc. | 3,467 | $ | 34,531 | |||||
2,389,841 | ||||||||
Internet Retail–1.30% | ||||||||
Amazon.com, Inc.(b) | 2,126 | 690,482 | ||||||
Expedia, Inc. | 592 | 46,626 | ||||||
Netflix Inc.(b) | 339 | 149,364 | ||||||
Priceline Group Inc. (The)(b) | 298 | 358,494 | ||||||
TripAdvisor Inc.(b) | 629 | 68,347 | ||||||
1,313,313 | ||||||||
Internet Software & Services–3.11% | ||||||||
Akamai Technologies, Inc.(b) | 1,013 | 61,854 | ||||||
eBay Inc.(b) | 6,508 | 325,790 | ||||||
Facebook Inc.–Class A(b) | 9,811 | 660,182 | ||||||
Google Inc.–Class A(b) | 1,616 | 944,827 | ||||||
Google Inc.–Class C(b) | 1,616 | 929,653 | ||||||
VeriSign, Inc.(b) | 704 | 34,362 | ||||||
Yahoo! Inc.(b) | 5,317 | 186,786 | ||||||
3,143,454 | ||||||||
Investment Banking & Brokerage–0.86% | ||||||||
Charles Schwab Corp. (The) | 6,682 | 179,946 | ||||||
E*TRADE Financial Corp.(b) | 1,617 | 34,377 | ||||||
Goldman Sachs Group, Inc. (The) | 2,372 | 397,168 | ||||||
Morgan Stanley | 7,963 | 257,444 | ||||||
868,935 | ||||||||
IT Consulting & Other Services–1.47% | ||||||||
Accenture PLC–Class A | 3,616 | 292,317 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 3,471 | 169,767 | ||||||
International Business Machines Corp. | 5,429 | 984,115 | ||||||
Teradata Corp.(b) | 922 | 37,064 | ||||||
1,483,263 | ||||||||
Leisure Products–0.11% | ||||||||
Hasbro, Inc. | 661 | 35,066 | ||||||
Mattel, Inc. | 1,932 | 75,290 | ||||||
110,356 | ||||||||
Life & Health Insurance–0.99% | ||||||||
Aflac, Inc. | 2,587 | 161,041 | ||||||
Lincoln National Corp. | 1,496 | 76,954 | ||||||
MetLife, Inc. | 6,423 | 356,862 | ||||||
Principal Financial Group, Inc. | 1,560 | 78,749 | ||||||
Prudential Financial, Inc. | 2,628 | 233,287 | ||||||
Torchmark Corp. | 512 | 41,943 | ||||||
Unum Group | 1,472 | 51,167 | ||||||
1,000,003 | ||||||||
Life Sciences Tools & Services–0.45% | ||||||||
Agilent Technologies, Inc. | 1,892 | 108,676 | ||||||
PerkinElmer, Inc. | 653 | 30,587 | ||||||
Thermo Fisher Scientific, Inc. | 2,275 | 268,450 | ||||||
Waters Corp.(b) | 493 | 51,489 | ||||||
459,202 |
Shares | Value | |||||||
Managed Health Care–1.04% | ||||||||
Aetna Inc. | 2,038 | $ | 165,241 | |||||
Cigna Corp. | 1,532 | 140,898 | ||||||
Humana Inc. | 882 | 112,649 | ||||||
UnitedHealth Group Inc. | 5,591 | 457,064 | ||||||
WellPoint, Inc. | 1,603 | 172,499 | ||||||
1,048,351 | ||||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp. | 794 | 49,768 | ||||||
Owens-Illinois, Inc.(b) | 935 | 32,388 | ||||||
82,156 | ||||||||
Motorcycle Manufacturers–0.09% | ||||||||
Harley-Davidson, Inc. | 1,249 | 87,243 | ||||||
Movies & Entertainment–1.70% | ||||||||
Time Warner Inc. | 5,033 | 353,568 | ||||||
Twenty-First Century Fox, Inc.–Class A | 10,917 | 383,732 | ||||||
Viacom Inc.–Class B | 2,231 | 193,495 | ||||||
Walt Disney Co. (The) | 9,190 | 787,951 | ||||||
1,718,746 | ||||||||
Multi-Line Insurance–0.69% | ||||||||
American International Group, Inc. | 8,254 | 450,503 | ||||||
Assurant, Inc. | 420 | 27,531 | ||||||
Genworth Financial Inc.–Class A(b) | 2,827 | 49,190 | ||||||
Hartford Financial Services Group, Inc. (The) | 2,566 | 91,889 | ||||||
Loews Corp. | 1,737 | 76,445 | ||||||
695,558 | ||||||||
Multi-Sector Holdings–1.33% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 10,274 | 1,300,277 | ||||||
Leucadia National Corp. | 1,841 | 48,271 | ||||||
1,348,548 | ||||||||
Multi-Utilities–1.17% | ||||||||
Ameren Corp. | 1,377 | 56,292 | ||||||
CenterPoint Energy, Inc. | 2,434 | 62,164 | ||||||
CMS Energy Corp. | 1,514 | 47,161 | ||||||
Consolidated Edison, Inc. | 1,662 | 95,964 | ||||||
Dominion Resources, Inc. | 3,318 | 237,303 | ||||||
DTE Energy Co. | 1,005 | 78,259 | ||||||
Integrys Energy Group, Inc. | 453 | 32,222 | ||||||
NiSource Inc. | 1,782 | 70,104 | ||||||
PG&E Corp. | 2,652 | 127,349 | ||||||
Public Service Enterprise Group Inc. | 2,873 | 117,190 | ||||||
SCANA Corp. | 801 | 43,102 | ||||||
Sempra Energy | 1,301 | 136,228 | ||||||
TECO Energy, Inc. | 1,140 | 21,067 | ||||||
Wisconsin Energy Corp. | 1,282 | 60,151 | ||||||
1,184,556 | ||||||||
Office REIT’s–0.10% | ||||||||
Boston Properties, Inc. | 868 | 102,580 | ||||||
Office Services & Supplies–0.03% | ||||||||
Pitney Bowes Inc. | 1,173 | 32,398 |
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–0.36% | ||||||||
Diamond Offshore Drilling, Inc. | 390 | $ | 19,356 | |||||
Ensco PLC–Class A | 1,325 | 73,630 | ||||||
Helmerich & Payne, Inc. | 610 | 70,827 | ||||||
Nabors Industries Ltd. | 1,493 | 43,850 | ||||||
Noble Corp. PLC | 1,473 | 49,434 | ||||||
Rowan Cos. PLC–Class A | 737 | 23,532 | ||||||
Transocean Ltd. | 1,926 | 86,728 | ||||||
367,357 | ||||||||
Oil & Gas Equipment & Services–1.75% | ||||||||
Baker Hughes Inc. | 2,481 | 184,710 | ||||||
Cameron International Corp.(b) | 1,173 | 79,424 | ||||||
FMC Technologies, Inc.(b) | 1,339 | 81,773 | ||||||
Halliburton Co. | 4,830 | 342,978 | ||||||
National Oilwell Varco Inc. | 2,447 | 201,511 | ||||||
Schlumberger Ltd. | 7,421 | 875,307 | ||||||
1,765,703 | ||||||||
Oil & Gas Exploration & Production–2.82% | ||||||||
Anadarko Petroleum Corp. | 2,881 | 315,383 | ||||||
Apache Corp. | 2,200 | 221,364 | ||||||
Cabot Oil & Gas Corp. | 2,396 | 81,799 | ||||||
Chesapeake Energy Corp.(b) | 2,905 | 86,075 | ||||||
Cimarex Energy Co. | 496 | 71,156 | ||||||
ConocoPhillips | 7,005 | 600,551 | ||||||
Denbury Resources Inc. | 2,052 | 37,880 | ||||||
Devon Energy Corp. | 2,187 | 173,648 | ||||||
EOG Resources, Inc. | 3,118 | 364,370 | ||||||
EQT Corp. | 856 | 91,506 | ||||||
Marathon Oil Corp. | 3,841 | 153,333 | ||||||
Murphy Oil Corp. | 977 | 64,951 | ||||||
Newfield Exploration Co.(b) | 789 | 34,874 | ||||||
Noble Energy, Inc. | 2,043 | 158,251 | ||||||
Pioneer Natural Resources Co. | 815 | 187,295 | ||||||
QEP Resources Inc. | 1,018 | 35,121 | ||||||
Range Resources Corp. | 961 | 83,559 | ||||||
Southwestern Energy Co.(b) | 2,003 | 91,116 | ||||||
2,852,232 | ||||||||
Oil & Gas Refining & Marketing–0.58% | ||||||||
Marathon Petroleum Corp. | 1,646 | 128,503 | ||||||
Phillips 66 | 3,228 | 259,628 | ||||||
Tesoro Corp. | 748 | 43,885 | ||||||
Valero Energy Corp. | 3,044 | 152,505 | ||||||
584,521 | ||||||||
Oil & Gas Storage & Transportation–0.62% | ||||||||
Kinder Morgan Inc. | 3,784 | 137,208 | ||||||
ONEOK, Inc. | 1,179 | 80,266 | ||||||
Spectra Energy Corp. | 3,827 | 162,571 | ||||||
Williams Cos., Inc. (The) | 4,213 | 245,239 | ||||||
625,284 | ||||||||
Other Diversified Financial Services–0.81% | ||||||||
Citigroup Inc. | 17,350 | 817,185 |
Shares | Value | |||||||
Packaged Foods & Meats–1.44% | ||||||||
Campbell Soup Co. | 1,015 | $ | 46,497 | |||||
ConAgra Foods, Inc. | 2,386 | 70,816 | ||||||
General Mills, Inc. | 3,505 | 184,153 | ||||||
Hershey Co. (The) | 851 | 82,862 | ||||||
Hormel Foods Corp. | 764 | 37,703 | ||||||
JM Smucker Co. (The) | 588 | 62,663 | ||||||
Kellogg Co. | 1,457 | 95,725 | ||||||
Keurig Green Mountain Inc. | 723 | 90,093 | ||||||
Kraft Foods Group, Inc. | 3,385 | 202,931 | ||||||
McCormick & Co., Inc. | 744 | 53,263 | ||||||
Mead Johnson Nutrition Co. | 1,144 | 106,587 | ||||||
Mondelez International Inc.–Class A | 9,656 | 363,162 | ||||||
Tyson Foods, Inc.–Class A | 1,570 | 58,938 | ||||||
1,455,393 | ||||||||
Paper Packaging–0.13% | ||||||||
Avery Dennison Corp. | 555 | 28,444 | ||||||
Bemis Co., Inc. | 588 | 23,908 | ||||||
MeadWestvaco Corp. | 957 | 42,357 | ||||||
Sealed Air Corp. | 1,122 | 38,338 | ||||||
133,047 | ||||||||
Paper Products–0.12% | ||||||||
International Paper Co. | 2,491 | 125,721 | ||||||
Personal Products–0.14% | ||||||||
Avon Products, Inc. | 2,512 | 36,700 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,450 | 107,677 | ||||||
144,377 | ||||||||
Pharmaceuticals–5.97% | ||||||||
AbbVie Inc. | 9,073 | 512,080 | ||||||
Actavis PLC(b) | 1,508 | 336,359 | ||||||
Allergan, Inc. | 1,694 | 286,659 | ||||||
Bristol-Myers Squibb Co. | 9,456 | 458,711 | ||||||
Eli Lilly and Co. | 5,621 | 349,458 | ||||||
Hospira, Inc.(b) | 944 | 48,493 | ||||||
Johnson & Johnson | 16,143 | 1,688,881 | ||||||
Merck & Co., Inc. | 16,693 | 965,690 | ||||||
Mylan Inc.(b) | 2,111 | 108,843 | ||||||
Perrigo Co. PLC | 759 | 110,632 | ||||||
Pfizer Inc. | 36,400 | 1,080,352 | ||||||
Zoetis Inc. | 2,868 | 92,550 | ||||||
6,038,708 | ||||||||
Property & Casualty Insurance–0.82% | ||||||||
ACE Ltd. | 1,926 | 199,726 | ||||||
Allstate Corp. (The) | 2,475 | 145,332 | ||||||
Chubb Corp. (The) | 1,394 | 128,485 | ||||||
Cincinnati Financial Corp. | 835 | 40,113 | ||||||
Progressive Corp. (The) | 3,093 | 78,439 | ||||||
Travelers Cos., Inc. (The) | 1,982 | 186,447 | ||||||
XL Group PLC | 1,567 | 51,288 | ||||||
829,830 | ||||||||
Publishing–0.09% | ||||||||
Gannett Co., Inc. | 1,290 | 40,390 |
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 | |||||||
Publishing–(continued) | ||||||||
News Corp.–Class A(b) | 2,853 | $ | 51,192 | |||||
91,582 | ||||||||
Railroads–0.93% | ||||||||
CSX Corp. | 5,719 | 176,202 | ||||||
Kansas City Southern | 625 | 67,194 | ||||||
Norfolk Southern Corp. | 1,758 | 181,127 | ||||||
Union Pacific Corp. | 5,166 | 515,308 | ||||||
939,831 | ||||||||
Real Estate Services–0.05% | ||||||||
CBRE Group, Inc.–Class A(b) | 1,616 | 51,777 | ||||||
Regional Banks–0.97% | ||||||||
BB&T Corp. | 4,125 | 162,649 | ||||||
Fifth Third Bancorp | 4,815 | 102,800 | ||||||
Huntington Bancshares Inc. | 4,673 | 44,581 | ||||||
KeyCorp | 5,034 | 72,137 | ||||||
M&T Bank Corp. | 743 | 92,169 | ||||||
PNC Financial Services Group, Inc. (The) | 3,047 | 271,335 | ||||||
Regions Financial Corp. | 7,869 | 83,569 | ||||||
SunTrust Banks, Inc. | 3,035 | 121,582 | ||||||
Zions Bancorp. | 1,049 | 30,914 | ||||||
981,736 | ||||||||
Research & Consulting Services–0.16% | ||||||||
Dun & Bradstreet Corp. (The) | 213 | 23,473 | ||||||
Equifax Inc. | 706 | 51,213 | ||||||
Nielsen N.V. | 1,729 | 83,701 | ||||||
158,387 | ||||||||
Residential REIT’s–0.31% | ||||||||
Apartment Investment & Management Co.– | 829 | 26,752 | ||||||
AvalonBay Communities, Inc. | 690 | 98,111 | ||||||
Equity Residential | 1,906 | 120,078 | ||||||
Essex Property Trust, Inc. | 356 | 65,828 | ||||||
310,769 | ||||||||
Restaurants–1.23% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 176 | 104,282 | ||||||
Darden Restaurants, Inc. | 745 | 34,471 | ||||||
McDonald’s Corp. | 5,639 | 568,073 | ||||||
Starbucks Corp. | 4,283 | 331,418 | ||||||
Yum! Brands, Inc. | 2,514 | 204,137 | ||||||
1,242,381 | ||||||||
Retail REIT’s–0.47% | ||||||||
General Growth Properties, Inc. | 2,959 | 69,714 | ||||||
Kimco Realty Corp. | 2,348 | 53,957 | ||||||
Macerich Co. (The) | 797 | 53,200 | ||||||
Simon Property Group, Inc. | 1,772 | 294,648 | ||||||
471,519 | ||||||||
Security & Alarm Services–0.15% | ||||||||
ADT Corp. (The) | 993 | 34,695 |
Shares | Value | |||||||
Security & Alarm Services–(continued) | ||||||||
Tyco International Ltd. | 2,613 | $ | 119,153 | |||||
153,848 | ||||||||
Semiconductor Equipment–0.29% | ||||||||
Applied Materials, Inc. | 6,980 | 157,399 | ||||||
KLA-Tencor Corp. | 945 | 68,645 | ||||||
Lam Research Corp. | 921 | 62,241 | ||||||
288,285 | ||||||||
Semiconductors–2.01% | ||||||||
Altera Corp. | 1,802 | 62,638 | ||||||
Analog Devices, Inc. | 1,774 | 95,920 | ||||||
Avago Technologies Ltd. (Singapore) | 1,436 | 103,493 | ||||||
Broadcom Corp.–Class A | 3,170 | 117,670 | ||||||
