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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07452
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 1000 Houston, Texas 77046
(Address of principal executive offices) (Zip code)
Philip A. Taylor
11 Greenway Plaza,
Suite 1000 Houston, Texas 77046
(Name and address of agent for service)
Registrant’s telephone number, including area code: (713) 626-1919
Date of fiscal year end: 12/31
Date of reporting period: 12/31/14
Item 1. Report to Stockholders.
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. American Franchise Fund had positive returns, but trailed its style-specific benchmark, the Russell 1000 Growth Index. The Fund outperformed its style-specific index in a number of sectors including the consumer discretionary and health care sectors, but underperformed in the telecommunication services and industrials sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.44 | % | |||
Series II Shares | 8.17 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 1000 Growth Index‚ (Style-Specific Index) | 13.05 | ||||
Lipper VUF Large-Cap Growth Funds Indexn (Peer Group Index) | 9.89 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in
mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
In this environment, the Fund did well, posting positive returns, although under-performing its style-specific benchmark. The Fund outperformed its style-specific index in a number of sectors due to positive stock selection decisions, especially in the consumer discretionary and health care sectors. However, underperformance in the telecommunication services and industrials sectors offset the positive effects from other sectors.
In the telecommunication services sector, underperformance resulted from the impact of Sprint, the largest detractor from Fund performance during the year. Speculation about a strategic merger had been building enthusiasm in the stock for a while, but during the year, merger efforts were put on hold, which disappointed
investors. Additionally, company management restructured pricing to make it easier for users to understand and offered incentives to attract new subscribers, both of which negatively impacted near-term revenues for the company.
In the industrials sector, engineering and construction company Jacobs Engineering Group reported disappointing mid-year results, including the write-off of certain European projects it had acquired through the purchase of another company. Later in the year, the company came under pressure as the fall in global oil prices caused investors to question the viability of a petrochemical build-out cycle from which it would presumably benefit. This build-out cycle depends on the US remaining among the lowest cost natural gas and oil producers, and the recent volatility across energy markets caused projects to be delayed as of the end of the reporting period, until there is further clarity. Jacobs Engineering was sold during the reporting period. Fluor, another engineering and construction company, also reported disappointing growth, which did not meet investor expectations and hurt Fund performance. We sold our position in Fluor during the year.
The Fund outperformed its style-specific benchmark by the widest margin in the consumer discretionary sector driven by positive stock selection decisions. Lowe’s reported continued growth in revenues and earnings throughout the year as well as a favorable outlook for future growth. The company also benefited from the expectation that lower gas prices will act as a tax-cut for consumers and stimulate spending. Dish Network was another contributor to Fund performance, benefiting from solid subscriber growth and industry consolidation. In addition, the market showed a growing appreciation of
Portfolio Composition | |||||
By sector | |||||
Information Technology | 32.3 | % | |||
Consumer Discretionary | 24.6 | ||||
Health Care | 18.6 | ||||
Industrials | 7.7 | ||||
Financials | 5.0 | ||||
Energy | 4.8 | ||||
Consumer Staples | 3.3 | ||||
Materials | 2.5 | ||||
Telecommunication Services | 1.0 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 0.2 |
Top 10 Equity Holdings* | |||||
1. Facebook Inc.-Class A | 5.9 | % | |||
2. Apple Inc. | 4.4 | ||||
3. DISH Network Corp.-Class A | 4.0 | ||||
4. MasterCard, Inc.-Class A | 3.6 | ||||
5. Celgene Corp. | 3.4 | ||||
6. Lowe's Cos., Inc. | 3.4 | ||||
7. Time Warner Cable Inc. | 2.9 | ||||
8. Google Inc.-Class A | 2.6 | ||||
9. Carnival Corp. | 2.6 | ||||
10. salesforce.com, Inc. | 2.5 |
Top Five Industries* | |||||
1. Biotechnology | 11.9 | % | |||
2. Internet Software & Services | 11.1 | ||||
3. Cable & Satellite | 7.9 | ||||
4. Pharmaceuticals | 4.4 | ||||
5. Technology Hardware, Storage & Peripherals | 4.4 |
Total Net Assets | $741.1 million | ||||
Total Number of Holdings* | 73 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security. *Excluding money market fund holdings. |
Invesco V.I. American Franchise Fund
the value of Dish’s downlink-focused wireless spectrum assets, especially in light of a government spectrum auction at year-end, when prices quickly escalated beyond expectations.
In the health care sector, one of the strongest contributors to Fund performance was Gilead Sciences whose launch of Sovaldi as an effective treatment for the hepatitis C virus was an enormous success. Another contributor during the reporting period was biotechnology company Celgene, which had positive developments in its cancer treatment pipeline and benefited from favorable resolution to an intellectual property hearing.
Fund positioning at year-end included a significant underweight position in the consumer staples sector relative to the Fund’s style-specific benchmark. Stock valuations in the sector appeared elevated relative to growth prospects and more attractive stable-growth stocks were available in other sectors, especially certain stocks in the consumer discretionary and health care sectors.
As we’ve discussed, the stock market experienced significant positive performance during the reporting period. However, stocks remained volatile and we caution investors against making investment decisions based on short-term performance.
We thank you for your commitment to Invesco V.I. American Franchise Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Erik Voss Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. American | ||
Franchise Fund. He joined Invesco in 2010. Mr. Voss earned a BS in mathematics and an MS in finance from the University of Wisconsin. | ||
Ido Cohen Portfolio Manager, is manager of Invesco V.I. American Franchise Fund. He joined Invesco in 2010. | ||
Mr. Cohen earned a BS in economics from The Wharton School of the University of Pennsylvania. |
Invesco V.I. American Franchise Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns |
| |||
As of 12/31/14 | ||||
Series I Shares | ||||
Inception (7/3/95) | 9.24 | % | ||
10 Years | 7.89 | |||
5 Years | 14.21 | |||
1 Year | 8.44 | |||
Series II Shares | ||||
Inception (9/18/00) | 0.06 | % | ||
10 Years | 7.62 | |||
5 Years | 13.93 | |||
1 Year | 8.17 |
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
Invesco V.I. American Franchise Fund’s investment objective is to seek capital growth.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Growth investing risk. Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result they tend to be more sensitive to changes in their earnings and can be more volatile.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mid-capitalization risk. Stocks of mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Growth Index is an unmanaged index considered representative of large-cap growth stocks. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Growth Funds Index is an unmanaged index considered representative of large-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. American Franchise Fund
Schedule of Investment(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.76% |
| |||||||
Aerospace & Defense–2.04% | ||||||||
Honeywell International Inc. | 113,600 | $ | 11,350,912 | |||||
Raytheon Co. | 34,884 | 3,773,402 | ||||||
15,124,314 | ||||||||
Agricultural Products–0.62% | ||||||||
Archer-Daniels-Midland Co. | 88,789 | 4,617,028 | ||||||
Airlines–0.95% | ||||||||
Southwest Airlines Co. | 166,450 | 7,044,164 | ||||||
Apparel, Accessories & Luxury Goods–1.34% | ||||||||
Michael Kors Holdings Ltd.(b) | 132,465 | 9,948,121 | ||||||
Application Software–2.99% | ||||||||
salesforce.com, inc.(b) | 305,823 | 18,138,362 | ||||||
Splunk Inc.(b) | 68,547 | 4,040,846 | ||||||
22,179,208 | ||||||||
Asset Management & Custody Banks–1.62% | ||||||||
Ameriprise Financial, Inc. | 90,782 | 12,005,919 | ||||||
Biotechnology–11.85% | ||||||||
Alkermes PLC(b) | 239,800 | 14,042,688 | ||||||
Amgen Inc. | 104,017 | 16,568,868 | ||||||
Biogen Idec Inc.(b) | 37,378 | 12,687,962 | ||||||
Celgene Corp.(b) | 226,850 | 25,375,441 | ||||||
Gilead Sciences, Inc.(b) | 170,710 | 16,091,125 | ||||||
Vertex Pharmaceuticals Inc.(b) | 25,545 | 3,034,746 | ||||||
87,800,830 | ||||||||