First Solar, Inc.(b) | 401 | 28,495 | ||||||
Intel Corp. | 28,406 | 877,745 | ||||||
Linear Technology Corp. | 1,339 | 63,027 | ||||||
Microchip Technology Inc. | 1,130 | 55,155 | ||||||
Micron Technology, Inc.(b) | 6,126 | 201,852 | ||||||
NVIDIA Corp. | 3,228 | 59,847 | ||||||
Texas Instruments Inc. | 6,154 | 294,100 | ||||||
Xilinx, Inc. | 1,514 | 71,627 | ||||||
2,031,569 | ||||||||
Soft Drinks–1.85% | ||||||||
Coca-Cola Co. (The) | 21,569 | 913,663 | ||||||
Coca-Cola Enterprises, Inc. | 1,349 | 64,455 | ||||||
Dr Pepper Snapple Group, Inc. | 1,119 | 65,551 | ||||||
Monster Beverage Corp.(b) | 767 | 54,480 | ||||||
PepsiCo, Inc. | 8,642 | 772,076 | ||||||
1,870,225 | ||||||||
Specialized Consumer Services–0.05% | ||||||||
H&R Block, Inc. | 1,589 | 53,263 | ||||||
Specialized Finance–0.49% | ||||||||
CME Group Inc.–Class A | 1,791 | 127,071 | ||||||
Intercontinental Exchange, Inc. | 652 | 123,163 | ||||||
McGraw Hill Financial, Inc. | 1,553 | 128,946 | ||||||
Moody’s Corp. | 1,067 | 93,533 | ||||||
NASDAQ OMX Group, Inc. (The) | 677 | 26,146 | ||||||
498,859 | ||||||||
Specialized REIT’s–0.63% | ||||||||
American Tower Corp. | 2,257 | 203,085 | ||||||
Crown Castle International Corp. | 1,896 | 140,797 | ||||||
Plum Creek Timber Co., Inc. | 1,026 | 46,273 | ||||||
Public Storage | 826 | 141,535 | ||||||
Weyerhaeuser Co. | 3,339 | 110,487 | ||||||
642,177 | ||||||||
Specialty Chemicals–0.55% | ||||||||
Ecolab Inc. | 1,536 | 171,018 | ||||||
International Flavors & Fragrances Inc. | 470 | 49,012 | ||||||
PPG Industries, Inc. | 786 | 165,178 | ||||||
Sherwin-Williams Co. (The) | 483 | 99,938 | ||||||
Sigma-Aldrich Corp. | 678 | 68,803 | ||||||
553,949 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Specialty Stores–0.18% | ||||||||
PetSmart, Inc. | 565 | $ | 33,787 | |||||
Staples, Inc. | 3,663 | 39,707 | ||||||
Tiffany & Co. | 625 | 62,656 | ||||||
Tractor Supply Co. | 792 | 47,837 | ||||||
183,987 | ||||||||
Steel–0.14% | ||||||||
Allegheny Technologies, Inc. | 612 | 27,601 | ||||||
Nucor Corp. | 1,807 | 88,995 | ||||||
United States Steel Corp. | 838 | 21,821 | ||||||
138,417 | ||||||||
Systems Software–2.75% | ||||||||
CA, Inc. | 1,830 | 52,594 | ||||||
Microsoft Corp. | 42,916 | 1,789,597 | ||||||
Oracle Corp. | 19,559 | 792,727 | ||||||
Red Hat, Inc.(b) | 1,075 | 59,415 | ||||||
Symantec Corp. | 3,923 | 89,837 | ||||||
2,784,170 | ||||||||
Technology Hardware, Storage & Peripherals–4.24% | ||||||||
Apple Inc. | 34,408 | 3,197,536 | ||||||
EMC Corp. | 11,682 | 307,704 | ||||||
Hewlett-Packard Co. | 10,658 | 358,961 | ||||||
NetApp, Inc. | 1,880 | 68,658 | ||||||
SanDisk Corp. | 1,280 | 133,670 | ||||||
Seagate Technology PLC | 1,866 | 106,026 | ||||||
Western Digital Corp. | 1,193 | 110,114 | ||||||
4,282,669 | ||||||||
Thrifts & Mortgage Finance–0.05% | ||||||||
Hudson City Bancorp, Inc. | 2,726 | 26,797 |
Shares | Value | |||||||
Thrifts & Mortgage Finance–(continued) | ||||||||
People’s United Financial Inc. | 1,788 | $ | 27,124 | |||||
53,921 | ||||||||
Tires & Rubber–0.04% | ||||||||
Goodyear Tire & Rubber Co. (The) | 1,564 | 43,448 | ||||||
Tobacco–1.45% | ||||||||
Altria Group, Inc. | 11,313 | 474,467 | ||||||
Lorillard, Inc. | 2,056 | 125,354 | ||||||
Philip Morris International Inc. | 8,975 | 756,682 | ||||||
Reynolds American Inc. | 1,767 | 106,639 | ||||||
1,463,142 | ||||||||
Trading Companies & Distributors–0.16% | ||||||||
Fastenal Co. | 1,549 | 76,660 | ||||||
W.W. Grainger, Inc. | 347 | 88,232 | ||||||
164,892 | ||||||||
Trucking–0.03% | ||||||||
Ryder System, Inc. | 308 | 27,132 | ||||||
Total Common Stocks & Other Equity Interests |
| 99,276,573 | ||||||
Money Market Funds–2.09% |
| |||||||
Liquid Assets Portfolio– | 1,059,132 | 1,059,132 | ||||||
Premier Portfolio–Institutional Class(e) | 1,059,133 | 1,059,133 | ||||||
Total Money Market Funds (Cost $2,118,265) | 2,118,265 | |||||||
TOTAL INVESTMENTS–100.27% (Cost $41,261,910) | 101,394,838 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.27)% |
| (277,744 | ) | |||||
NET ASSETS–100.00% | $ | 101,117,094 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 5. |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 4. |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Information Technology | 18.5 | % | ||
Financials | 15.5 | |||
Health Care | 13.1 | |||
Consumer Discretionary | 11.8 | |||
Energy | 10.6 | |||
Industrials | 10.3 | |||
Consumer Staples | 9.3 | |||
Materials | 3.4 | |||
Utilities | 3.2 | |||
Telecommunication Services | 2.5 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.8 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $39,083,232) | $ | 99,183,783 | ||
Investments in affiliates, at value (Cost $2,178,678) | 2,211,055 | |||
Total investments, at value (Cost $41,261,910) | 101,394,838 | |||
Receivable for: | ||||
Investments sold | 140,339 | |||
Variation margin — futures | 786 | |||
Fund shares sold | 19,496 | |||
Dividends | 105,247 | |||
Investment for trustee deferred compensation and retirement plans | 26,083 | |||
Other assets | 1,586 | |||
Total assets | 101,688,375 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 196,983 | |||
Fund shares reacquired | 222,699 | |||
Accrued fees to affiliates | 91,479 | |||
Accrued trustees’ and officers’ fees and benefits | 501 | |||
Accrued other operating expenses | 26,196 | |||
Trustee deferred compensation and retirement plans | 33,423 | |||
Total liabilities | 571,281 | |||
Net assets applicable to shares outstanding | $ | 101,117,094 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 37,032,990 | ||
Undistributed net investment income | 2,229,546 | |||
Undistributed net realized gain | 1,711,234 | |||
Net unrealized appreciation | 60,143,324 | |||
$ | 101,117,094 | |||
Net Assets: |
| |||
Series I | $ | 36,717,821 | ||
Series II | $ | 64,399,273 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,060,514 | |||
Series II | 3,637,052 | |||
Series I: | ||||
Net asset value per share | $ | 17.82 | ||
Series II: | ||||
Net asset value per share | $ | 17.71 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $107) | $ | 996,452 | ||
Dividends from affiliates | 1,440 | |||
Total investment income | 997,892 | |||
Expenses: | ||||
Advisory fees | 59,799 | |||
Administrative services fees | 76,127 | |||
Custodian fees | 16,493 | |||
Distribution fees — Series II | 80,038 | |||
Transfer agent fees | 1,646 | |||
Trustees’ and officers’ fees and benefits | 13,614 | |||
Professional services fees | 18,955 | |||
Other | 23,077 | |||
Total expenses | 289,749 | |||
Less: Fees waived | (467 | ) | ||
Net expenses | 289,282 | |||
Net investment income | 708,610 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from: | ||||
Investment securities | 6,231,025 | |||
Futures contracts | 116,301 | |||
6,347,326 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (529,706 | ) | ||
Futures contracts | 7,641 | |||
(522,065 | ) | |||
Net realized and unrealized gain | 5,825,261 | |||
Net increase in net assets resulting from operations | $ | 6,533,871 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 708,610 | $ | 1,494,942 | ||||
Net realized gain | 6,347,326 | 9,659,017 | ||||||
Change in net unrealized appreciation (depreciation) | (522,065 | ) | 16,800,311 | |||||
Net increase in net assets resulting from operations | 6,533,871 | 27,954,270 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (706,162 | ) | |||||
Series ll | — | (1,145,321 | ) | |||||
Total distributions from net investment income | — | (1,851,483 | ) | |||||
Share transactions–net: | ||||||||
Series l | (2,554,444 | ) | (4,736,982 | ) | ||||
Series ll | (7,509,169 | ) | (14,010,408 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (10,063,613 | ) | (18,747,390 | ) | ||||
Net increase (decrease) in net assets | (3,529,742 | ) | 7,355,397 | |||||
Net assets: | ||||||||
Beginning of period | 104,646,836 | 97,291,439 | ||||||
End of period (includes undistributed net investment income of $2,229,546 and $1,520,936, respectively) | $ | 101,117,094 | $ | 104,646,836 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. S&P 500 Index Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (���SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s 500® Composite Stock Price Index.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. S&P 500 Index Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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 designated or segregated a security as collateral and that security is subsequently sold, it is the Fund’s practice to replace such collateral no later than the next business day. |
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||
First $2 billion | 0.12% | |||
Over $2 billion | 0.10% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $467.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants;
Invesco V.I. S&P 500 Index Fund
and the servicing of participants’ accounts. Pursuant to such agreement, for the six months ended June 30, 2014, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $51,333 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, 2014, 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, 2014, 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, 2014. 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 | $ | 101,394,838 | $ | — | $ | — | $ | 101,394,838 | ||||||||
Futures* | 10,396 | — | — | 10,396 | ||||||||||||
Total Investments | $ | 101,405,234 | $ | — | $ | — | $ | 101,405,234 |
* | Unrealized appreciation. |
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of June 30, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk | ||||||||
Futures contracts(a) | $ | 10,396 | $ | — |
(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 Investments for the six months ended June 30, 2014
The table below summarizes the gains on derivative investments, detailed by primary risk exposure, recognized in earnings during the period:
Location of Gain on Statement of Operations | ||||
Futures | ||||
Realized Gain | ||||
Equity risk | $ | 116,301 | ||
Change in Unrealized Appreciation | ||||
Equity risk | 7,641 | |||
Total | $ | 123,942 |
Invesco V.I. S&P 500 Index Fund
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures | ||||||||||||
Average notional value | $ | 1,184,693 |
Open Futures Contracts at Period-End | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation | |||||||||||||||
E-Mini S&P 500 Index | Long | 22 | September-2014 | $ | 2,147,640 | $ | 10,396 |
Offsetting Assets and Liabilities
Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities, which was subsequently clarified in Financial Accounting Standards Board ASU 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” is intended to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting arrangements on the Statement of Assets and Liabilities and to enable investors to better understand the effect of those arrangements on its financial position. In order for an arrangement to be eligible for netting, the Fund must have a basis to conclude that such netting arrangements are legally enforceable. The Fund enters into netting agreements and collateral agreements in an attempt to reduce the Fund’s Counterparty credit risk by providing for a single net settlement with a Counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement.