Brewers–0.73% | ||||||||
Anheuser-Busch InBev N.V.–ADR (Belgium) | 48,029 | 5,394,617 | ||||||
Cable & Satellite–7.87% | ||||||||
Comcast Corp.–Class A | 120,940 | 7,015,729 | ||||||
DISH Network Corp.–Class A(b) | 407,021 | 29,667,761 | ||||||
Time Warner Cable Inc. | 142,410 | 21,654,865 | ||||||
58,338,355 | ||||||||
Communications Equipment–2.20% | ||||||||
F5 Networks, Inc.(b) | 46,474 | 6,063,230 | ||||||
Palo Alto Networks, Inc.(b) | 52,561 | 6,442,402 | ||||||
QUALCOMM, Inc. | 51,473 | 3,825,988 | ||||||
16,331,620 | ||||||||
Construction & Engineering–1.07% | ||||||||
Quanta Services, Inc.(b) | 278,135 | 7,896,253 | ||||||
Construction Materials–0.69% | ||||||||
Martin Marietta Materials, Inc. | 46,474 | 5,127,012 | ||||||
Consumer Electronics–1.22% | ||||||||
Harman International Industries, Inc. | 84,853 | 9,054,664 |
Shares | Value | |||||||
Data Processing & Outsourced Services–4.15% | ||||||||
Alliance Data Systems Corp.(b) | 13,112 | $ | 3,750,688 | |||||
MasterCard, Inc.–Class A | 313,163 | 26,982,124 | ||||||
30,732,812 | ||||||||
Diversified Chemicals–0.91% | ||||||||
Dow Chemical Co. (The) | 148,569 | 6,776,232 | ||||||
Drug Retail–1.22% | ||||||||
CVS Health Corp. | 93,902 | 9,043,702 | ||||||
Fertilizers & Agricultural Chemicals–0.87% | ||||||||
Monsanto Co. | 53,763 | 6,423,065 | ||||||
General Merchandise Stores–0.48% | ||||||||
Dollar General Corp.(b) | 49,792 | 3,520,294 | ||||||
Health Care Distributors–0.86% | ||||||||
McKesson Corp. | 30,552 | 6,341,984 | ||||||
Health Care Facilities–0.44% | ||||||||
HCA Holdings, Inc.(b) | 44,535 | 3,268,424 | ||||||
Home Entertainment Software–0.23% | ||||||||
Activision Blizzard, Inc. | 84,815 | 1,709,022 | ||||||
Home Improvement Retail–3.38% | ||||||||
Lowe’s Cos., Inc. | 364,594 | 25,084,067 | ||||||
Hotels, Resorts & Cruise Lines–3.13% | ||||||||
Carnival Corp. | 421,150 | 19,090,729 | ||||||
Royal Caribbean Cruises Ltd. | 50,197 | 4,137,739 | ||||||
23,228,468 | ||||||||
Household Appliances–1.44% | ||||||||
Whirlpool Corp. | 55,274 | 10,708,785 | ||||||
Industrial Conglomerates–1.12% | ||||||||
Danaher Corp. | 26,223 | 2,247,573 | ||||||
Roper Industries, Inc. | 38,742 | 6,057,312 | ||||||
8,304,885 | ||||||||
Industrial Machinery–0.96% | ||||||||
Flowserve Corp. | 118,612 | 7,096,556 | ||||||
Insurance Brokers–0.74% | ||||||||
Aon PLC | 57,930 | 5,493,502 | ||||||
Internet Retail–3.44% | ||||||||
Amazon.com, Inc.(b) | 35,979 | 11,166,083 | ||||||
Priceline Group Inc. (The)(b) | 12,534 | 14,291,392 | ||||||
25,457,475 | ||||||||
Internet Software & Services–11.07% | ||||||||
Alibaba Group Holding Ltd.–ADR (China)(b) | 64,922 | 6,747,993 | ||||||
Baidu, Inc.–ADR (China)(b) | 18,725 | 4,268,738 | ||||||
Facebook Inc.–Class A(b) | 562,427 | 43,880,555 |
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) | 36,002 | $ | 19,104,821 | |||||
Google Inc.–Class C(b) | 15,203 | 8,002,859 | ||||||
82,004,966 | ||||||||
Investment Banking & Brokerage–1.65% | ||||||||
Morgan Stanley | 314,940 | 12,219,672 | ||||||
Life Sciences Tools & Services–1.03% | ||||||||
Thermo Fisher Scientific, Inc. | 61,042 | 7,647,952 | ||||||
Movies & Entertainment–1.50% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 167,583 | 6,436,025 | ||||||
Walt Disney Co. (The) | 49,515 | 4,663,818 | ||||||
11,099,843 | ||||||||
Oil & Gas Equipment & Services–0.51% | ||||||||
Baker Hughes Inc. | 67,535 | 3,786,687 | ||||||
Oil & Gas Exploration & Production–3.36% | ||||||||
Anadarko Petroleum Corp. | 182,199 | 15,031,418 | ||||||
Devon Energy Corp. | 68,344 | 4,183,336 | ||||||
Pioneer Natural Resources Co. | 38,119 | 5,674,013 | ||||||
24,888,767 | ||||||||
Oil & Gas Storage & Transportation–0.90% | ||||||||
Kinder Morgan Inc. | 157,877 | 6,679,776 | ||||||
Pharmaceuticals–4.41% | ||||||||
AbbVie Inc. | 149,228 | 9,765,480 | ||||||
Actavis PLC(b) | 60,763 | 15,641,004 | ||||||
Bristol-Myers Squibb Co. | 123,178 | 7,271,197 | ||||||
32,677,681 | ||||||||
Railroads–1.62% | ||||||||
Canadian Pacific Railway Ltd. (Canada)(c) | 35,991 | 6,935,106 | ||||||
Union Pacific Corp. | 42,346 | 5,044,679 | ||||||
11,979,785 | ||||||||
Restaurants–0.75% | ||||||||
Starbucks Corp. | 68,020 | 5,581,041 | ||||||
Semiconductor Equipment–0.62% | ||||||||
Applied Materials, Inc. | 185,267 | 4,616,854 |
Shares | Value | |||||||
Semiconductors–3.89% | ||||||||
Micron Technology, Inc.(b) | 358,642 | $ | 12,556,057 | |||||
NXP Semiconductors N.V. (Netherlands)(b) | 212,948 | 16,269,227 | ||||||
28,825,284 | ||||||||
Soft Drinks–0.75% | ||||||||
Monster Beverage Corp.(b) | 51,278 | 5,555,971 | ||||||
Specialized REIT’s–1.00% | ||||||||
American Tower Corp. | 75,200 | 7,433,520 | ||||||
Systems Software–2.80% | ||||||||
Check Point Software Technologies Ltd. (Israel)(b) | 61,207 | 4,809,034 | ||||||
ServiceNow, Inc.(b) | 178,306 | 12,098,062 | ||||||
VMware, Inc.–Class A(b) | 46,132 | 3,806,813 | ||||||
20,713,909 | ||||||||
Technology Hardware, Storage & Peripherals–4.37% | ||||||||
Apple Inc. | 293,401 | 32,385,602 | ||||||
Wireless Telecommunication Services–0.97% | ||||||||
Sprint Corp.(b) | 1,725,632 | 7,161,373 | ||||||
Total Common Stocks & Other Equity Interests (Cost $502,593,902) |
| 739,310,061 | ||||||
Money Market Funds–0.32% |
| |||||||
Liquid Assets Portfolio–Institutional | 1,192,579 | 1,192,579 | ||||||
Premier Portfolio–Institutional | 1,192,579 | 1,192,579 | ||||||
Total Money Market Funds |
| 2,385,158 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.08% |
| 741,695,219 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.74% | ||||||||
Liquid Assets Portfolio–Institutional Class (Cost $5,459,880)(d)(e) | 5,459,880 | 5,459,880 | ||||||
TOTAL INVESTMENTS–100.82% |
| 747,155,099 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.82)% |
| (6,084,892 | ) | |||||
NET ASSETS–100.00% |
| $ | 741,070,207 |
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 December 31, 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 December 31, 2014. |
Counterparty | Gross Amount on Loan at | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 5,333,659 | $ | (5,333,659 | ) | $ | — |
* | Amount does not include excess collateral received. |
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
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $502,593,902)* | $ | 739,310,061 | ||
Investments in affiliated money market funds, at value and cost | 7,845,038 | |||
Total investments, at value (Cost $510,438,940) | 747,155,099 | |||
Receivable for: | ||||
Investments sold | 1,269,107 | |||
Fund shares sold | 102,528 | |||
Dividends | 322,908 | |||
Investment for trustee deferred compensation and retirement plans | 383,705 | |||
Other assets | 2,774 | |||
Total assets | 749,236,121 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 940,437 | |||
Fund shares reacquired | 764,212 | |||
Collateral upon return of securities loaned | 5,459,880 | |||
Accrued fees to affiliates | 556,784 | |||
Accrued trustees’ and officers’ fees and benefits | 456 | |||
Accrued other operating expenses | 20,236 | |||
Trustee deferred compensation and retirement plans | 423,909 | |||
Total liabilities | 8,165,914 | |||
Net assets applicable to shares outstanding | $ | 741,070,207 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 503,940,417 | ||
Undistributed net investment income (loss) | (425,299 | ) | ||
Undistributed net realized gain | 838,681 | |||
Net unrealized appreciation | 236,716,408 | |||
$ | 741,070,207 | |||
Net Assets: |
| |||
Series I | $ | 541,929,151 | ||
Series II | $ | 199,141,056 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 9,874,424 | |||
Series II | 3,713,151 | |||
Series I: | ||||
Net asset value per share | $ | 54.88 | ||
Series II: | ||||
Net asset value per share | $ | 53.63 |
* | At December 31, 2014, securities with an aggregate value of $5,333,659 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $38,460) | $ | 5,720,130 | ||
Dividends from affiliated money market funds (includes securities lending income of $21,423) | 22,967 | |||
Interest | 23,922 | |||
Total investment income | 5,767,019 | |||
Expenses: | ||||
Advisory fees | 5,161,399 | |||
Administrative services fees | 1,983,055 | |||
Custodian fees | 29,556 | |||
Distribution fees — Series II | 546,007 | |||
Transfer agent fees | 68,278 | |||
Trustees’ and officers’ fees and benefits | 40,549 | |||
Other | 68,655 | |||
Total expenses | 7,897,499 | |||
Less: Fees waived | (222,228 | ) | ||
Net expenses | 7,675,271 | |||
Net investment income (loss) | (1,908,252 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (include net gains (losses) from securities sold to affiliated of $(78,934) and net gains from a redemption-in-kind of $1,272,445) | 115,657,743 | |||
Foreign currencies | (8,322 | ) | ||
115,649,421 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (54,153,573 | ) | ||
Foreign currencies | (1,394 | ) | ||
(54,154,967 | ) | |||
Net realized and unrealized gain | 61,494,454 | |||
Net increase in net assets resulting from operations | $ | 59,586,202 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (1,908,252 | ) | $ | 62,847 | |||