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of June 30, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts presented in Statement of Assets & Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets and Liabilities | Collateral Received | Net | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Goldman Sachs & Co. | $ | 10,396 | * | $ | — | $ | 10,396 | $ | — | $ | — | $ | 10,396 |
* | Includes cumulative appreciation of futures contracts. |
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, 2014.
Value 12/31/13 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation (Depreciation) | Realized Gain | Value 06/30/14 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 101,410 | $ | — | $ | (11,348 | ) | $ | (176 | ) | $ | 2,904 | $ | 92,790 | $ | 1,232 |
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 were eligible to participate in a retirement plan that provided for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund.
NOTE 7—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
Invesco V.I. S&P 500 Index Fund
NOTE 8—Tax Information
The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 454,992 | $ | — | $ | 454,992 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $1,721,627 and $11,963,475, 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 | $ | 56,373,786 | ||
Aggregate unrealized (depreciation) of investment securities | (414,411 | ) | ||
Net unrealized appreciation of investment securities | $ | 55,959,375 |
Cost of investments for tax purposes is $45,435,463.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 34,981 | $ | 591,325 | 48,401 | $ | 717,236 | ||||||||||
Series II | 200,789 | 3,456,908 | 324,206 | 4,648,129 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 46,336 | 706,162 | ||||||||||||
Series II | — | — | 75,449 | 1,145,321 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (186,216 | ) | (3,145,769 | ) | (414,240 | ) | (6,160,380 | ) | ||||||||
Series II | (653,345 | ) | (10,966,077 | ) | (1,351,173 | ) | (19,803,858 | ) | ||||||||
Net increase (decrease) in share activity | (603,791 | ) | $ | (10,063,613 | ) | (1,271,021 | ) | $ | (18,747,390 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 90% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. S&P 500 Index Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 16.66 | $ | 0.13 | $ | 1.03 | $ | 1.16 | $ | — | $ | 17.82 | 6.96 | % | $ | 36,718 | 0.42 | %(d) | 0.42 | %(d) | 1.58 | %(d) | 2 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 12.89 | 0.24 | 3.84 | 4.08 | (0.31 | ) | 16.66 | 31.91 | 36,853 | 0.41 | 0.41 | 1.63 | 4 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.36 | 0.25 | 1.54 | 1.79 | (0.26 | ) | 12.89 | 15.77 | 32,634 | 0.33 | 0.39 | 1.97 | 4 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 11.42 | 0.21 | (0.04 | ) | 0.17 | (0.23 | ) | 11.36 | 1.76 | 32,889 | 0.28 | 0.31 | 1.81 | 4 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.14 | 0.19 | 1.29 | 1.48 | (0.20 | ) | 11.42 | 14.87 | 37,651 | 0.28 | 0.42 | 1.79 | 6 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.27 | 0.18 | 1.94 | 2.12 | (0.25 | ) | 10.14 | 26.34 | 38,873 | 0.28 | (e) | 0.28 | (e) | 2.09 | (e) | 5 | ||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 16.58 | 0.11 | 1.02 | 1.13 | — | 17.71 | 6.82 | 64,399 | 0.67 | (d) | 0.67 | (d) | 1.33 | (d) | 2 | |||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.83 | 0.20 | 3.82 | 4.02 | (0.27 | ) | 16.58 | 31.55 | 67,793 | 0.66 | 0.66 | 1.38 | 4 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 11.30 | 0.22 | 1.54 | 1.76 | (0.23 | ) | 12.83 | 15.52 | 64,657 | 0.58 | 0.64 | 1.72 | 4 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 11.35 | 0.18 | (0.03 | ) | 0.15 | (0.20 | ) | 11.30 | 1.53 | 67,378 | 0.53 | 0.56 | 1.56 | 4 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.08 | 0.16 | 1.28 | 1.44 | (0.17 | ) | 11.35 | 14.58 | 88,407 | 0.53 | 0.67 | 1.54 | 6 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.21 | 0.16 | 1.93 | 2.09 | (0.22 | ) | 10.08 | 26.06 | 91,515 | 0.53 | (e) | 0.53 | (e) | 1.84 | (e) | 5 |
(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 $35,930 and $64,561 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 was 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,069.60 | $ | 2.16 | $ | 1,022.71 | $ | 2.11 | 0.42 | % | ||||||||||||
Series II | 1,000.00 | 1,068.20 | 3.44 | 1,021.47 | 3.36 | 0.67 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. S&P 500 Index Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds S&P 500 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 year period and the first quintile for the five year period
Invesco V.I. S&P 500 Index Fund
(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 at the same performance of the Index for the one year period and above the performance of the Index for the three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates with investment strategies comparable to those of the Fund. The Board noted that the Fund’s effective advisory fee rate was the same as the effective advisory fee rate of the other mutual Fund managed by Invesco Advisers with a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers and its subsidiaries did not make a profit from managing the Fund as a result of 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 transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements
shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. S&P 500 Index Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Small Cap Equity Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VISCE-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 0.04 | % | |||
Series II Shares | -0.08 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 2000 Index‚ (Style-Specific Index) | 3.19 | ||||
Lipper VUF Small-Cap Core Funds Indexn (Peer Group Index) | 3.19 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (8/29/03) | 9.86 | % | |||
10 Years | 8.70 | ||||
5 Years | 18.47 | ||||
1 Year | 19.77 | ||||
Series II Shares | |||||
Inception (8/29/03) | 9.61 | % | |||
10 Years | 8.44 | ||||
5 Years | 18.17 | ||||
1 Year | 19.48 |
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 1.05% and 1.30%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Small Cap Equity Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–97.31% |
| |||||||
Apparel, Accessories & Luxury Goods–1.15% | ||||||||
Columbia Sportswear Co. | 51,084 | $ | 4,222,093 | |||||
Application Software–4.35% | ||||||||
Bottomline Technologies (de), Inc.(b) | 108,565 | 3,248,265 | ||||||
Cadence Design Systems, Inc.(b) | 218,210 | 3,816,493 | ||||||
Informatica Corp.(b) | 42,387 | 1,511,097 | ||||||
MicroStrategy Inc.–Class A(b) | 27,105 | 3,811,505 | ||||||
SS&C Technologies Holdings, Inc.(b) | 81,851 | 3,619,451 | ||||||
16,006,811 | ||||||||
Asset Management & Custody Banks–1.91% | ||||||||
Artisan Partners Asset Management, Inc.–Class A | 61,015 | 3,458,330 | ||||||
Janus Capital Group Inc. | 284,616 | 3,552,008 | ||||||
7,010,338 | ||||||||
Auto Parts & Equipment–1.14% | ||||||||
TRW Automotive Holdings Corp.(b) | 46,631 | 4,174,407 | ||||||
Automobile Manufacturers–1.02% | ||||||||
Thor Industries, Inc. | 66,083 | 3,758,140 | ||||||
Automotive Retail–1.16% | ||||||||
Penske Automotive Group, Inc. | 86,060 | 4,259,970 | ||||||
Biotechnology–0.90% | ||||||||
Cubist Pharmaceuticals, Inc.(b) | 47,615 | 3,324,479 | ||||||
Broadcasting–0.94% | ||||||||
Nexstar Broadcasting Group, Inc.–Class A(c) | 67,343 | 3,475,572 | ||||||
Building Products–1.97% | ||||||||
Apogee Enterprises, Inc. | 103,845 | 3,620,037 | ||||||
Trex Co., Inc.(b) | 125,506 | 3,617,083 | ||||||
7,237,120 | ||||||||
Communications Equipment–2.49% | ||||||||
ARRIS Group Inc.(b) | 127,705 | 4,154,244 | ||||||
Finisar Corp.(b) | 135,731 | 2,680,687 | ||||||
JDS Uniphase Corp.(b) | 187,459 | 2,337,614 | ||||||
9,172,545 | ||||||||
Construction & Engineering–1.99% | ||||||||
Dycom Industries, Inc.(b) | 114,572 | 3,587,249 | ||||||
Primoris Services Corp. | 129,399 | 3,731,867 | ||||||
7,319,116 | ||||||||
Construction Materials–1.16% | ||||||||
Eagle Materials Inc. | 45,223 | 4,263,624 | ||||||
Data Processing & Outsourced Services–1.45% | ||||||||
Jack Henry & Associates, Inc. | 66,499 | 3,952,036 | ||||||
MAXIMUS, Inc. | 31,755 | 1,366,100 | ||||||
5,318,136 |
Shares | Value | |||||||
Diversified Chemicals–0.91% | ||||||||
FMC Corp. | 46,804 | $ | 3,331,977 | |||||
Diversified REIT’s–0.51% | ||||||||
Cousins Properties, Inc. | 150,300 | 1,871,235 | ||||||
Electrical Components & Equipment–1.30% | ||||||||
EnerSys | 69,584 | 4,786,683 | ||||||
Electronic Components–1.00% | ||||||||
Belden Inc. | 47,037 | 3,676,412 | ||||||
Electronic Equipment & Instruments–1.62% | ||||||||
Coherent, Inc.(b) | 49,050 | 3,245,638 | ||||||
FEI Co. | 29,861 | 2,709,289 | ||||||
5,954,927 | ||||||||
Electronic Manufacturing Services–1.09% | ||||||||
Sanmina Corp.(b) | 176,567 | 4,022,196 | ||||||
Environmental & Facilities Services–2.05% | ||||||||
Team, Inc.(b) | 84,545 | 3,468,036 | ||||||
Waste Connections, Inc. | 84,167 | 4,086,308 | ||||||
7,554,344 | ||||||||
Food Distributors–0.77% | ||||||||
United Natural Foods, Inc.(b) | 43,278 | 2,817,398 | ||||||
Gas Utilities–1.08% | ||||||||
UGI Corp. | 78,830 | 3,980,915 | ||||||
Health Care Distributors–0.83% | ||||||||
PharMerica Corp.(b) | 107,105 | 3,062,132 | ||||||
Health Care Equipment–1.96% | ||||||||
Globus Medical, Inc.–Class A(b) | 153,142 | 3,663,157 | ||||||
Wright Medical Group, Inc.(b) | 113,195 | 3,554,323 | ||||||
7,217,480 | ||||||||
Health Care Facilities–3.02% | ||||||||
Community Health Systems Inc.(b) | 80,815 | 3,666,577 | ||||||
Kindred Healthcare, Inc. | 149,691 | 3,457,862 | ||||||
LifePoint Hospitals, Inc.(b) | 64,099 | 3,980,548 | ||||||
11,104,987 | ||||||||
Health Care Services–0.54% | ||||||||
Premier Inc.–Class A(b) | 68,348 | 1,982,092 | ||||||
Health Care Supplies–1.70% | ||||||||
Alere, Inc.(b) | 105,944 | 3,964,424 | ||||||
Haemonetics Corp.(b) | 64,821 | 2,286,885 | ||||||
6,251,309 | ||||||||
Health Care Technology–0.07% | ||||||||
HMS Holdings Corp.(b) | 12,693 | 259,064 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Home Furnishings–0.80% | ||||||||
La-Z-Boy Inc. | 126,826 | $ | 2,938,558 | |||||
Homebuilding–1.00% | ||||||||
Beazer Homes USA, Inc.(b) | 175,899 | 3,690,361 | ||||||
Homefurnishing Retail–0.53% | ||||||||
Pier 1 Imports, Inc. | 127,524 | 1,965,145 | ||||||
Hotel and Resort REIT’s–1.12% | ||||||||
LaSalle Hotel Properties | 116,588 | 4,114,390 | ||||||
Industrial Machinery–2.24% | ||||||||
Albany International Corp.–Class A | 12,562 | 476,853 | ||||||
TriMas Corp.(b) | 99,790 | 3,804,993 | ||||||
Watts Water Technologies, Inc.–Class A | 64,214 | 3,963,930 | ||||||
8,245,776 | ||||||||
Internet Software & Services–1.36% | ||||||||
Conversant, Inc.(b)(c) | 137,708 | 3,497,783 | ||||||
SciQuest, Inc.(b) | 85,440 | 1,511,434 | ||||||
5,009,217 | ||||||||
Investment Banking & Brokerage–2.12% | ||||||||
E*TRADE Financial Corp.(b) | 187,548 | 3,987,270 | ||||||
Evercore Partners Inc.–Class A | 66,136 | 3,812,079 | ||||||
7,799,349 | ||||||||
IT Consulting & Other Services–0.96% | ||||||||
CACI International Inc.–Class A(b) | 50,544 | 3,548,694 | ||||||
Life & Health Insurance–0.95% | ||||||||
StanCorp Financial Group, Inc. | 54,772 | 3,505,408 | ||||||
Life Sciences Tools & Services–1.98% | ||||||||
Charles River Laboratories International, Inc.(b) | 59,162 | 3,166,350 | ||||||
ICON PLC (Ireland)(b) | 87,678 | 4,130,511 | ||||||
7,296,861 | ||||||||
Multi-Line Insurance–1.03% | ||||||||
American Financial Group, Inc. | 63,736 | 3,796,116 | ||||||
Office REIT’s–0.99% | ||||||||
Douglas Emmett, Inc. | 129,600 | 3,657,312 | ||||||