Net realized gain | 115,649,421 | 115,022,775 | ||||||
Change in net unrealized appreciation (depreciation) | (54,154,967 | ) | 143,862,178 | |||||
Net increase in net assets resulting from operations | 59,586,202 | 258,947,800 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (227,487 | ) | (2,241,984 | ) | ||||
Series ll | — | (576,996 | ) | |||||
Total distributions from net investment income | (227,487 | ) | (2,818,980 | ) | ||||
Share transactions–net: | ||||||||
Series l | (82,553,486 | ) | (92,234,602 | ) | ||||
Series ll | (74,143,144 | ) | (46,160,962 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (156,696,630 | ) | (138,395,564 | ) | ||||
Net increase (decrease) in net assets | (97,337,915 | ) | 117,733,256 | |||||
Net assets: | ||||||||
Beginning of year | 838,408,122 | 720,674,866 | ||||||
End of year (includes undistributed net investment income (loss) of $(425,299) and $(296,947), respectively) | $ | 741,070,207 | $ | 838,408,122 |
Notes to Financial Statements
December 31, 2014
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 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. American Franchise 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 ask 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 net investment 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. American Franchise 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.67%.
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.
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 year ended December 31, 2014, the Adviser waived advisory fees of $222,228.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $182,364 for accounting and fund administrative services and reimbursed $1,800,691 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $21,429 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 December 31, 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 year ended December 31, 2014, the Fund engaged in securities purchases of $1,622,285 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 227,487 | $ | 2,818,980 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | (28,732 | ) | |
Undistributed long-term gain | 3,597,227 | |||
Net unrealized appreciation — investments | 234,081,156 | |||
Net unrealized appreciation — other investments | 249 | |||
Temporary book/tax differences | (520,110 | ) | ||
Shares of beneficial interest | 503,940,417 | |||
Total net assets | $ | 741,070,207 |
Invesco V.I. American Franchise Fund
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $112,222,483 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward as of December 31, 2014.
On May 1, 2014, 221,454 of Series II shares valued at $10,798,113, were redeemed by a significant shareholder and settled through a redemption-in-kind transaction, of which $62,481 consisted of cash, which resulted in a realized gain of $1,272,445 to the Fund for book purposes. From a federal tax perspective, the realized gains are not recognized.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $494,059,189 and $649,419,469, 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 | $ | 242,856,895 | ||
Aggregate unrealized (depreciation) of investment securities | (8,775,739 | ) | ||
Net unrealized appreciation of investment securities | $ | 234,081,156 |
Cost of investments for tax purposes is $513,073,943.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of a redemption in kind and net operating losses, on December 31, 2014, undistributed net investment income (loss) was increased by $2,007,387, undistributed net realized gain was decreased by $1,285,988 and shares of beneficial interest was decreased by $721,399. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 497,166 | $ | 25,779,760 | 372,037 | $ | 16,044,363 | ||||||||||
Series II | 265,604 | 13,450,608 | 211,725 | 9,101,632 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 4,272 | 227,487 | 49,800 | 2,241,984 | ||||||||||||
Series II | — | — | 13,081 | 576,996 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (2,094,994) | (108,560,733) | (2,635,529) | (110,520,949) | ||||||||||||
Series II | (1,752,048) | (87,593,752) | (1,335,787) | (55,839,590) | ||||||||||||
Net increase (decrease) in share activity | (3,080,000) | $ | (156,696,630) | (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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | 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(d) | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 50.63 | $ | (0.09 | ) | $ | 4.36 | $ | 4.27 | $ | (0.02 | ) | $ | 54.88 | 8.44 | % | $ | 541,929 | 0.92 | %(e) | 0.95 | %(e) | (0.17 | )%(e) | 64 | % | ||||||||||||||||||||||
Year ended 12/31/13 | 36.28 | 0.04 | 14.50 | 14.54 | (0.19 | ) | 50.63 | 40.13 | 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 | 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 | ) | 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 | 74,870 | 0.79 | 0.90 | 0.12 | 158 | ||||||||||||||||||||||||||||||||||||
Series II(d) | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 49.58 | (0.22 | ) | 4.27 | 4.05 | — | 53.63 | 8.17 | 199,141 | 1.17 | (e) | 1.20 | (e) | (0.42 | )(e) | 64 | ||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 35.55 | (0.07 | ) | 14.20 | 14.13 | (0.10 | ) | 49.58 | 39.79 | 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 | 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 | ) | 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 | 109,920 | 1.04 | 1.15 | (0.18 | ) | 158 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $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. |
(d) | 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. |
(e) | Ratios are based on average daily net assets (000’s) of $552,744 and $218,403 for Series I and Series II, respectively. |
Invesco V.I. American Franchise Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. American Franchise Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. American Franchise Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,038.40 | $ | 4.93 | $ | 1,020.37 | $ | 4.89 | 0.96 | % | ||||||||||||
Series II | 1,000.00 | 1,037.20 | 6.21 | 1,019.11 | 6.16 | 1.21 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. American Franchise Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 87.37 | % | ||
U.S Treasury* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. American Franchise Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. American Franchise Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. American Franchise Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. American Franchise Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. American Franchise Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. American Value Fund produced positive returns that lagged the Russell Midcap Value Index, the Fund’s style-specific benchmark. The consumer discretionary sector was the largest detractor from the Fund’s relative and absolute performance for the reporting period. Stock selection in, and underweight exposure to, the financials sector also detracted from relative results. Despite a negative absolute return, the Fund’s energy holdings made a positive contribution to the Fund’s performance relative to the style-specific index. The industrials and telecommunication services sectors delivered positive returns that contributed to both relative and absolute results.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.75 | % | |||
Series II Shares | 9.48 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell Midcap Value Index‚ (Style-Specific Index) | 14.75 | ||||
Lipper VUF Mid Cap Value Funds Indexn (Peer Group Index) | 9.78 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
The Russell Midcap Value Index, the Fund’s style-specific benchmark, delivered a strong gain for the reporting period, and with the exception of energy, all sectors produced positive returns.
Stock selection in the consumer discretionary sector was the largest detractor from the Fund’s relative and absolute return for the reporting period. Performance in the sector was driven primarily by underperformance from specialty retailers Ascena Retail and Express. Ascena Retail was the largest detractor, as
weakness in sales at two of its store chains, Justice and Lane Bryant, led to disappointing earnings. We sold our position in Express before the end of the year.
Within the financials sector, the Fund’s relative performance was negatively impacted by our substantial underexposure to real estate investment trusts (REITs) relative to the style-specific benchmark. REITs comprise a large portion of the index’s financials sector holdings, and these securities performed strongly during the reporting period, outperforming both the financials sector as a whole and the overall index.
The Fund’s underweight exposure to the utilities sector detracted from relative returns, as it was one of the best-performing sectors for the reporting period. However, on an absolute basis, utilities included one of the Fund’s top individual contributors,
Edison International.