Office Services & Supplies–1.00% | ||||||||
Interface, Inc. | 195,602 | 3,685,142 | ||||||
Oil & Gas Drilling–1.28% | ||||||||
Precision Drilling Corp. (Canada) | 332,061 | 4,701,984 | ||||||
Oil & Gas Equipment & Services–2.56% | ||||||||
Dresser-Rand Group, Inc.(b) | 43,998 | 2,803,992 | ||||||
Forum Energy Technologies Inc.(b) | 84,342 | 3,072,579 | ||||||
Helix Energy Solutions Group Inc.(b) | 135,099 | 3,554,455 | ||||||
9,431,026 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–2.58% | ||||||||
Energen Corp. | 20,595 | $ | 1,830,484 | |||||
Rosetta Resources, Inc.(b) | 55,355 | 3,036,222 | ||||||
Ultra Petroleum Corp.(b)(c) | 155,705 | 4,622,881 | ||||||
9,489,587 | ||||||||
Oil & Gas Storage & Transportation–1.66% | ||||||||
Scorpio Tankers Inc. | 393,046 | 3,997,278 | ||||||
SemGroup Corp.–Class A | 26,510 | 2,090,313 | ||||||
6,087,591 | ||||||||
Packaged Foods & Meats–0.79% | ||||||||
TreeHouse Foods, Inc.(b) | 36,307 | 2,907,101 | ||||||
Paper Packaging–1.53% | ||||||||
Graphic Packaging Holding Co.(b) | 481,083 | 5,628,671 | ||||||
Pharmaceuticals–2.13% | ||||||||
Endo International PLC(b) | 49,895 | 3,493,648 | ||||||
Impax Laboratories, Inc.(b) | 144,453 | 4,332,145 | ||||||
7,825,793 | ||||||||
Real Estate Services–2.13% | ||||||||
Jones Lang LaSalle Inc. | 32,838 | 4,150,395 | ||||||
Kennedy-Wilson Holdings Inc. | 137,223 | 3,680,321 | ||||||
7,830,716 | ||||||||
Regional Banks–8.11% | ||||||||
BancorpSouth, Inc. | 148,856 | 3,657,392 | ||||||
CVB Financial Corp. | 228,741 | 3,666,718 | ||||||
East West Bancorp, Inc. | 104,980 | 3,673,250 | ||||||
Glacier Bancorp, Inc. | 139,074 | 3,946,920 | ||||||
IBERIABANK Corp. | 55,311 | 3,826,968 | ||||||
PacWest Bancorp | 91,987 | 3,971,079 | ||||||
Texas Capital Bancshares, Inc.(b) | 63,585 | 3,430,411 | ||||||
Western Alliance Bancorp(b) | 153,586 | 3,655,347 | ||||||
29,828,085 | ||||||||
Restaurants–3.73% | ||||||||
Cracker Barrel Old Country Store, Inc. | 31,639 | 3,150,295 | ||||||
DineEquity, Inc. | 36,834 | 2,927,935 | ||||||
Papa John’s International, Inc. | 88,894 | 3,768,217 | ||||||
Red Robin Gourmet Burgers Inc.(b) | 54,671 | 3,892,575 | ||||||
13,739,022 | ||||||||
Semiconductor Equipment–0.79% | ||||||||
Entegris Inc.(b) | 21,237 | 291,902 | ||||||
Veeco Instruments Inc.(b) | 70,210 | 2,616,025 | ||||||
2,907,927 | ||||||||
Semiconductors–2.78% | ||||||||
Fairchild Semiconductor International, Inc.(b) | 186,581 | 2,910,664 | ||||||
Integrated Device Technology, Inc.(b) | 249,360 | 3,855,106 | ||||||
Power Integrations, Inc. | 60,425 | 3,476,854 | ||||||
10,242,624 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Specialty Chemicals–1.14% | ||||||||
Minerals Technologies Inc. | 63,863 | $ | 4,188,136 | |||||
Specialty Stores–0.60% | ||||||||
GNC Holdings, Inc.–Class A | 64,192 | 2,188,947 | ||||||
Steel–1.12% | ||||||||
Haynes International, Inc. | 72,905 | 4,125,694 | ||||||
Technology Distributors–1.02% | ||||||||
Tech Data Corp.(b) | 59,873 | 3,743,260 | ||||||
Technology Hardware, Storage & Peripherals–1.25% | ||||||||
Cray, Inc.(b) | 172,263 | 4,582,196 | ||||||
Trading Companies & Distributors–1.46% | ||||||||
Beacon Roofing Supply, Inc.(b) | 77,753 | 2,575,180 | ||||||
MRC Global Inc.(b) | 98,801 | 2,795,080 | ||||||
5,370,260 | ||||||||
Trucking–4.49% | ||||||||
Celadon Group, Inc. | 162,924 | 3,473,539 | ||||||
Heartland Express, Inc. | 177,323 | 3,784,073 | ||||||
Landstar System, Inc. | 61,941 | 3,964,224 |
Shares | Value | |||||||
Trucking–(continued) | ||||||||
Old Dominion Freight Line, Inc.(b) | 83,041 | $ | 5,288,051 | |||||
16,509,887 | ||||||||
Total Common Stocks & Other Equity Interests (Cost $263,063,948) |
| 357,996,338 | ||||||
Money Market Funds–1.08% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,989,402 | 1,989,402 | ||||||
Premier Portfolio–Institutional Class(d) | 1,989,402 | 1,989,402 | ||||||
Total Money Market Funds |
| 3,978,804 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–98.39% |
| 361,975,142 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–1.82% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $6,688,590)(d)(e) | 6,688,590 | 6,688,590 | ||||||
TOTAL INVESTMENTS–100.21% (Cost $273,731,342) | 368,663,732 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.21)% | (768,300 | ) | ||||||
NET ASSETS–100.00% | $ | 367,895,432 |
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, 2014. |
(d) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(e) | The security has been segregated to satisfy the commitment to return the cash collateral received in securities lending transactions upon the borrower’s return of the securities loaned. See Note 1I. The following table presents the Fund’s gross and net amount of assets available for offset by the Fund as of June 30, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
Brown Brothers Harriman | $ | 6,685,484 | $ | (6,685,484 | ) | $ | — |
* | Amount does not include excess collateral received. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Information Technology | 19.2 | % | ||
Financials | 18.9 | |||
Industrials | 17.5 | |||
Health Care | 13.1 | |||
Consumer Discretionary | 12.1 | |||
Energy | 7.6 | |||
Materials | 5.8 | |||
Utilities | 1.6 | |||
Consumer Staples | 1.5 | |||
Money Market Funds Plus Other Assets Less Liabilities | 2.7 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $263,063,948)* | $ | 357,996,338 | ||
Investments in affiliated money market funds, at value and cost | 10,667,394 | |||
Total investments, at value (Cost $273,731,342) | 368,663,732 | |||
Receivable for: | ||||
Investments sold | 9,223,986 | |||
Fund shares sold | 430,897 | |||
Dividends | 175,566 | |||
Investment for trustee deferred compensation and retirement plans | 72,321 | |||
Total assets | 378,566,502 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 2,889,936 | |||
Fund shares reacquired | 457,316 | |||
Collateral upon return of securities loaned | 6,688,590 | |||
Accrued fees to affiliates | 527,966 | |||
Accrued trustees’ and officers’ fees and benefits | 571 | |||
Accrued other operating expenses | 26,171 | |||
Trustee deferred compensation and retirement plans | 80,520 | |||
Total liabilities | 10,671,070 | |||
Net assets applicable to shares outstanding | $ | 367,895,432 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 204,903,866 | ||
Undistributed net investment income (loss) | (668,715 | ) | ||
Undistributed net realized gain | 68,727,891 | |||
Net unrealized appreciation | 94,932,390 | |||
$ | 367,895,432 | |||
Net Assets: |
| |||
Series I | $ | 227,370,663 | ||
Series II | $ | 140,524,769 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 8,934,687 | |||
Series II | 5,660,038 | |||
Series I: | ||||
Net asset value per share | $ | 25.45 | ||
Series II: | ||||
Net asset value per share | $ | 24.83 |
* | At June 30, 2014, securities with an aggregate value of $6,685,484 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $2,778) | $ | 1,497,249 | ||
Dividends from affiliated money market funds (includes securities lending income of $11,560) | 12,356 | |||
Total investment income | 1,509,605 | |||
Expenses: | ||||
Advisory fees | 1,370,977 | |||
Administrative services fees | 487,526 | |||
Custodian fees | 13,135 | |||
Distribution fees — Series II | 166,007 | |||
Transfer agent fees | 20,610 | |||
Trustees’ and officers’ fees and benefits | 15,008 | |||
Other | 38,908 | |||
Total expenses | 2,112,171 | |||
Less: Fees waived | (3,102 | ) | ||
Net expenses | 2,109,069 | |||
Net investment income (loss) | (599,464 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $140,161) | 37,893,833 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (38,156,201 | ) | ||
Net realized and unrealized gain (loss) | (262,368 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (861,832 | ) |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (599,464 | ) | $ | (839,814 | ) | ||
Net realized gain | 37,893,833 | 32,663,306 | ||||||
Change in net unrealized appreciation (depreciation) | (38,156,201 | ) | 73,797,391 | |||||
Net increase (decrease) in net assets resulting from operations | (861,832 | ) | 105,620,883 | |||||
Distributions to shareholders from net investment income | ||||||||
Series l | — | (18,704 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (2,245,454 | ) | |||||
Series ll | — | (1,170,993 | ) | |||||
Total distributions from net realized gains | — | (3,416,447 | ) | |||||
Share transactions–net: | ||||||||
Series l | (34,017,666 | ) | (13,141,327 | ) | ||||
Series ll | 5,987,731 | 19,081,654 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (28,029,935 | ) | 5,940,327 | |||||
Net increase (decrease) in net assets | (28,891,767 | ) | 108,126,059 | |||||
Net assets: | ||||||||
Beginning of period | 396,787,199 | 288,661,140 | ||||||
End of period (includes undistributed net investment income (loss) of $(668,715) and $(69,251), respectively) | $ | 367,895,432 | $ | 396,787,199 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Small Cap Equity Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect
Invesco V.I. Small Cap Equity Fund
appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service.
Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain
Invesco V.I. Small Cap Equity Fund
tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in 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 failed 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward foreign currency contracts include failure of the counterparty to meet the terms of the contract and the value of the foreign currency changing unfavorably. These risks may be in excess of the amounts reflected in the Statement of Assets and Liabilities. |
Invesco V.I. Small Cap Equity Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $250 million | 0 | .745% | ||||
Next $250 million | 0 | .73% | ||||
Next $500 million | 0 | .715% | ||||
Next $1.5 billion | 0 | .70% | ||||
Next $2.5 billion | 0 | .685% | ||||
Next $2.5 billion | 0 | .67% | ||||
Next $2.5 billion | 0 | .655% | ||||
Over $10 billion | 0 | .64% |
Under the terms of a master sub-advisory agreement between the Adviser and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Hong Kong Limited, Invesco Senior Secured Management, Inc. and Invesco Canada Ltd. (collectively, the “Affiliated Sub-Advisers”) the Adviser, not the Fund, may pay 40% of the fees paid to the Adviser to any such Affiliated Sub-Adviser(s) that provide(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $3,102.
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, 2014, Invesco was paid $45,089 for accounting and fund administrative services and reimbursed $442,437 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2014, 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, 2014, 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. |
Invesco V.I. Small Cap Equity Fund
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
As of June 30, 2014, all of the securities in this Fund were valued based on Level 1 inputs (see the Schedule of Investments for security categories). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon actual sale of those investments.
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2014, the Fund engaged in securities sales of $3,078,918, which resulted in net realized gains of $140,161.
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $93,807,007 and $126,651,048, 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 | $ | 98,840,755 | ||
Aggregate unrealized (depreciation) of investment securities | (4,592,478 | ) | ||
Net unrealized appreciation of investment securities | $ | 94,248,277 |
Cost of investments for tax purposes is $274,415,455.
Invesco V.I. Small Cap Equity Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 664,738 | $ | 16,564,211 | 2,964,453 | $ | 66,823,332 | ||||||||||
Series II | 633,231 | 15,371,035 | 1,547,577 | 33,492,296 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 97,551 | 2,264,158 | ||||||||||||
Series II | — | — | 51,608 | 1,170,993 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,038,171 | ) | (50,581,877 | ) | (3,750,878 | ) | (82,228,817 | ) | ||||||||
Series II | (386,144 | ) | (9,383,304 | ) | (725,014 | ) | (15,581,635 | ) | ||||||||
Net increase (decrease) in share activity | (1,126,346 | ) | $ | (28,029,935 | ) | 185,297 | $ | 5,940,327 |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 25.44 | $ | (0.03 | ) | $ | 0.04 | $ | 0.01 | $ | — | $ | — | $ | — | $ | 25.45 | 0.04 | % | $ | 227,371 | 1.05 | %(d) | 1.05 | %(d) | (0.23 | )%(d) | 25 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 18.69 | (0.04 | ) | 7.02 | 6.98 | (0.00 | ) | (0.23 | ) | (0.23 | ) | 25.44 | 37.47 | 262,261 | 1.05 | 1.05 | (0.17 | ) | 35 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.41 | 0.01 | 2.27 | 2.28 | — | — | — | 18.69 | 13.89 | 205,566 | 1.06 | 1.06 | 0.05 | 36 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 16.53 | (0.05 | ) | (0.07 | ) | (0.12 | ) | — | — | — | 16.41 | (0.73 | ) | 217,287 | 1.06 | 1.06 | (0.27 | ) | 61 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.86 | (0.02 | ) | 3.69 | 3.67 | — | — | — | 16.53 | 28.54 | 220,925 | 1.07 | 1.07 | (0.11 | ) | 46 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.62 | (0.00 | ) | 2.26 | 2.26 | (0.02 | ) | — | (0.02 | ) | 12.86 | 21.29 | 178,949 | 1.09 | 1.09 | (0.01 | ) | 46 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 24.85 | (0.06 | ) | 0.04 | (0.02 | ) | — | — | — | 24.83 | (0.08 | ) | 140,525 | 1.30 | (d) | 1.30 | (d) | (0.48 | )(d) | 25 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 18.31 | (0.09 | ) | 6.86 | 6.77 | — | (0.23 | ) | (0.23 | ) | 24.85 | 37.08 | 134,526 | 1.30 | 1.30 | (0.42 | ) | 35 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 16.11 | (0.03 | ) | 2.23 | 2.20 | — | — | — | 18.31 | 13.66 | 83,096 | 1.31 | 1.31 | (0.20 | ) | 36 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 16.27 | (0.09 | ) | (0.07 | ) | (0.16 | ) | — | — | — | 16.11 | (0.98 | ) | 54,691 | 1.31 | 1.31 | (0.52 | ) | 61 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.69 | (0.05 | ) | 3.63 | 3.58 | — | — | — | 16.27 | 28.21 | 33,670 | 1.32 | 1.32 | (0.36 | ) | 46 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 10.51 | (0.03 | ) | 2.23 | 2.20 | (0.02 | ) | — | (0.02 | ) | 12.69 | 20.90 | 14,048 | 1.34 | 1.34 | (0.26 | ) | 46 |
(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 $239,680 and $133,906 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.40 | $ | 5.21 | $ | 1,019.59 | $ | 5.26 | 1.05 | % | ||||||||||||
Series II | 1,000.00 | 999.20 | 6.44 | 1,018.35 | 6.51 | 1.30 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Small Cap Equity Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also
considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Small-Cap Core Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth 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 and three year periods and below the performance of the Index for the five year period. The Trustees also reviewed more recent Fund
Invesco V.I. Small Cap Equity Fund
performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee rate waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of one mutual fund advised by Invesco Advisers. The Board also noted that Invesco Advisers sub-advises mutual funds using a substantially similar investment process and that the sub-advisory effective fee rate was below the effective advisory fee rate of the Fund.
The Board also considered the fees charged by Invesco Advisers and the Affiliated Sub-Advisers to client accounts that are managed using an investment process substantially similar to the investment process for the Fund. The Board noted that Invesco Advisers or the Affiliated Sub-Advisers may charge lower fees to large institutional clients. Invesco Advisers reviewed with the Board the significantly greater scope of services it provides to the Invesco Funds relative to certain other client accounts. These additional services include provision of administrative services, officers and office space, oversight of service providers, preparation of annual registration statement updates and financial information and regulatory compliance under the Investment Company Act of 1940, as amended. Invesco Advisers also reviewed generally the higher frequency of shareholder purchases and redemptions in the Invesco Funds
relative to the flow of assets for other client accounts. Invesco Advisers advised the Board that advance notice of redemptions is often provided to Invesco Advisers by institutional clients. The Board did note that sub-advisory fee rates charged by the Affiliated Sub-Advisers to manage the Invesco Funds and to manage other client accounts tended to be more comparable, reflecting a more comparable scope of services. The Board concluded that the aggregate services provided to the Invesco Funds were sufficiently different from those provided to institutional clients to support the difference in fees.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the
fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Small Cap Equity Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Technology Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VITEC-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.28 | % | |||
Series II Shares | 6.19 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Bank of America Merrill Lynch 100 Technology Index (price only)n | 4.98 | ||||
Lipper VUF Science & Technology Funds Classification Averagew | 6.87 | ||||
Source(s): ‚FactSet Research Systems Inc.; nBloomberg LP; wLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Bank of America Merrill Lynch 100 Technology Index (price only) is an unmanaged, price-only equal-dollar-weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and American Depositary Receipts.
The Lipper VUF Science & Technology Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Science & Technology Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (5/20/97) | 4.90 | % | |||
10 Years | 6.64 | ||||
5 Years | 17.08 | ||||
1 Year | 27.27 | ||||
Series II Shares | |||||
Inception (4/30/04) | 6.91 | % | |||
10 Years | 6.37 | ||||
5 Years | 16.80 | ||||
1 Year | 26.97 |
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 1.17% and 1.42%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report.
Invesco V.I. Technology Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Invesco V.I. Technology Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.46% |
| |||||||
Application Software–7.66% | ||||||||
Aspen Technology, Inc.(b) | 23,682 | $ | 1,098,845 | |||||
Monitise PLC (United Kingdom)(b) | 2,816,090 | 2,487,405 | ||||||
Salesforce.com, Inc.(b) | 72,179 | 4,192,156 | ||||||
SS&C Technologies Holdings, Inc.(b) | 11,875 | 525,113 | ||||||
8,303,519 | ||||||||
Biotechnology–10.54% | ||||||||
Alkermes PLC(b) | 35,584 | 1,790,943 | ||||||
Amgen Inc. | 8,655 | 1,024,492 | ||||||
Biogen Idec Inc.(b) | 5,473 | 1,725,692 | ||||||
Celgene Corp.(b) | 19,842 | 1,704,031 | ||||||
Gilead Sciences, Inc.(b) | 62,466 | 5,179,056 | ||||||
11,424,214 | ||||||||
Cable & Satellite–3.80% | ||||||||
DISH Network Corp.–Class A(b) | 63,347 | 4,122,623 | ||||||
Communications Equipment–9.44% | ||||||||
ARRIS Group Inc.(b) | 87,671 | 2,851,938 | ||||||
F5 Networks, Inc.(b) | 18,051 | 2,011,603 | ||||||
Palo Alto Networks, Inc.(b) | 20,368 | 1,707,857 | ||||||
QUALCOMM, Inc. | 46,243 | 3,662,445 | ||||||
10,233,843 | ||||||||
Consumer Electronics–0.45% | ||||||||
Harman International Industries, Inc. | 4,596 | 493,748 | ||||||
Data Processing & Outsourced Services–9.07% | ||||||||
Alliance Data Systems Corp.(b) | 12,035 | 3,384,844 | ||||||
MasterCard, Inc.–Class A | 56,088 | 4,120,785 | ||||||
Visa Inc.–Class A | 11,041 | 2,326,449 | ||||||
9,832,078 | ||||||||
Electronic Manufacturing Services–0.62% | ||||||||
Sanmina Corp.(b) | 29,390 | �� | 669,504 | |||||
Health Care Technology–2.09% | ||||||||
IMS Health Holdings, Inc.(b) | 88,078 | 2,261,843 | ||||||
Home Entertainment Software–1.02% | ||||||||
Activision Blizzard, Inc. | 49,761 | 1,109,670 | ||||||
Internet Retail–4.57% | ||||||||
Amazon.com, Inc.(b) | 5,195 | 1,687,232 | ||||||
Priceline Group Inc. (The)(b) | 2,170 | 2,610,510 | ||||||
TripAdvisor Inc.(b) | 6,063 | 658,806 | ||||||
4,956,548 |
Shares | Value | |||||||
Internet Software & Services–17.36% | ||||||||
Facebook Inc.–Class A(b) | 92,649 | $ | 6,234,351 | |||||
Google Inc.–Class A(b) | 6,702 | 3,918,458 | ||||||
Google Inc.–Class C(b) | 6,702 | 3,855,527 | ||||||
Yelp Inc.(b) | 62,715 | 4,808,986 | ||||||
18,817,322 | ||||||||
IT Consulting & Other Services–1.23% | ||||||||
Cognizant Technology Solutions Corp.–Class A(b) | 27,247 | 1,332,651 | ||||||
Life Sciences Tools & Services–1.44% | ||||||||
Thermo Fisher Scientific, Inc. | 13,263 | 1,565,034 | ||||||
Pharmaceuticals–2.16% | ||||||||
Actavis PLC(b) | 8,090 | 1,804,474 | ||||||
Bristol-Myers Squibb Co. | 11,080 | 537,491 | ||||||
2,341,965 | ||||||||
Semiconductor Equipment–1.00% | ||||||||
Applied Materials, Inc. | 48,183 | 1,086,527 | ||||||
Semiconductors–11.44% | ||||||||
Altera Corp. | 19,185 | 666,871 | ||||||
ARM Holdings PLC–ADR (United Kingdom) | 11,898 | 538,265 | ||||||
Atmel Corp.(b) | 87,408 | 819,013 | ||||||
Avago Technologies Ltd. (Singapore) | 37,147 | 2,677,184 | ||||||
Lattice Semiconductor Corp.(b) | 107,731 | 888,781 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 50,531 | 3,344,142 | ||||||
Skyworks Solutions, Inc. | 30,336 | 1,424,579 | ||||||
Synaptics Inc.(b) | 9,853 | 893,076 | ||||||
Texas Instruments Inc. | 23,970 | 1,145,526 | ||||||
12,397,437 | ||||||||
Systems Software–3.79% | ||||||||
ServiceNow, Inc.(b) | 23,933 | 1,482,889 | ||||||
VMware, Inc.–Class A(b) | 27,132 | 2,626,649 | ||||||
4,109,538 | ||||||||
Technology Hardware, Storage & Peripherals–7.01% | ||||||||
Apple Inc. | 73,720 | 6,850,799 | ||||||
Cray, Inc.(b) | 28,206 | 750,280 | ||||||
7,601,079 | ||||||||
Wireless Telecommunication Services–3.77% | ||||||||
Sprint Corp.(b) | 478,742 | 4,083,669 | ||||||
Total Common Stocks & Other Equity Interests |
| 106,742,812 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Shares | Value | |||||||
Money Market Funds–1.46% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 790,426 | $ | 790,426 | |||||
Premier Portfolio–Institutional Class(c) | 790,426 | 790,426 | ||||||
Total Money Market Funds |
| 1,580,852 | ||||||
TOTAL INVESTMENTS–99.92% |
| 108,323,664 | ||||||
OTHER ASSETS LESS LIABILITIES–0.08% |
| 87,991 | ||||||
NET ASSETS–100.00% |
| $ | 108,411,655 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Information Technology | 69.7 | % | ||
Health Care | 16.2 | |||
Consumer Discretionary | 8.8 | |||
Telecommunication Services | 3.8 | |||
Money Market Funds Plus Other Assets Less Liabilities | 1.5 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: |
| |||
Investments, at value (Cost $75,049,426) | $ | 106,742,812 | ||
Investments in affiliated money market funds, at value and cost | 1,580,852 | |||
Total investments, at value (Cost $76,630,278) | 108,323,664 | |||
Foreign currencies, at value (Cost $1,242) | 2,472 | |||
Receivable for: | ||||
Investments sold | 701,173 | |||
Fund shares sold | 12,807 | |||
Dividends | 1,818 | |||
Investment for trustee deferred compensation and retirement plans | 66,790 | |||
Total assets | 109,108,724 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 219,101 | |||
Fund shares reacquired | 250,386 | |||
Accrued fees to affiliates | 132,078 | |||
Accrued trustees’ and officers’ fees and benefits | 527 | |||
Accrued other operating expenses | 22,445 | |||
Trustee deferred compensation and retirement plans | 72,532 | |||
Total liabilities | 697,069 | |||
Net assets applicable to shares outstanding | $ | 108,411,655 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 61,282,294 | ||
Undistributed net investment income | 1,763,462 | |||
Undistributed net realized gain | 13,672,397 | |||
Net unrealized appreciation | 31,693,502 | |||
$ | 108,411,655 | |||
Net Assets: |
| |||
Series I | $ | 104,524,191 | ||
Series II | $ | 3,887,464 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,064,407 | |||
Series II | 193,736 | |||
Series I: | ||||
Net asset value per share | $ | 20.64 | ||
Series II: | ||||
Net asset value per share | $ | 20.07 |
Investment income: |
| |||
Dividends | $ | 268,125 | ||
Dividends from affiliated money market funds (includes securities lending income of $2,798) | 3,336 | |||
Total investment income | 271,461 | |||
Expenses: | ||||
Advisory fees | 395,522 | |||
Administrative services fees | 154,343 | |||
Custodian fees | 4,825 | |||
Distribution fees — Series II | 4,310 | |||
Transfer agent fees | 12,385 | |||
Trustees’ and officers’ fees and benefits | 13,241 | |||
Other | 27,818 | |||
Total expenses | 612,444 | |||
Less: Fees waived | (1,908 | ) | ||
Net expenses | 610,536 | |||
Net investment income (loss) | (339,075 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from securities sold to affiliates of $22,336) | 4,802,995 | |||
Foreign currencies | (3,409 | ) | ||
4,799,586 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 1,976,237 | |||
Foreign currencies | 116 | |||
1,976,353 | ||||
Net realized and unrealized gain | 6,775,939 | |||
Net increase in net assets resulting from operations | $ | 6,436,864 |
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, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (339,075 | ) | $ | (401,721 | ) | ||
Net realized gain | 4,799,586 | 9,373,941 | ||||||
Change in net unrealized appreciation | 1,976,353 | 13,198,790 | ||||||
Net increase in net assets resulting from operations | 6,436,864 | 22,171,010 | ||||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | — | (7,820,860 | ) | |||||
Series ll | — | (230,772 | ) | |||||
Total distributions from net realized gains | — | (8,051,632 | ) | |||||
Share transactions–net: | ||||||||
Series l | (4,848,928 | ) | (5,971,175 | ) | ||||
Series ll | 472,918 | 713,763 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (4,376,010 | ) | (5,257,412 | ) | ||||
Net increase in net assets | 2,060,854 | 8,861,966 | ||||||
Net assets: | ||||||||
Beginning of period | 106,350,801 | 97,488,835 | ||||||
End of period (includes undistributed net investment income of $1,763,462 and $2,102,537, respectively) | $ | 108,411,655 | $ | 106,350,801 |
Notes to Financial Statements
June 30, 2014
(unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Technology Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual
Invesco V.I. Technology Fund
trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. Technology Fund
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower failed 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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. | 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% |
Invesco V.I. Technology Fund
Average Daily Net Assets | Rate | |||
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(s) discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Adviser(s).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $1,908.