During the reporting period, energy stocks came under pressure due to rapidly falling oil prices; however, despite a negative absolute return, stock selection in the sector was the largest contributor to the Fund’s return relative to the Russell Midcap Value Index. The sector also included a number of the Fund’s top contributors and detractors: Newfield Exploration and Williams Companies were strong contributors, while Noble Corporation and Amec Foster Wheeler were key detractors. During the reporting period, Newfield Exploration’s shares rose as the company divested international assets and made progress on growing its domestic oil production. Noble’s shares came under pressure due to concerns about utilization rates and pricing on the company’s offshore rigs, while Amec Foster Wheeler was hurt by falling oil prices. We eliminated our position in Noble during the reporting period.
Strong stock selection in and over-weight
Portfolio Composition | |||||
By sector | |||||
Financials | 26.6 | % | |||
Industrials | 18.8 | ||||
Information Technology | 12.8 | ||||
Health Care | 11.6 | ||||
Consumer Discretionary | 9.7 | ||||
Energy | 4.6 | ||||
Materials | 4.3 | ||||
Utilities | 3.0 | ||||
Consumer Staples | 2.6 | ||||
Telecommunication Services | 2.4 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 3.6 |
Top 10 Equity Holdings* | |||||
1. Citrix Systems, Inc. | 3.1 | % | |||
2. Johnson Controls, Inc. | 3.0 | ||||
3. Universal Health Services, | |||||
Inc.-Class V | 2.9 | ||||
4. Forest City Enterprises, | |||||
Inc.-Class A | 2.8 | ||||
5. Teradata Corp. | 2.8 | ||||
6. ConAgra Foods, Inc. | 2.7 | ||||
7. HealthSouth Corp. | 2.5 | ||||
8. FNF Group | 2.5 | ||||
9. Textron Inc. | 2.5 | ||||
10. Owens Corning Inc. | 2.4 |
Top Five Industries* | |||||
1. Health Care Facilities | 7.6 | % | |||
2. Industrial Machinery | 6.9 | ||||
3. Regional Banks | 5.9 | ||||
4. Application Software | 5.4 | ||||
5. Auto Parts & Equipment | 5.2 |
Total Net Assets | $ | 423.8 million | |||
Total Number of Holdings* | 49 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. American Value Fund
exposure to the industrials sector also made a positive contribution to Fund results, and a number holdings in the sector had strong performance, including toolmaker Snap-on, and Swift Transportation, a transportation services and trucking company. However, the industrials sector also included a number of the Fund’s key detractors for the reporting period, including Babcock & Wilcox and Owens Corning. Babcock & Wilcox reported a decline in earnings due to lower revenues in its power generation business, as many of its customers cut spending based on lower demand for power generation.
Stock selection in and overweight exposure to the health care sector added to the Fund’s performance for the year, with Carefusion and Universal Health Services performing especially well. In early October, Becton Dickinson (not a Fund holding) announced its intention to acquire Carefusion at a significant premium; shares rose sharply following the announcement. Universal Health Services produced strong financial results during the year, as the Affordable Care Act began to benefit the company’s acute care division by reducing the number of uninsured patients. The company also announced a stock buyback plan and increased its dividend.
The Fund’s only holding in the telecommunication services sector, tw telecom, was a top contributor for the reporting period. In June, Level 3 Communications entered into an agreement to acquire tw telecom at a premium, and tw telecom’s stock rose sharply as a result. The acquisition was completed in November.
We used currency forward contracts for the purpose of hedging currency exposure of non-US-based companies held in the Fund during the reporting period. Derivatives were used for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a slight positive impact on the Fund’s performance relative to the Russell Midcap Value Index for the reporting period. This was mainly due to the strength of the US dollar versus many major foreign currencies.
As bottom-up stock pickers, we focus on a stock’s valuation relative to the remaining upside potential in the stock’s price. This discipline becomes more crucial in a rapidly rising market, as we attempt to protect investor returns through an entire market cycle. As such, during the reporting period, we sold a number of
well-performing holdings that we believed offered limited upside potential.
During the year, we increased
our exposure to the information technology, financials, health care and industrials sectors, and decreased our exposure to the consumer discretionary, energy, materials and consumer staples sectors. At the end of the reporting period, our largest overweight exposure versus our style-specific benchmark were to the industrials, telecommunication services and health care sectors, while our largest underweight exposures were to the utilities, financials and materials sectors.
Despite providing investors strong absolute returns, equity markets experienced continued volatility during the reporting period, based on geopolitical uncertainty, global economic sluggishness and the prospect of rising interest rates. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
We are committed to working to achieve positive returns for the Fund’s shareholders through an entire market cycle. Thank you for your continued investment in the Invesco V.I. American Value Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Thomas Copper Chartered Financial Analyst, Portfolio Manager, is co-lead manager of Invesco V.I. American Value | ||
Fund. He joined Invesco in 2010. Mr. Copper earned a BA in economics and political science from Tulane University and an MBA from Baylor University. | ||
John Mazanec Portfolio Manager, is co-lead manager of Invesco V.I. American Value Fund. He joined Invesco in 2010. | ||
Mr. Mazanec earned a BS from DePauw University and an MBA from Harvard University. | ||
Sergio Marcheli Portfolio Manager, is manager of Invesco V.I. American Value Fund. He joined Invesco in 2010. | ||
Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. |
Invesco V.I. American Value Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (1/2/97) | 10.73 | % | |||
10 Years | 9.80 | ||||
5 Years | 16.35 | ||||
1 Year | 9.75 | ||||
Series II Shares | |||||
Inception (5/5/03) | 12.16 | % | |||
10 Years | 9.65 | ||||
5 Years | 16.16 | ||||
1 Year | 9.48 |
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
Invesco V.I. American Value Fund’s investment objective is to provide above-average total return over a market cycle of three to five years by investing in common stocks and other equity securities.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies,
difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Small- and mid-capitalization risks.
Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or
that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. American Value Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.38% |
| |||||||
Aerospace & Defense–2.46% | ||||||||
Textron Inc. | 247,632 | $ | 10,427,784 | |||||
Air Freight & Logistics–1.33% | ||||||||
UTi Worldwide, Inc.(b) | 468,714 | 5,657,378 | ||||||
Alternative Carriers–2.35% | ||||||||
Level 3 Communications, Inc.(b) | 201,697 | 9,959,798 | ||||||
Apparel Retail–1.07% | ||||||||
Ascena Retail Group, Inc.(b) | 360,667 | 4,529,978 | ||||||
Application Software–5.37% | ||||||||
Cadence Design Systems, Inc.(b) | 507,585 | 9,628,887 | ||||||
Citrix Systems, Inc.(b) | 205,656 | 13,120,853 | ||||||
22,749,740 | ||||||||
Asset Management & Custody Banks–4.00% | ||||||||
American Capital Ltd.(b) | 530,585 | 7,751,847 | ||||||
Northern Trust Corp. | 136,713 | 9,214,456 | ||||||
16,966,303 | ||||||||
Auto Parts & Equipment–5.17% | ||||||||
Dana Holding Corp. | 418,948 | 9,107,929 | ||||||
Johnson Controls, Inc. | 264,561 | 12,788,879 | ||||||
21,896,808 | ||||||||
Automotive Retail–2.22% | ||||||||
Advance Auto Parts, Inc. | 58,955 | 9,390,352 | ||||||
Building Products–4.48% | ||||||||
Masco Corp. | 343,797 | 8,663,684 | ||||||
Owens Corning Inc. | 288,532 | 10,332,331 | ||||||
18,996,015 | ||||||||
Communications Equipment–2.30% | ||||||||
Ciena Corp.(b) | 503,323 | 9,769,499 | ||||||
Diversified Banks–2.43% | ||||||||
Comerica Inc. | 219,955 | 10,302,692 | ||||||
Diversified Chemicals–2.23% | ||||||||
Eastman Chemical Co. | 124,804 | 9,467,631 | ||||||
Electric Utilities–2.09% | ||||||||
Edison International | 135,410 | 8,866,647 | ||||||
Environmental & Facilities Services–0.91% | ||||||||
Clean Harbors, Inc.(b) | 79,986 | 3,843,327 | ||||||
Health Care Equipment–2.19% | ||||||||
CareFusion Corp.(b) | 156,420 | 9,281,963 | ||||||
Health Care Facilities–7.55% | ||||||||
Brookdale Senior Living Inc.(b) | 252,351 | 9,253,711 | ||||||
HealthSouth Corp. | 277,347 | 10,666,766 | ||||||
Universal Health Services, Inc.–Class B | 108,586 | 12,081,278 | ||||||
32,001,755 |
Shares | Value | |||||||
Heavy Electrical Equipment–2.03% | ||||||||
Babcock & Wilcox Co. (The) | 283,337 | $ | 8,585,111 | |||||
Industrial Machinery–6.92% | ||||||||
Ingersoll-Rand PLC | 162,931 | 10,328,196 | ||||||
Pentair PLC (United Kingdom) | 140,189 | 9,311,353 | ||||||