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, 2014, Invesco was paid $24,794 for accounting and fund administrative services and reimbursed $129,549 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the six months ended June 30, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $877 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
Invesco V.I. Technology Fund
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 105,836,259 | $ | 2,487,405 | $ | — | $ | 108,323,664 |
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, 2014, the Fund engaged in securities sales of $966,941, which resulted in net realized gains of $22,336.
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 were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013.
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, 2014 was $52,707,892 and $57,566,094, 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 | $ | 34,652,761 | ||
Aggregate unrealized (depreciation) of investment securities | (893,106 | ) | ||
Net unrealized appreciation of investment securities | $ | 33,759,655 |
Cost of investments for tax purposes is $74,564,009.
Invesco V.I. Technology Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 315,629 | $ | 6,284,907 | 448,059 | $ | 8,062,294 | ||||||||||
Series II | 46,477 | 887,347 | 51,711 | 908,329 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 434,492 | 7,820,860 | ||||||||||||
Series II | — | — | 13,157 | 230,772 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (563,969 | ) | (11,133,835 | ) | (1,221,518 | ) | (21,854,329 | ) | ||||||||
Series II | (22,030 | ) | (414,429 | ) | (23,922 | ) | (425,338 | ) | ||||||||
Net increase (decrease) in share activity | (223,893 | ) | $ | (4,376,010 | ) | (298,021 | ) | $ | (5,257,412 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 19.42 | $ | (0.06 | ) | $ | 1.28 | $ | 1.22 | $ | — | $ | — | $ | — | $ | 20.64 | 6.28 | % | $ | 104,524 | 1.15 | %(d) | 1.15 | %(d) | (0.64 | )%(d) | 51 | % | |||||||||||||||||||||||||||
Year ended 12/31/13 | 16.87 | (0.07 | ) | 4.19 | 4.12 | — | (1.57 | ) | (1.57 | ) | 19.42 | 25.14 | 103,151 | 1.17 | 1.17 | (0.40 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 15.16 | (0.07 | ) | 1.78 | 1.71 | — | — | — | 16.87 | 11.28 | 95,371 | 1.16 | 1.16 | (0.42 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 16.00 | (0.10 | ) | (0.71 | ) | (0.81 | ) | (0.03 | ) | — | (0.03 | ) | 15.16 | (5.05 | ) | 100,579 | 1.12 | 1.12 | (0.62 | ) | 41 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 13.19 | 0.02 | 2.79 | 2.81 | — | — | — | 16.00 | 21.30 | 128,304 | 1.14 | 1.14 | 0.18 | 43 | ||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.38 | (0.03 | ) | 4.84 | 4.81 | — | — | — | 13.19 | 57.40 | 119,369 | 1.18 | 1.19 | (0.27 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 18.90 | (0.08 | ) | 1.25 | 1.17 | — | — | — | 20.07 | 6.19 | 3,887 | 1.40 | (d) | 1.40 | (d) | (0.89 | )(d) | 51 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 16.50 | (0.12 | ) | 4.09 | 3.97 | — | (1.57 | ) | (1.57 | ) | 18.90 | 24.79 | 3,200 | 1.42 | 1.42 | (0.65 | ) | 45 | ||||||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 14.86 | (0.11 | ) | 1.75 | 1.64 | — | — | — | 16.50 | 11.04 | 2,118 | 1.41 | 1.41 | (0.67 | ) | 42 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 15.71 | (0.14 | ) | (0.70 | ) | (0.84 | ) | (0.01 | ) | — | (0.01 | ) | 14.86 | (5.32 | ) | 1,613 | 1.37 | 1.37 | (0.87 | ) | 41 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.98 | (0.01 | ) | 2.74 | 2.73 | — | — | — | 15.71 | 21.03 | 1,198 | 1.39 | 1.39 | (0.07 | ) | 43 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/09 | 8.26 | (0.06 | ) | 4.78 | 4.72 | — | — | — | 12.98 | 57.14 | 417 | 1.43 | 1.44 | (0.52 | ) | 42 |
(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 $102,871 and $3,476 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, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,062.80 | $ | 5.88 | $ | 1,019.09 | $ | 5.76 | 1.15 | % | ||||||||||||
Series II | 1,000.00 | 1,061.90 | 7.16 | 1,017.85 | 7.00 | 1.40 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Technology Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that the continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Science & Technology Funds Index. The Board noted that performance of Series I shares of the Fund was in the fourth quintile of the performance universe for the one and three year periods and in the third quintile for the five year period (the first quintile being
Invesco V.I. Technology Fund
the best performing funds and the fifth quintile being the worst performing funds). The Board noted that performance of Series I shares of the Fund was below the performance of the Index for the one, three and five year periods. Invesco Advisers advised the Board that the portfolio management team had recently changed and that the revised portfolio will be more concentrated with a focus on upside participation rather than downside protection. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s effective advisory fee rate was above the effective advisory fee rate of the two mutual funds advised by Invesco Advisers with a similar investment process. The Board noted that Invesco Advisers sub-advises an off-shore fund with comparable investment strategies, which had an effective advisory fee rate higher than the Fund’s rate. The Board noted that Invesco Advisers sub-advises an off-shore fund that is managed using a similar investment process and that fund has an effective advisory fee rate higher than the Fund’s rate. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not manage other client
accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to
provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Technology Fund
| ||||
Semiannual Report to Shareholders
| June 30, 2014 | |||
Invesco V.I. Value Opportunities Fund | ||||
|
The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIVOPP-SAR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Fund Performance |
Performance summary
Fund vs. Indexes
Cumulative total returns, 12/31/13 to 6/30/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.24 | % | |||
Series II Shares | 5.16 | ||||
S&P 500 Index‚ (Broad Market Index) | 7.14 | ||||
Russell 3000 Value Index‚ (Style-Specific Index) | 7.95 | ||||
Lipper VUF Multi-Cap Value Funds Indexn (Peer Group Index) | 6.89 | ||||
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc. |
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 3000® Value Index is an unmanaged index considered representative of US value stocks. The Russell 3000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Multi-Cap Value Funds Index is an unmanaged index considered representative of multi-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Average Annual Total Returns
As of 6/30/14
Series I Shares | |||||
Inception (9/10/01) | 4.58 | % | |||
10 Years | 4.67 | ||||
5 Years | 16.96 | ||||
1 Year | 21.87 | ||||
Series II Shares | |||||
Inception (9/10/01) | 4.32 | % | |||
10 Years | 4.41 | ||||
5 Years | 16.71 | ||||
1 Year | 21.72 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date
of this report for Series I and Series II shares was 1.02% and 1.27%, respectively.1 The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 1.03% 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. Value Opportunities Fund, a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds), is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent
the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return.
The most recent month-end performance at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
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, 2016. See current prospectus for more information. |
Invesco V.I. Value Opportunities Fund
Schedule of Investments(a)
June 30, 2014
(Unaudited)
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.73% |
| |||||||
Advertising–2.75% | ||||||||
Omnicom Group Inc. | 87,582 | $ | 6,237,590 | |||||
Air Freight & Logistics–1.39% | ||||||||
UTi Worldwide, Inc.(b) | 305,338 | 3,157,195 | ||||||
Application Software–1.18% | ||||||||
Synopsys, Inc.(b) | 68,900 | 2,674,698 | ||||||
Asset Management & Custody Banks–1.55% | ||||||||
Bank of New York Mellon Corp. (The) | 94,064 | 3,525,519 | ||||||
Automobile Manufacturers–1.53% | ||||||||
Nissan Motor Co., Ltd. (Japan) | 365,000 | 3,468,519 | ||||||
Cable & Satellite–2.41% | ||||||||
Time Warner Cable Inc. | 37,106 | 5,465,714 | ||||||
Coal & Consumable Fuels–1.74% | ||||||||
Peabody Energy Corp. | 241,716 | 3,952,057 | ||||||
Communications Equipment–1.45% | ||||||||
Cisco Systems, Inc. | 132,573 | 3,294,439 | ||||||
Department Stores–4.37% | ||||||||
Macy’s, Inc. | 114,783 | 6,659,710 | ||||||
Nordstrom, Inc. | 47,834 | 3,249,363 | ||||||
9,909,073 | ||||||||
Diversified Banks–16.18% | ||||||||
Bank of America Corp. | 347,545 | 5,341,767 | ||||||
Comerica Inc. | 61,553 | 3,087,498 | ||||||
JPMorgan Chase & Co. | 248,157 | 14,298,806 | ||||||
U.S. Bancorp | 76,380 | 3,308,782 | ||||||
Wells Fargo & Co. | 203,488 | 10,695,329 | ||||||
36,732,182 | ||||||||
Electronic Components–1.30% | ||||||||
Corning Inc. | 134,365 | 2,949,312 | ||||||
Food Retail–1.49% | ||||||||
Kroger Co. (The) | 68,398 | 3,380,913 | ||||||
General Merchandise Stores–1.18% | ||||||||
Target Corp. | 46,042 | 2,668,134 | ||||||
Household Products–1.43% | ||||||||
Procter & Gamble Co. (The) | 41,452 | 3,257,713 | ||||||
Industrial Conglomerates–2.10% | ||||||||
General Electric Co. | 181,223 | 4,762,540 | ||||||
Integrated Oil & Gas–15.31% | ||||||||
Chevron Corp. | 63,932 | 8,346,322 | ||||||
Exxon Mobil Corp. | 30,025 | 3,022,917 | ||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 402,482 | 5,888,312 |
Shares | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Royal Dutch Shell PLC–ADR (United Kingdom) | 128,670 | $ | 10,598,548 | |||||
Total S.A.–ADR (France) | 95,616 | 6,903,475 | ||||||
34,759,574 | ||||||||
Integrated Telecommunication Services–1.03% | ||||||||
Verizon Communications Inc. | 47,723 | 2,335,086 | ||||||
Investment Banking & Brokerage–3.83% | ||||||||
Goldman Sachs Group, Inc. (The) | 20,987 | 3,514,063 | ||||||
Morgan Stanley | 160,268 | 5,181,465 | ||||||
8,695,528 | ||||||||
Life & Health Insurance–6.11% | ||||||||
Aflac, Inc. | 52,276 | 3,254,181 | ||||||
MetLife, Inc. | 89,410 | 4,967,620 | ||||||
Unum Group | 162,220 | 5,638,767 | ||||||
13,860,568 | ||||||||
Managed Health Care–5.17% | ||||||||
UnitedHealth Group Inc. | 80,922 | 6,615,374 | ||||||
WellPoint, Inc. | 47,564 | 5,118,362 | ||||||
11,733,736 | ||||||||
Marine–0.56% | ||||||||
Diana Shipping Inc. (Greece)(b) | 117,594 | 1,280,599 | ||||||
Oil & Gas Drilling–0.95% | ||||||||
Noble Corp. PLC | 63,990 | 2,147,504 | ||||||
Other Diversified Financial Services–2.93% | ||||||||
Citigroup Inc. | 141,039 | 6,642,937 | ||||||
Personal Products–1.24% | ||||||||
Nu Skin Enterprises, Inc.–Class A | 38,000 | 2,810,480 | ||||||
Pharmaceuticals–4.28% | ||||||||
Bristol-Myers Squibb Co. | 58,730 | 2,848,992 | ||||||
Novartis AG (Switzerland) | 45,420 | 4,112,795 | ||||||
Pfizer Inc. | 93,099 | 2,763,178 | ||||||
9,724,965 | ||||||||
Property & Casualty Insurance–4.87% | ||||||||
Allied World Assurance Co. Holdings AG | 68,304 | 2,596,918 | ||||||
Allstate Corp. (The) | 100,076 | 5,876,462 | ||||||
Chubb Corp. (The) | 27,969 | 2,577,903 | ||||||
11,051,283 | ||||||||
Regional Banks–0.81% | ||||||||
Investors Bancorp, Inc. | 166,781 | 1,842,930 | ||||||
Steel–1.34% | ||||||||
POSCO–ADR (South Korea) | 40,922 | 3,046,234 | ||||||
Systems Software–1.89% | ||||||||
Oracle Corp. | 105,662 | 4,282,481 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Shares | Value | |||||||
Technology Distributors–1.59% | ||||||||
CDW Corp. | 113,001 | $ | 3,602,472 | |||||
Technology Hardware, Storage & Peripherals–2.14% | ||||||||
Hewlett-Packard Co. | 144,386 | 4,862,920 | ||||||
Wireless Telecommunication Services–0.63% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 42,639 | 1,423,717 | ||||||
Total Common Stocks & Other Equity Interests |
| 219,538,612 |
Shares | Value | |||||||
Money Market Funds–3.15% |
| |||||||
Liquid Assets Portfolio– | 3,566,831 | $ | 3,566,831 | |||||
Premier Portfolio–Institutional Class(c) | 3,566,831 | 3,566,831 | ||||||
Total Money Market Funds |
| 7,133,662 | ||||||
TOTAL INVESTMENTS–99.88% |
| 226,672,274 | ||||||
OTHER ASSETS LESS LIABILITIES–0.12% |
| 282,858 | ||||||
NET ASSETS–100.00% | $ | 226,955,132 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
Portfolio Composition
By sector, based on Net Assets
as of June 30, 2014
Financials | 36.3 | % | ||
Energy | 18.0 | |||
Consumer Discretionary | 12.2 | |||
Health Care | 9.5 | |||
Information Technology | 9.5 | |||
Consumer Staples | 4.2 | |||
Industrials | 4.0 | |||
Telecommunication Services | 1.7 | |||
Materials | 1.3 | |||
Money Market Funds Plus Other Assets Less Liabilities | 3.3 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Statement of Assets and Liabilities
June 30, 2014
(Unaudited)
Statement of Operations
For the six months ended June 30, 2014
(Unaudited)
Assets: | ||||
Investments, at value (Cost $148,148,930) | $ | 219,538,612 | ||
Investments in affiliated money market funds, at value and cost | 7,133,662 | |||
Total investments, at value (Cost $155,282,592) | 226,672,274 | |||
Foreign currencies, at value (Cost $45,587) | 45,767 | |||
Receivable for: | ||||
Investments sold | 563,092 | |||
Fund shares sold | 18,492 | |||
Dividends | 405,719 | |||
Investment for trustee deferred compensation and retirement plans | 106,975 | |||
Total assets | 227,812,319 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 364,764 | |||
Accrued fees to affiliates | 342,142 | |||
Accrued trustees’ and officers’ fees and benefits | 533 | |||
Accrued other operating expenses | 27,027 | |||
Trustee deferred compensation and retirement plans | 122,721 | |||
Total liabilities | 857,187 | |||
Net assets applicable to shares outstanding | $ | 226,955,132 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 157,126,811 | ||
Undistributed net investment income | 5,329,510 | |||
Undistributed net realized gain (loss) | (6,891,647 | ) | ||