Snap-on Inc. | 70,977 | 9,705,395 | ||||||
29,344,944 | ||||||||
Insurance Brokers–5.11% | ||||||||
Arthur J. Gallagher & Co. | 130,321 | 6,135,513 | ||||||
Marsh & McLennan Cos., Inc. | 148,613 | 8,506,608 | ||||||
Willis Group Holdings PLC | 156,201 | 6,999,367 | ||||||
21,641,488 | ||||||||
Investment Banking & Brokerage–2.40% | ||||||||
Stifel Financial Corp.(b) | 199,679 | 10,187,623 | ||||||
IT Consulting & Other Services–2.76% | ||||||||
Teradata Corp.(b) | 267,447 | 11,682,085 | ||||||
Life Sciences Tools & Services–1.86% | ||||||||
PerkinElmer, Inc. | 180,379 | 7,887,974 | ||||||
Multi-Utilities–0.91% | ||||||||
CenterPoint Energy, Inc. | 165,457 | 3,876,658 | ||||||
Oil & Gas Equipment & Services–1.93% | ||||||||
Amec Foster Wheeler PLC–ADR (United Kingdom) | 45,677 | 591,060 | ||||||
Amec Foster Wheeler PLC (United Kingdom) | 580,079 | 7,592,540 | ||||||
8,183,600 | ||||||||
Oil & Gas Exploration & Production–0.94% | ||||||||
Newfield Exploration Co.(b) | 147,401 | 3,997,515 | ||||||
Oil & Gas Storage & Transportation–1.72% | ||||||||
Williams Cos., Inc. (The) | 162,073 | 7,283,561 | ||||||
Packaged Foods & Meats–2.65% | ||||||||
ConAgra Foods, Inc. | 309,086 | 11,213,640 | ||||||
Property & Casualty Insurance–4.02% | ||||||||
ACE Ltd. | 56,017 | 6,435,233 | ||||||
FNF Group | 307,447 | 10,591,549 | ||||||
17,026,782 | ||||||||
Publishing–1.27% | ||||||||
Gannett Co., Inc. | 169,116 | 5,399,874 | ||||||
Real Estate Operating Companies–2.77% | ||||||||
Forest City Enterprises, Inc.–Class A(b) | 550,767 | 11,731,337 | ||||||
Regional Banks–5.86% | ||||||||
BB&T Corp. | 254,208 | 9,886,149 | ||||||
Wintrust Financial Corp. | 195,628 | 9,147,565 | ||||||
Zions Bancorp. | 202,966 | 5,786,561 | ||||||
24,820,275 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Shares | Value | |||||||
Specialty Chemicals–2.09% | ||||||||
W.R. Grace & Co.(b) | 92,836 | $ | 8,855,626 | |||||
Technology Hardware, Storage & Peripherals–2.34% | ||||||||
Diebold, Inc. | 82,801 | 2,868,227 | ||||||
NetApp, Inc. | 170,200 | 7,054,790 | ||||||
9,923,017 | ||||||||
Trucking–0.65% | ||||||||
Swift Transportation Co.(b) | 96,359 | 2,758,758 | ||||||
Total Common Stocks & Other Equity Interests |
| 408,507,538 |
Shares | Value | |||||||
Money Market Funds–4.49% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 9,518,524 | $ | 9,518,524 | |||||
Premier Portfolio–Institutional Class(c) | 9,518,524 | 9,518,524 | ||||||
Total Money Market Funds |
| 19,037,048 | ||||||
TOTAL INVESTMENTS–100.87% |
| 427,544,586 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.87)% |
| (3,697,790 | ) | |||||
NET ASSETS–100.00% |
| $ | 423,846,796 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. American Value Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $326,465,771) | $ | 408,507,538 | ||
Investments in affiliated money market funds, at value and cost | 19,037,048 | |||
Total investments, at value (Cost $345,502,819) | 427,544,586 | |||
Cash | 39,621 | |||
Receivable for: | ||||
Investments sold | 55,962 | |||
Fund shares sold | 176,688 | |||
Dividends | 559,076 | |||
Investment for trustee deferred compensation and retirement plans | 49,256 | |||
Unrealized appreciation on forward foreign currency contracts | 48,713 | |||
Total assets | 428,473,902 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 1,893,878 | |||
Investments purchased from affiliates | 2,125,892 | |||
Fund shares reacquired | 133,737 | |||
Accrued fees to affiliates | 384,535 | |||
Accrued trustees’ and officers’ fees and benefits | 533 | |||
Accrued other operating expenses | 32,531 | |||
Trustee deferred compensation and retirement plans | 56,000 | |||
Total liabilities | 4,627,106 | |||
Net assets applicable to shares outstanding | $ | 423,846,796 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 297,132,530 | ||
Undistributed net investment income | 358,554 | |||
Undistributed net realized gain | 44,266,581 | |||
Net unrealized appreciation | 82,089,131 | |||
$ | 423,846,796 | |||
Net Assets: |
| |||
Series I | $ | 152,938,425 | ||
Series II | $ | 270,908,371 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 7,676,370 | |||
Series II | 13,715,426 | |||
Series I: | ||||
Net asset value per share | $ | 19.92 | ||
Series II: | ||||
Net asset value per share | $ | 19.75 |
Investment income: |
| |||
Dividends | $ | 5,664,558 | ||
Dividends from affiliated money market funds | 8,397 | |||
Total investment income | 5,672,955 | |||
Expenses: | ||||
Advisory fees | 3,107,667 | |||
Administrative services fees | 1,047,897 | |||
Custodian fees | 21,484 | |||
Distribution fees — Series II | 692,612 | |||
Transfer agent fees | 27,894 | |||
Trustees’ and officers’ fees and benefits | 28,923 | |||
Other | 62,480 | |||
Total expenses | 4,988,957 | |||
Less: Fees waived | (30,911 | ) | ||
Net expenses | 4,958,046 | |||
Net investment income | 714,909 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from a redemption-in-kind of $29,557,370) | 74,157,858 | |||
Foreign currencies | (5,380 | ) | ||
Forward foreign currency contracts | 357,927 | |||
Option contracts written | 25,124 | |||
74,535,529 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (39,310,561 | ) | ||
Foreign currencies | (1,350 | ) | ||
Forward foreign currency contracts | 48,713 | |||
Option contracts written | 41,876 | |||
(39,221,322 | ) | |||
Net realized and unrealized gain | 35,314,207 | |||
Net increase in net assets resulting from operations | $ | 36,029,116 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 714,909 | $ | 958,336 | ||||
Net realized gain | 74,535,529 | 44,249,741 | ||||||
Change in net unrealized appreciation (depreciation) | (39,221,322 | ) | 75,761,875 | |||||
Net increase in net assets resulting from operations | 36,029,116 | 120,969,952 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (696,392 | ) | (973,786 | ) | ||||
Series ll | (507,414 | ) | (1,555,508 | ) | ||||
Total distributions from net investment income | (1,203,806 | ) | (2,529,294 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (12,432,585 | ) | — | |||||
Series ll | (21,321,269 | ) | — | |||||
Total distributions from net realized gains | (33,753,854 | ) | — | |||||
Share transactions–net: | ||||||||
Series l | (5,402,205 | ) | (16,003,140 | ) | ||||
Series ll | (49,400,679 | ) | 23,196,508 | |||||
Net increase (decrease) in net assets resulting from share transactions | (54,802,884 | ) | 7,193,368 | |||||
Net increase (decrease) in net assets | (53,731,428 | ) | 125,634,026 | |||||
Net assets: | ||||||||
Beginning of year | 477,578,224 | 351,944,198 | ||||||
End of year (includes undistributed net investment income of $358,554 and $899,612, respectively) | $ | 423,846,796 | $ | 477,578,224 |
Notes to Financial Statements
December 31, 2014
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.
Invesco V.I. American Value 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 ask 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 net investment 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. American Value 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 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. An uncovered call option exists without the ownership of the underlying security. 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 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. The risk in writing an uncovered call option is that the Fund may incur significant losses if the value of the written security exceeds the exercise price of the option.
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
Invesco V.I. American Value Fund
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. |
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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.72%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $30,911.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $104,273 for accounting and fund administrative services and reimbursed $943,624 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $9,935 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 Value Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 419,952,046 | $ | 7,592,540 | $ | — | $ | 427,544,586 | ||||||||
Forward Foreign Currency Contracts* | — | 48,713 | — | 48,713 | ||||||||||||
Total Investments | $ | 419,952,046 | $ | 7,641,253 | $ | — | $ | 427,593,299 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 48,713 | $ | — |
(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 year ended December 31, 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 | Options(a) | |||||||
Realized Gain: | ||||||||
Currency risk | $ | 357,927 | $ | — | ||||
Equity risk | — | (89,499 | ) | |||||
Change in Unrealized Appreciation: | ||||||||
Currency risk | 48,713 | — | ||||||
Equity risk | — | 147,987 | ||||||
Total | $ | 406,640 | $ | 58,488 |
(a) | Options purchased net realized gain (loss) of $(114,623) and net unrealized gain of $106,111 are included in the net realized gain and net unrealized gain of investment securities. |
The table below summarizes the average notional value of forward foreign currency contracts for nine months, options purchased outstanding for eighteen days and options written outstanding for two months.
Forward Foreign Currency Contracts | Options Purchased | Options Written | ||||||||||
Average notional value | $ | 5,857,123 | $ | 3,632,000 | $ | 5,862,500 |
Invesco V.I. American Value Fund
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | GBP | 1,801,432 | USD | 2,831,689 | $ | 2,807,717 | $ | 23,972 | |||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | GBP | 1,802,365 | USD | 2,833,912 | 2,809,171 | 24,741 | |||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk | $ | 48,713 |
Currency Abbreviations:
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Options Written 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 | — | $ | — |
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 23,972 | $ | — | $ | 23,972 | $ | — | $ | — | $ | 23,972 | ||||||||||||
State Street Bank and Trust Co. | 24,741 | — | 24,741 | — | — | 24,741 | ||||||||||||||||||
Total | $ | 48,713 | $ | — | $ | 48,713 | $ | — | $ | — | $ | 48,713 |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2014, the Fund engaged in securities purchases of $2,125,892.
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. American Value Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 1,203,806 | $ | 2,529,294 | ||||
Long-term capital gain | 33,753,854 | — | ||||||
Total distributions | $ | 34,957,660 | $ | 2,529,294 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 3,208,728 | ||
Undistributed long-term gain | 42,265,492 | |||
Net unrealized appreciation — investments | 81,598,334 | |||
Net unrealized appreciation (depreciation) — other investments | (1,350 | ) | ||
Temporary book/tax differences | (356,938 | ) | ||
Shares of beneficial interest | 297,132,530 | |||
Total net assets | $ | 423,846,796 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
On April 28, 2014, 4,927,040 of Series II shares valued at $97,604,658, were redeemed by a significant shareholder and settled through a redemption-in-kind transaction, of which $5,931,767 consisted of cash, which resulted in a realized gain of $29,557,370 to the Fund for book purposes. From a federal income tax perspective, the realized gains are not recognized.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $197,536,757 and $276,840,987, 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 | $ | 88,882,734 | ||
Aggregate unrealized (depreciation) of investment securities | (7,284,400 | ) | ||
Net unrealized appreciation of investment securities | $ | 81,598,334 |
Cost of investments for tax purposes is $345,946,252.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and redemptions-in-kind, on December 31, 2014, undistributed net investment income was decreased by $52,161, undistributed net realized gain was decreased by $29,399,374 and shares of beneficial interest was increased by $29,451,535. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. American Value Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 740,950 | $ | 14,637,823 | 895,207 | $ | 15,703,262 | ||||||||||
Series II | 4,478,574 | 89,149,298 | 4,725,902 | 82,234,030 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 691,727 | 13,128,977 | 52,552 | 973,785 | ||||||||||||
Series II | 1,159,250 | 21,828,683 | 84,584 | 1,555,508 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,642,472 | ) | (33,169,005 | ) | (1,862,072 | ) | (32,680,187 | ) | ||||||||
Series II | (8,183,599 | ) | (160,378,660 | ) | (3,450,540 | ) | (60,593,030 | ) | ||||||||
Net increase (decrease) in share activity | (2,755,570 | ) | $ | (54,802,884 | ) | 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 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. |
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 19.89 | $ | 0.07 | $ | 1.78 | $ | 1.85 | $ | (0.10 | ) | $ | (1.72 | ) | $ | (1.82 | ) | $ | 19.92 | 9.75 | % | $ | 152,938 | 0.99 | %(d) | 1.00 | %(d) | 0.32 | %(d) | 48 | % | |||||||||||||||||||||||||
Year ended 12/31/13 | 14.91 | 0.07 | 5.03 | 5.10 | (0.12 | ) | — | (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 | ) | — | (0.10 | ) | 14.91 | 17.21 | 131,233 | 0.99 | 1.00 | 0.86 | 26 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.79 | 0.10 | 0.01 | 0.11 | (0.09 | ) | — | (0.09 | ) | 12.81 | 1.00 | 129,658 | 0.96 | 0.97 | 0.80 | 30 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.56 | 0.08 | 2.25 | 2.33 | (0.10 | ) | — | (0.10 | ) | 12.79 | 22.24 | 162,472 | 1.02 | 1.03 | 0.72 | 40 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 19.73 | 0.01 | 1.77 | 1.78 | (0.04 | ) | $ | (1.72 | ) | $ | (1.76 | ) | 19.75 | 9.48 | 270,908 | 1.24 | (d) | 1.25 | (d) | 0.07 | (d) | 48 | ||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 14.81 | 0.03 | 4.99 | 5.02 | (0.10 | ) | — | (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 | ) | — | (0.09 | ) | 14.81 | 16.98 | 220,711 | 1.17 | 1.25 | 0.68 | 26 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 12.72 | 0.09 | 0.01 | 0.10 | (0.08 | ) | — | (0.08 | ) | 12.74 | 0.91 | 163,194 | 1.06 | 1.22 | 0.70 | 30 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 10.50 | 0.07 | 2.25 | 2.32 | (0.10 | ) | — | (0.10 | ) | 12.72 | 22.18 | 151,985 | 1.12 | 1.32 | 0.62 | 40 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $154,575 and $277,045 for Series I and Series II shares, respectively. |
Invesco V.I. American Value Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. American Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. American Value Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,09.60 | $ | 5.04 | $ | 1,020.21 | $ | 5.04 | 0.99 | % | ||||||||||||
Series II | 1,000.00 | 1,018.40 | 6.31 | 1,018.95 | 6.31 | 1.24 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. American Value Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 33,753,854 | ||
Corporate Dividends Received Deduction* | 100 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. American Value Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. American Value Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. American Value Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. American Value Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. American Value Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Balanced-Risk Allocation Fund outperformed its custom style-specific benchmark, the Custom V.I. Balanced-Risk Allocation Index. Positive absolute performance from strategic fixed-income futures bolstered results.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 5.91 | % | |||
Series II Shares | 5.71 | ||||
MSCI World Index‚ (Broad Market Index) | 4.94 | ||||
Custom V.I. Balanced-Risk Allocation Indexn (Style-Specific Index) | 5.48 | ||||
Lipper VUF Absolute Return Funds Classification Average¿ (Peer Group)* | 3.33 |
Source(s): ‚FactSet Research Systems Inc.; nInvesco, FactSet Research Systems Inc.; ¿Lipper Inc.
* | During the reporting period, the Fund adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market measures. The Lipper VUF Absolute Return Funds Classification Average became the Fund’s peer group measure. |
Market conditions and your Fund
During the year ended December 31, 2014, global markets produced mixed results due to volatility from a variety of geopolitical developments. The Fund ended the reporting period in positive territory. Tactical positioning within commodities and fixed-income derivatives, obtained through the use of swaps and futures, boosted Fund results. Active positioning within equities, obtained through the use of swaps and futures, slightly hurt results. The net effect was a positive contribution.
Developed-market equity markets began the reporting period on a negative note, with only select markets such as Europe and the US breaking into positive territory by the end of the first quarter of 2014. Government bonds generated attractive returns as investors tried to avoid the volatility in equity and commodity markets and geopolitical uncertainty. Commodities started 2014 with mixed results; precious metals and the agricultural
complexes were up strongly, while industrial metals prices languished.
The Fund finished the first half of 2014 strongly as equities, fixed-income securities and commodities posted positive results for the second quarter. The Fund gains exposure to these three asset classes through the use of swaps and futures. During the second quarter, bond yields declined as geopolitical concerns related to Russia and the Middle East created greater demand for perceived “safe-haven” assets.1 Contraction in the US economy and generally weak European economic data also benefited bonds. Equities posted strong results as investors overlooked weaker-than-expected fundamental data and downplayed the potential for geopolitical issues to erupt into wider conflicts. Across the commodity complexes, energy led results as uncertainty in the Middle East drove crude oil prices higher. Precious metals prices also advanced, benefiting from safe-haven demand.
In the third quarter of 2014, the Fund’s investments in government bond futures led results as all six markets in which the Fund was invested (Australia, Canada, Germany, Japan, the UK and the US) ended in positive territory for the quarter. Factors driving bond yields lower included ongoing geopolitical concerns resulting from the conflict between Russia and Ukraine, as well as heightened terrorist activity in Iraq. Our investments in developed-market equity futures delivered mixed results for the quarter as Japanese, European and US large-cap equities generally rose while US small-cap, UK and Hong Kong stocks generally declined. The Fund’s investments in commodities, obtained through swaps and futures, weighed heavily on Fund results for the quarter, with the asset class underperforming bonds and equities. Agricultural commodities were particularly weak, driven by substantial price declines in soybeans, soymeal and soybean oil, the result of expected increases in global production.