Net unrealized appreciation | 71,390,458 | |||
$ | 226,955,132 | |||
Net Assets: | ||||
Series I | $ | 122,371,903 | ||
Series II | $ | 104,583,229 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 12,417,922 | |||
Series II | 10,679,153 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 9.85 | ||
Series II: | ||||
Net asset value per share | $ | 9.79 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $131,777) | $ | 4,089,153 | ||
Dividends from affiliated money market funds (includes securities lending income of $22,334) | 24,080 | |||
Total investment income | 4,113,233 | |||
Expenses: | ||||
Advisory fees | 776,031 | |||
Administrative services fees | 304,241 | |||
Custodian fees | 7,705 | |||
Distribution fees — Series II | 126,204 | |||
Transfer agent fees | 21,602 | |||
Trustees’ and officers’ fees and benefits | 13,878 | |||
Other | 47,848 | |||
Total expenses | 1,297,509 | |||
Less: Fees waived | (6,265 | ) | ||
Net expenses | 1,291,244 | |||
Net investment income | 2,821,989 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 10,005,933 | |||
Foreign currencies | (250 | ) | ||
10,005,683 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (1,545,676 | ) | ||
Foreign currencies | 264 | |||
(1,545,412 | ) | |||
Net realized and unrealized gain | 8,460,271 | |||
Net increase in net assets resulting from operations | $ | 11,282,260 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Value Opportunities Fund
Statement of Changes in Net Assets
For the six months ended June 30, 2014 and the year ended December 31, 2013
(Unaudited)
June 30, 2014 | December 31, 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 2,821,989 | $ | 2,649,408 | ||||
Net realized gain | 10,005,683 | 33,012,564 | ||||||
Change in net unrealized appreciation (depreciation) | (1,545,412 | ) | 31,741,901 | |||||
Net increase in net assets resulting from operations | 11,282,260 | 67,403,873 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (1,827,315 | ) | |||||
Series ll | — | (1,176,208 | ) | |||||
Total distributions from net investment income | — | (3,003,523 | ) | |||||
Share transactions–net: | ||||||||
Series l | (13,926,115 | ) | (36,568,590 | ) | ||||
Series ll | (4,346,868 | ) | (22,283,095 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (18,272,983 | ) | (58,851,685 | ) | ||||
Net increase (decrease) in net assets | (6,990,723 | ) | 5,548,665 | |||||
Net assets: | ||||||||
Beginning of period | 233,945,855 | 228,397,190 | ||||||
End of period (includes undistributed net investment income of $5,329,510 and $2,507,521, respectively) | $ | 226,955,132 | $ | 233,945,855 |
Notes to Financial Statements
June 30, 2014
(Unaudited)
NOTE 1—Significant Accounting Policies
Invesco V.I. Value Opportunities Fund (the “Fund”) is a series portfolio of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end series management investment company consisting of twenty-four separate portfolios, (each constituting a “Fund”). The assets, liabilities and operations of each portfolio are accounted for separately. Information presented in these financial statements pertains only to the Fund. Matters affecting each Fund or class will be voted on exclusively by the shareholders of such Fund or class. Current Securities and Exchange Commission (“SEC”) guidance, however, requires participating insurance companies offering separate accounts to vote shares proportionally in accordance with the instructions of the contract owners whose investments are funded by shares of each Fund or class.
The Fund’s investment objective is long-term growth of capital.
The Fund currently offers two classes of shares, Series I and Series II, both of which are offered to insurance company separate accounts funding variable annuity contracts and variable life insurance policies (“variable products”).
The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.
A. | Security Valuations — Securities, including restricted securities, are valued according to the following policy. |
A security listed or traded on an exchange (except convertible securities) 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 securities) and unlisted equities are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Value Opportunities Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and asked prices is used to value debt obligations, including corporate loans.
Securities for which market quotations are not readily available or became unreliable are valued at fair value as determined in good faith by or under the supervision of the Trust’s officers following procedures approved by the Board of Trustees. Issuer specific events, market trends, bid/ask quotes of brokers and information providers and other market data may be reviewed in the course of making a good faith determination of a security’s fair value.
The Fund may invest in securities that are subject to interest rate risk, meaning the risk that the prices will generally fall as interest rates rise and, conversely, the prices will generally rise as interest rates fall. Specific securities differ in their sensitivity to changes in interest rates depending on their individual characteristics. Changes in interest rates may result in increased market volatility, which may affect the value and/or liquidity of certain of the Fund’s investments.
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 (net of withholding tax, if any) is recorded on the accrual basis from settlement date. Dividend income (net of withholding tax, if any) is recorded on the ex-dividend date. |
The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds received are included in the Statement of Operations as realized gain (loss) for investments no longer held and as unrealized gain (loss) for investments still held.
Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of net realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the net realized and unrealized gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund’s net asset value and, accordingly, they reduce the Fund’s total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the investment adviser.
The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class.
C. | Country Determination — For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment adviser may determine the country in which an issuer is located and/or credit risk exposure based on various factors. These factors include the laws of the country under which the issuer is organized, where the issuer maintains a principal office, the country in which the issuer derives 50% or more of its total revenues and the country that has the primary market for the issuer’s securities, as well as other criteria. Among the other criteria that may be evaluated for making this determination are the country in which the issuer maintains 50% or more of its assets, the type of security, financial guarantees and enhancements, the nature of the collateral and the sponsor organization. Country of issuer and/or credit risk exposure has been determined to be the United States of America, unless otherwise noted. |
D. | Distributions — Distributions from income and net realized capital gain, if any, are generally declared and paid to separate accounts of participating insurance companies annually and recorded on the ex-dividend date. |
E. | Federal Income Taxes — The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), necessary to qualify as a regulated investment company and to distribute substantially all of the Fund’s taxable earnings to shareholders. As such, the Fund will not be subject to federal income taxes on otherwise taxable income (including net realized capital gain) that is distributed to shareholders. Therefore, no provision for federal income taxes is recorded in the financial statements. |
The Fund recognizes the tax benefits of uncertain tax positions only when the position is more likely than not to be sustained. Management has analyzed the Fund’s uncertain tax positions and concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions. Management is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
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. 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. | 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 failed 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. | Forward Foreign Currency Contracts — The Fund may enter into forward foreign currency contracts to manage or minimize currency or exchange rate risk. The Fund may also enter into forward 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 forward 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 forward 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 forward 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% |
Invesco V.I. Value Opportunities 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).
The Adviser has contractually agreed, through at least June 30, 2015, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 2.00% and Series II shares to 2.25% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2015. The fee waiver agreement cannot be terminated during its term. 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, 2016, 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, 2014, the Adviser waived advisory fees of $6,265.
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, 2014, Invesco was paid $28,161 for accounting and fund administrative services and reimbursed $276,080 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, 2014, 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, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the six months ended June 30, 2014, the Fund incurred $607 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of June 30, 2014. 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 | $ | 223,203,755 | $ | 3,468,519 | $ | — | $ | 226,672,274 |
Invesco V.I. Value Opportunities Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees were eligible to participate in a retirement plan that provided 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 GAAP. 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. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in 8 tax years. 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. Capital loss carryforwards with no expiration date 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, 2013, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 7,906,383 | $ | — | $ | 7,906,383 | ||||||
December 31, 2018 | 7,875,284 | — | 7,875,284 | |||||||||
$ | 15,781,667 | $ | — | $ | 15,781,667 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code and may be further limited depending upon a variety of factors, including the realization of net unrealized gains or losses as of the date of any 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, 2014 was $14,502,675 and $28,721,696, 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 | $ | 76,848,764 | ||
Aggregate unrealized (depreciation) of investment securities | (6,574,745 | ) | ||
Net unrealized appreciation of investment securities | $ | 70,274,019 |
Cost of investments for tax purposes is $156,398,255.
Invesco V.I. Value Opportunities Fund
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Six months ended June 30, 2014(a) | Year ended December 31, 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 250,560 | $ | 2,364,275 | 556,711 | $ | 4,628,953 | ||||||||||
Series II | 724,307 | 6,779,575 | 655,770 | 5,483,500 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | — | — | 214,474 | 1,827,315 | ||||||||||||
Series II | — | — | 138,704 | 1,176,208 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,735,787 | ) | (16,290,390 | ) | (5,220,012 | ) | (43,024,858 | ) | ||||||||
Series II | (1,189,357 | ) | (11,126,443 | ) | (3,515,746 | ) | (28,942,803 | ) | ||||||||
Net increase (decrease) in share activity | (1,950,277 | ) | $ | (18,272,983 | ) | (7,170,099 | ) | $ | (58,851,685 | ) |
(a) | There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 65% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | $ | 9.36 | $ | 0.12 | (d) | $ | 0.37 | $ | 0.49 | $ | — | $ | 9.85 | 5.24 | % | $ | 122,372 | 1.04 | %(e) | 1.05 | %(e) | 2.64 | %(d)(e) | 7 | % | |||||||||||||||||||||||
Year ended 12/31/13 | 7.10 | 0.10 | 2.28 | 2.38 | (0.12 | ) | 9.36 | 33.75 | 130,146 | 1.01 | 1.02 | 1.24 | 17 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.12 | 0.09 | 0.99 | 1.08 | (0.10 | ) | 7.10 | 17.70 | 130,383 | 1.01 | 1.02 | 1.37 | 9 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 6.38 | 0.08 | (0.28 | ) | (0.20 | ) | (0.06 | ) | 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 | ) | 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 | ) | 5.98 | 48.00 | 226,282 | 0.98 | 0.99 | 0.59 | 23 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Six months ended 06/30/14 | 9.31 | 0.11 | (d) | 0.37 | 0.48 | — | 9.79 | 5.16 | 104,583 | 1.29 | (e) | 1.30 | (e) | 2.39 | (d)(e) | 7 | ||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 7.07 | 0.08 | 2.26 | 2.34 | (0.10 | ) | 9.31 | 33.27 | 103,800 | 1.26 | 1.27 | 0.99 | 17 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/12 | 6.08 | 0.07 | 1.00 | 1.07 | (0.08 | ) | 7.07 | 17.66 | 98,014 | 1.26 | 1.27 | 1.12 | 9 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 6.34 | 0.06 | (0.28 | ) | (0.22 | ) | (0.04 | ) | 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 | ) | 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 | ) | 5.95 | 47.74 | 133,872 | 1.23 | 1.24 | 0.34 | 23 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Net Investment income (loss) per share and the ratio of net investment income (loss) to average net assets include significant dividends received during the period. Net Investment income per share and the ratio of net investment income to average net assets excluding the significant dividends are $0.06 and 1.37% and $0.05 and 1.12% for Series I and Series II, respectively. |
(e) | Ratios are annualized and based on average daily net assets (000’s omitted) of $123,369 and $101,800 for Series I and Series II shares, respectively. |
Invesco V.I. Value Opportunities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2014 through June 30, 2014.
The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower.
Actual expenses
The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (01/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (06/30/14)1 | Expenses Paid During Period2 | Ending Account Value (06/30/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,052.40 | $ | 5.29 | $ | 1,019.64 | $ | 5.21 | 1.04 | % | ||||||||||||
Series II | 1,000.00 | 1,051.60 | 6.56 | 1,018.40 | 6.46 | 1.29 |
1 | The actual ending account value is based on the actual total return of the Fund for the period January 1, 2014 through June 30, 2014, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund’s expense ratio and a hypothetical annual return of 5% before expenses. |
2 | Expenses are equal to the Fund’s annualized expense ratio as indicated above multiplied by the average account value over the period, multiplied by 181/365 to reflect the most recent fiscal half year. |
Invesco V.I. Value Opportunities Fund
Approval of Investment Advisory and Sub-Advisory Contracts
The Board of Trustees (the Board) of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) is required under the Investment Company Act of 1940, as amended, to approve annually the renewal of Invesco V.I. Value Opportunities Fund’s (the Fund) investment advisory agreements. During contract renewal meetings held on June 16-17, 2014, the Board as a whole, and the disinterested or “independent” Trustees, who comprise over 75% of the Board, voting separately, approved the continuance for the Fund of the Master Investment Advisory Agreement with Invesco Advisers, Inc. (Invesco Advisers) and the Master Intergroup Sub-Advisory Contract for Mutual Funds 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 and the sub-advisory contracts) for another year, effective July 1, 2014.
In evaluating the fairness and reasonableness of compensation under the Fund’s investment advisory agreement and sub-advisory contracts, the Board considered, among other things, the factors discussed below. The Board determined that continuation of the Fund’s investment advisory agreement and the sub-advisory contracts are in the best interest of the Fund and its shareholders and that the compensation payable to Invesco Advisers and the Affiliated Sub-Advisers under the agreements is fair and reasonable.
The Board’s Fund Evaluation Process
The Board’s Investments Committee has established three Sub-Committees, each of which is primarily responsible for overseeing the management of a number of the funds advised by Invesco Advisers (the Invesco Funds). The Sub-Committees meet throughout the year to review the performance of their assigned Invesco Funds, including reviewing materials prepared under the direction of the independent Senior Officer, an officer of the Invesco Funds who reports directly to the independent Trustees. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned Invesco Funds and other members of management to review the performance, investment objective(s), policies, strategies, limitations and investment risks of these funds. The Sub-Committees meet regularly and at designated contract renewal meetings each year to conduct a review of the performance, fees, expenses and other matters related to their assigned Invesco Funds. Each Sub-Committee recommends to the Investments Committee, which in turn recommends to the full Board, whether and on what terms to approve the continuance of each Invesco Fund’s
investment advisory agreement and sub-advisory contracts for another year.
During the contract renewal process, the Trustees receive comparative performance and fee data regarding the Invesco Funds prepared by Invesco Advisers and Lipper Inc. (Lipper), an independent provider of investment company data. The Trustees also receive an independent written evaluation from the Senior Officer. The Senior Officer’s evaluation is prepared as part of his responsibility to manage the process by which the Invesco Funds’ proposed management fees are negotiated during the annual contract renewal process to ensure they are negotiated in a manner that is at arms’ length and reasonable. In addition to meetings with Invesco Advisers and fund counsel, the independent Trustees also discuss the continuance of the investment advisory agreement and sub-advisory contracts in separate sessions with the Senior Officer and with independent legal counsel.
The Trustees recognized that the advisory fee rates for the Invesco Funds are, in many cases, the result of years of review and negotiation. The Trustees’ deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions regarding these same arrangements throughout the year and in prior years. The Trustees’ review and conclusions are based on the comprehensive consideration of all information presented to them and are not the result of any single determinative factor. Moreover, one Trustee may have weighed a particular piece of information or factor differently than another Trustee.
The discussion below serves as the Senior Officer’s independent written evaluation with respect to the Fund’s investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board’s approval of the Fund’s investment advisory agreement and sub-advisory contracts. Unless otherwise stated, this information is current as of June 17, 2014, and may not reflect consideration of factors that became known to the Board after that date.
Factors and Conclusions and Summary of Independent Written Fee Evaluation
A. | Nature, Extent and Quality of Services Provided by Invesco Advisers and the Affiliated Sub-Advisers |
The Board reviewed the advisory services provided to the Fund by Invesco Advisers under the Fund’s investment advisory agreement, the performance of Invesco Advisers in providing these services, and the credentials and experience of the officers and employees of Invesco Advisers who provide these services, including the Fund’s portfolio manager or managers, with whom the Sub-Committees met during the year. The Board’s review of the
qualifications of Invesco Advisers to provide advisory services included the Board’s consideration of Invesco Advisers’ investment process oversight, independent credit analysis and investment risk management. The Board also considered non-advisory services that Invesco Advisers and its affiliates provide to the Invesco Funds such as various back office support functions, equity and fixed income trading operations, internal audit, distribution and legal and compliance.
In determining whether to continue the Fund’s investment advisory agreement, the Board considered the benefits of reapproving an existing relationship and the greater uncertainty that may be associated with entering into a new relationship. The Board concluded that the nature, extent and quality of the services provided to the Fund by Invesco Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s investment advisory agreement.
The Board reviewed the services that may be provided by the Affiliated Sub-Advisers under the sub-advisory contracts and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who provide these services. The Board noted that the Affiliated Sub-Advisers have offices and personnel that are located in financial centers around the world. As a result, the Affiliated Sub-Advisers can provide research and investment analysis on the markets and economies of various countries in which the Fund may invest, make recommendations regarding securities and assist with security trades. The Board concluded that the sub-advisory contracts benefit the Fund and its shareholders by permitting Invesco Advisers to use the resources and talents of the Affiliated Sub-Advisers in managing the Fund. The Board concluded that the nature, extent and quality of the services that may be provided by the Affiliated Sub-Advisers are appropriate and satisfactory and consistent with the terms of the Fund’s sub-advisory contracts.
B. | Fund Performance |
The Board considered Fund performance as a relevant factor in considering whether to approve the investment advisory agreement. The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory contracts for the Fund, as no Affiliated Sub-Adviser currently manages assets of the Fund.
The Board compared the Fund’s performance during the past one, three and five calendar years to the performance of funds in the Lipper performance universe and against the Lipper VA Underlying Funds Multi-Cap Value 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, three and five year periods (the first quintile being the best performing funds and the fifth quintile
Invesco V.I. Value Opportunities Fund
being the worst performing funds). The Board noted that performance of Series I shares of the Fund was above the performance of the Index for the one, three and five year periods. The Trustees also reviewed more recent Fund performance and this review did not change their conclusions.
C. | Advisory and Sub-Advisory Fees |
The Board compared the Fund’s contractual management fee rate to the contractual management fee rates of funds in the Fund’s Lipper expense group at a common asset level. The Board noted that the contractual management fee rate for Series I shares of the Fund was below the median contractual management fee rate of funds in the expense group. The Board noted that the term “contractual management fee” may include both advisory and certain administrative services fees, but that Lipper does not provide information on a fund by fund basis as to what is included. The Board noted that Invesco Advisers does not charge the Invesco Funds for the administrative services included in the term as defined by Lipper. The Board also reviewed the methodology used by Lipper in providing expense group information, which includes using each fund’s contractual management fee schedule (including any applicable breakpoints) as reported in the most recent prospectus or statement of additional information for each fund in the expense group.
The Board noted that Invesco Advisers has contractually agreed to waive fees and/or limit expenses of the Fund through at least June 30, 2015 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 compared the Fund’s effective advisory fee rate (the advisory fee rate after advisory fee waivers and before other expense limitations/waivers) to the effective advisory fee rates of other mutual funds advised by Invesco Advisers and its affiliates that are managed using an investment process substantially similar to the investment process used for the Fund. The Board noted that the Fund’s rate was above the rate of one mutual fund advised by Invesco Advisers using a similar investment process. The Board noted that Invesco Advisers and the Affiliated Sub-Advisers do not advise other client accounts using an investment process substantially similar to the investment process used for the Fund.
The Board also considered the services that may be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory contracts, as well as the fees payable by Invesco Advisers to the Affiliated Sub-Advisers pursuant to the sub-advisory contracts. The Board also noted that the sub-advisory fees are not paid directly by the Fund, but rather, are payable by Invesco Advisers to the Affiliated Sub-Advisers.
D. | Economies of Scale and Breakpoints |
The Board considered the extent to which there are economies of scale in the provision of advisory services to the Fund. The Board also
considered whether the Fund benefits from economies of scale through contractual breakpoints in the Fund’s advisory fee schedule and was assisted in this review by a report from the Senior Officer. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of the Invesco Funds and other clients advised by Invesco Advisers.
E. | Profitability and Financial Resources |
The Board reviewed information from Invesco Advisers concerning the costs of the advisory and other services that Invesco Advisers and its affiliates provide to the Fund and the profitability of Invesco Advisers and its affiliates in providing these services for the year ended December 31, 2013. The Board received information from Invesco Advisers about the methodology used to prepare the profitability information. The Board considered the profitability of Invesco Advisers in managing the Fund and the Invesco Funds. The Board noted that Invesco Advisers continues to operate at a net profit from services Invesco Advisers and its subsidiaries provide to the Invesco Funds and the Fund. The Board did not deem the level of profits realized by Invesco Advisers and its affiliates from providing services to the Fund to be excessive given the nature, quality and extent of the services provided to the Invesco Funds. The Board received and accepted information from Invesco Advisers demonstrating that Invesco Advisers and each Affiliated Sub-Adviser are financially sound and have the resources necessary to perform their obligations under the investment advisory agreement and sub-advisory contracts.
F. | Collateral Benefits to Invesco Advisers and its Affiliates |
The Board considered various other benefits received by Invesco Advisers and its affiliates from the relationship with the Fund, including the fees received for their provision of transfer agency and distribution services to the Fund. The Board considered comparative information regarding fees charged for these services, including information provided by Lipper and other independent sources. The Board considered the performance of Invesco Advisers and its affiliates in providing these services and the organizational structure employed to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts that are reviewed and approved on an annual basis by the Board; that the services are required for the operation of the Fund; that Invesco Advisers and its affiliates can provide services, the nature and quality of which are at least equal to those provided by others offering the same or similar services; and that the fees for such services are fair and reasonable in light of the usual and customary charges by others for services of the same nature and quality.
The Board considered the benefits realized by Invesco Advisers and the Affiliated Sub-Advisers as a result of portfolio brokerage transactions
executed through “soft dollar” arrangements. The Board noted that soft dollar arrangements shift the payment obligation for research services from Invesco Advisers and the Affiliated Sub-Advisers to the Invesco Funds and that the research received may be used with other clients of Invesco Advisers and may reduce Invesco Advisers’ and the Affiliated Sub-Advisers’ expenses. The Board also considered that it receives 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 with respect to investments in the affiliated money market 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 amount of advisory fees received by Invesco Advisors from the Fund’s investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds are fair and reasonable.
The Board also considered the Fund may use an affiliated broker to execute certain trades for the Fund to among other things, control information leakage, and were advised that such trades would be executed in compliance with rules under the Investment Company Act of 1940, as amended.
Invesco V.I. Value Opportunities Fund
ITEM 2. | CODE OF ETHICS. |
There were no amendments to the Code of Ethics (the “Code”) that applies to the Registrant’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | As of August 20, 2014, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of August 20, 2014, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is |
recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. | ||
(b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
12(a) (1) | Not applicable. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
By: | /s/ Philip A. Taylor | |
Philip A. Taylor | ||
Principal Executive Officer | ||
Date: | August 25, 2014 |
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Philip A. Taylor | |
Philip A. Taylor | ||
Principal Executive Officer | ||
Date: | August 25, 2014 |
By: | /s/ Sheri Morris | |
Sheri Morris | ||
Principal Financial Officer | ||
Date: | August 25, 2014 |
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. |