Bonds were the leading asset class in the fourth quarter of 2014 as yields contracted. Investors sought refuge in high-quality government bonds as volatility returned to equities and cyclical commodity prices softened substantially, reducing inflation expectations along the way. The ending of the US Federal Reserve’s asset purchase program reintroduced volatility to equity markets, resulting in price weakness early in the fourth quarter. However, solid economic data in the US, expectations for broader central market stimulus measures in Japan and the beginning of asset purchases by the European Central Bank lifted share prices into the end of November. The decision by OPEC not to curtail production rates of crude oil led to renewed equity market weakness in December, particularly within the energy
Target Risk Allocation and | Total Net Assets | $1.0 billion | ||||||||||||||||||
Notional Asset Weights as of 12/31/14 | ||||||||||||||||||||
By asset class | ||||||||||||||||||||
Target Risk | Notational | |||||||||||||||||||
Asset Class | Allocation* | Asset Weights** | ||||||||||||||||||
Equities | 46.77 | % | 29.13 | % | ||||||||||||||||
Fixed Income | 36.54 | 85.42 | ||||||||||||||||||
Commodities | 16.69 | 21.53 | ||||||||||||||||||
Total | 100.00 | 136.08 | ||||||||||||||||||
*Reflects the risk that each asset class is expected to contribute to the overall risk of the Fund as measured by standard deviation and estimates of risk based on historical data. Standard deviation measures the annualized fluctuations (volatility) of monthly returns. ** Proprietary models determine the Notional Asset Weights necessary to achieve the Target Risk Allocations. Total Notional Asset Weight greater than 100% is achieved through derivatives and other instruments that create leverage. |
Invesco V.I. Balanced-Risk Allocation Fund
space. Commodities saw mixed performance over the fourth quarter. Agricultural commodities posted gains overall, largely on the strong performance of soybeans and soymeal. Industrial metals prices were soft due to weak global economic data, with the slowdown in China having the greatest effect. Gold and silver also saw modest price declines for the quarter. The clear loser for the quarter was energy, which saw double-digit losses for crude oil and distillates resulting from increased supply, weak demand and OPEC’s decision to maintain production levels.
Please note that our strategy is principally implemented with derivative instruments including futures and total return swaps, and other instruments that provide economic leverage, such as commodity-linked notes. Therefore, all or most of the performance of the strategy, both positive and negative, can be attributed to these instruments. Derivatives and other instruments that provide economic leverage can be a cost-effective way to gain exposure to asset classes. However, they may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
Thank you for your continued commitment to Invesco V.I. Balanced-Risk Allocation Fund.
1 | So-called “safe-haven” assets do not imply risk-free investing. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Mark Ahnrud Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Balanced-Risk | ||
Allocation Fund. He joined Invesco in 2000. Mr. Ahnrud earned a BS in finance and investments from Babson College and an MBA from Duke University Fuqua School of Business. | ||
Chris Devine Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Balanced-Risk | ||
Allocation Fund. He joined Invesco in 1998. Mr. Devine earned a BA in economics from Wake Forest University and an MBA from the University of Georgia. | ||
Scott Hixon Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Balanced-Risk | ||
Allocation Fund. He joined Invesco in 1994. Mr. Hixon earned a BBA in finance from Georgia Southern University and an MBA in finance from Georgia State University. | ||
Christian Ulrich Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Balanced-Risk | ||
Allocation Fund. He joined Invesco in 2000. Mr. Ulrich earned the equivalent of a BBA from the KV Zurich Business School in Zurich, Switzerland. | ||
Scott Wolle Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Balanced-Risk | ||
Allocation Fund. He joined Invesco in 1999. Mr. Wolle earned a BS in finance from Virginia Polytechnic Institute and State University and an MBA from Duke University Fuqua School of Business. | ||
Assisted by Invesco’s Global Asset Allocation Team |
Invesco V.I. Balanced-Risk Allocation Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es) since Inception
Fund and index data from 1/23/09*
Past performance cannot guarantee comparable future results.
During the reporting period, the Fund
adopted a three-tier benchmark structure to compare its performance to broad market, style-specific and peer group market
measures. The Lipper VUF Absolute Return Funds Classification Average became the Fund’s peer group measure.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (1/23/09) | 11.04 | % | |||
5 Years | 7.75 | ||||
1 Year | 5.91 | ||||
Series II Shares | |||||
Inception (1/23/09) | 10.76 | % | |||
5 Years | 7.48 | ||||
1 Year | 5.71 |
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 and/or expense reimbursements by the Adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Balanced-Risk Allocation Fund
Invesco V.I. Balanced-Risk Allocation Fund’s investment objective is total return with a low to moderate correlation to traditional financial market indices.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Commodities tax risk. The tax treatment of commodity-linked derivative instruments may be adversely affected by changes in legislation, regulations or other legally binding authority. If, as a result of any such adverse action, the income of the Fund from certain commodity-linked derivatives was treated as non-qualifying income, the Fund might fail to qualify as a regulated investment company and be subject to federal income tax at the Fund level. The Internal Revenue Service has issued a number of private letter rulings to other mutual funds, including to another Invesco fund (upon which only the fund that received the private letter ruling can rely), which indicate that income from a fund’s investment in certain commodity linked notes and a wholly owned foreign subsidiary that invests in commodity-linked derivatives, such as the Subsidiary, constitutes qualifying income. However, the Internal Revenue Service suspended issuance in July 2011 of any further private letter rulings pending a review of its position. Should the Internal Revenue Service issue guidance, or Congress enact legislation, that adversely affects the tax treatment of the Fund’s use of commodity-linked notes or the Subsidiary (which guidance might be applied to the Fund retroactively), it could limit the Fund’s ability to pursue its investment strategy and the Fund might not qualify as a regulated investment company for one or more years. In this event, the Fund’s Board of Trustees may authorize a significant change in investment strategy or Fund liquidation. The Fund also may incur transaction and other costs to comply with any new or additional guidance from the Internal Revenue Service.
Commodity-linked notes risk. The Fund’s investments in commodity-linked notes may involve substantial risks, including risk of loss of a significant portion of their principal value. In addition to risks associated with the underlying commodities, they may be subject to additional special risks, such as the lack of a secondary trading market and temporary price distortions due to speculators and/or the continuous rolling over of futures contracts underlying the notes. Commodity-linked notes are also subject to counterparty risk, which is the risk that
the other party to the contract will not fulfill its contractual obligation to complete the transaction with the Fund.
Commodity risk. The Fund’s significant investment exposure to the commodities markets and/or a particular sector of the commodities markets, which may subject the Fund to greater volatility than investments in traditional securities, such as stocks and bonds. The commodities markets may fluctuate widely based on a variety of factors, including changes in overall market movements, domestic and foreign political and economic events and policies, war, acts of terrorism, changes in domestic or foreign interest rates and/or investor expectations concerning interest rates, domestic and foreign inflation rates and investment and trading activities of mutual funds, hedge funds and commodities funds. Prices of various commodities may also be affected by factors such as drought, floods, weather, livestock disease, embargoes, tariffs and other regulatory developments. The prices of commodities can also fluctuate widely due to supply and demand disruptions in major producing or consuming regions. Because the Fund’s performance is linked to the performance of potentially volatile commodities, investors should be willing to assume the risks of potentially significant fluctuations in the value of the Fund’s shares.
Correlation risk. Changes in the value of two investments or asset classes may not track or offset each other in the manner anticipated by the portfolio managers. Because the Fund’s investment strategy seeks to balance risk across three asset classes and, within each asset class, to balance risk across different countries and commodities, to the extent either the three asset classes or the selected countries and commodities are correlated in a way not anticipated by the portfolio managers the Fund’s risk allocation process may not succeed in achieving its investment objective.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Currency/exchange rate risk. The dollar value of the Fund’s foreign investments will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions. These risks are greater for the Fund than most other mutual funds because the Fund will implement its investment strategy primarily through derivative instruments rather than direct investments in stocks and bonds.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital con-
Invesco V.I. Balanced-Risk Allocation Fund
trols, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Exchange-traded funds risk. An investment by the Fund in exchange-traded funds generally presents the same primary risks as an investment in a mutual fund. In addition, an exchange-traded fund may be subject to the following: (1) a discount of the exchange-traded fund’s shares to its net asset value; (2) failure to develop an active trading market for the exchange-traded fund’s shares; (3) the listing exchange halting trading of the exchange-traded fund’s shares; (4) failure of the exchange-traded fund’s shares to track the referenced asset; and (5) holding troubled securities in the referenced index or basket of investments. Investments in exchange-traded funds may involve duplication of management fees and certain other expenses, as the Fund indirectly bears its proportionate share of any expenses paid by the exchange-traded funds in which it invests. Further, certain of the exchange-traded funds in which the Fund may invest are leveraged. The more the Fund invests in such leveraged exchange-traded funds, the more this leverage will magnify any losses on those investments.
Exchange-traded notes risk. Exchange-traded notes are subject to credit risk, including the credit risk of the issuer, and the value of the exchange-traded note may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an exchange-traded note may also be influenced by time to maturity, level of supply and demand for the exchange-traded note, volatility and lack of liquidity in the underlying market, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying market or strategy. Exchange-traded notes are also subject to the risk that the other party to the contract will not fulfill its contractual obligations, which may cause losses or additional costs to the Fund.
Foreign government debt risk. Investments in foreign government debt obligations involve certain risks in addition to those relating to foreign securities or debt securities generally. The issuer of the debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the Fund may have limited recourse in the event of a default against the defaulting government. Without the approval of debt holders, some governmental debtors have in the past been able to reschedule or restructure their debt payments or declare moratoria on payments.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration. This risk may be magnified due to the Fund’s use of derivatives that provide leveraged exposure to government bonds.
Liquidity risk. The Fund may hold illiquid securities that may be unable to sell at the preferred time or price and could lose its entire investment in such securities. The Fund’s significant use of derivative instruments may cause liquidity risk to be greater than other mutual funds that invest in more traditional assets such as stocks and bonds, which trade on markets with more market participants.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. Because the Fund’s investment process relies heavily on its asset allocation process, market movements that are counter to the portfolio managers’ expectations may have a significant adverse effect on the Fund’s net asset value. Further, the portfolio managers’ use of short derivative positions and instruments that provide economic leverage increases the volatility of the Fund’s net asset value, which increases the potential of greater losses that may cause the Fund to liquidate positions when it may not be advantageous to do so.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Subsidiary risk. By investing in the Subsidiary, the Fund is indirectly exposed to risks associated with the Subsidiary’s investments. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (1940 Act), and, except as otherwise noted in this prospectus is not subject to the investor protections of the 1940 Act. Changes in the laws of the United States and/or the Cay-man Islands, under which the Fund and the Subsidiary, respectively, are organized, could result in the inability of the Fund and/or the Subsidiary to operate as described in this prospectus and could negatively affect the Fund and its shareholders.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
Volatility risk. The Fund may have investments that appreciate or decrease significantly in value over short periods of time. This may cause the Fund’s net asset value per share to experience significant increases or declines in value over short periods of time.
About indexes used in this report
The MSCI World Index 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 Lipper VUF Absolute Return Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Absolute Return Funds Classification.
Invesco V.I. Balanced-Risk Allocation Fund
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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Schedule of Investments
December 31, 2014
Interest Rate | Maturity Date | Principal Amount | Value | |||||||||||||
U.S. Treasury Securities–12.65% |
| |||||||||||||||
U.S. Treasury Bills–5.95%(a) | ||||||||||||||||
U.S. Treasury Bills(b)(c) | 0.10 | % | 01/08/15 | $ | 3,000,000 | $ | 2,999,990 | |||||||||
U.S. Treasury Bills(d) | 0.10 | % | 01/08/15 | 1,000,000 | 999,997 | |||||||||||
U.S. Treasury Bills(b) | 0.05 | % | 01/15/15 | 4,500,000 | 4,499,967 | |||||||||||
U.S. Treasury Bills(d) | 0.05 | % | 01/15/15 | 1,500,000 | 1,499,989 | |||||||||||
U.S. Treasury Bills(b) | 0.05 | % | 01/22/15 | 4,200,000 | 4,199,953 | |||||||||||
U.S. Treasury Bills(d) | 0.05 | % | 01/22/15 | 1,400,000 | 1,399,984 | |||||||||||
U.S. Treasury Bills(b) | 0.06 | % | 01/29/15 | 5,360,000 | 5,359,899 | |||||||||||
U.S. Treasury Bills(d) | 0.06 | % | 01/29/15 | 3,660,000 | 3,659,931 | |||||||||||
U.S. Treasury Bills(b) | 0.07 | % | 06/04/15 | 3,980,000 | 3,978,815 | |||||||||||
U.S. Treasury Bills(d) | 0.07 | % | 06/04/15 | 2,720,000 | 2,719,190 | |||||||||||
U.S. Treasury Bills(b) | 0.10 | % | 06/11/15 | 21,090,000 | 21,083,901 | |||||||||||
U.S. Treasury Bills(d) | 0.10 | % | 06/11/15 | 890,000 | 889,743 | |||||||||||
U.S. Treasury Bills(b) | 0.11 | % | 06/18/15 | 5,370,000 | 5,368,130 | |||||||||||
U.S. Treasury Bills | 0.11 | % | 06/18/15 | 1,650,000 | 1,649,425 | |||||||||||
60,308,914 | ||||||||||||||||
U.S. Treasury Notes–6.70%(e) | ||||||||||||||||
U.S. Treasury Notes(b)(d) | 0.06 | % | 01/31/16 | 26,820,000 | 26,813,613 | |||||||||||
U.S. Treasury Notes(d) | 0.06 | % | 01/31/16 | 5,660,000 | 5,658,652 | |||||||||||
U.S. Treasury Notes(b)(c) | 0.08 | % | 04/30/16 | 17,534,000 | 17,534,484 | |||||||||||
U.S. Treasury Notes | 0.08 | % | 04/30/16 | 10,191,000 | 10,191,281 | |||||||||||
U.S. Treasury Notes(b) | 0.09 | % | 07/31/16 | 5,100,000 | 5,100,270 | |||||||||||
U.S. Treasury Notes | 0.09 | % | 07/31/16 | 2,650,000 | 2,650,140 | |||||||||||
67,948,440 | ||||||||||||||||
Total U.S. Treasury Securities (Cost $128,262,950) | 128,257,354 | |||||||||||||||
Expiration Date | ||||||||||||||||
Commodity-Linked Securities–2.85% | ||||||||||||||||
Canadian Imperial Bank of Commerce EMTN, U.S. Federal Funds Effective Rate minus 0.04% (linked to the Canadian Imperial Bank of Commerce Custom 2 Agriculture Commodity Index, multiplied by 2)(b)(f) | 09/28/15 | 10,400,000 | 9,359,902 | |||||||||||||
Cargill, Inc., Commodity Linked Notes, one month LIBOR rate minus 0.10% (linked to the Monthly Rebalance Commodity Excess Return Index, multiplied by 2)(b)(f) | 09/17/15 | 17,100,000 | 15,164,100 | |||||||||||||
RBC Capital Markets Commodity Linked Notes, U.S. Federal Funds Effective Rate minus 0.04% (linked to the RBC Enhanced Agricultural Basket 01 Excess Return Index, multiplied by 2)(b)(f) | 08/24/15 | 5,350,000 | 4,425,766 | |||||||||||||
Total Commodity-Linked Securities (Cost $32,850,000) | 28,949,768 | |||||||||||||||
Shares | ||||||||||||||||
Money Market Funds–81.34% | ||||||||||||||||
Government & Agency Portfolio–Institutional Class(g) | 155,232,646 | 155,232,646 | ||||||||||||||
Invesco V.I. Money Market Fund–Series I(g) | 12,440,310 | 12,440,310 | ||||||||||||||
Liquid Assets Portfolio–Institutional Class(g) | 141,362,915 | 141,362,915 | ||||||||||||||
Premier Portfolio–Institutional Class(g) | 127,507,857 | 127,507,857 | ||||||||||||||
STIC (Global Series) PLC–U.S. Dollar Liquidity Portfolio–Institutional | 104,939,849 | 104,939,849 | ||||||||||||||
STIC Prime Portfolio–Institutional Class(g) | 113,356,378 | 113,356,378 | ||||||||||||||
Treasury Portfolio–Institutional Class(g) | 170,114,174 | 170,114,174 | ||||||||||||||
Total Money Market Funds (Cost $824,954,129) | 824,954,129 | |||||||||||||||
TOTAL INVESTMENTS–96.84% (Cost $986,067,079) | 982,161,251 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–3.16% | 32,070,823 | |||||||||||||||
NET ASSETS–100.00% | $ | 1,014,232,074 |
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(h) | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
Brent Crude(b) | Long | 195 | February–2015 | $ | 11,179,350 | $ | (2,988,055 | ) | ||||||||||||
Gasoline Reformulated Blendstock Oxygenate Blending(b) | Long | 180 | February–2015 | 11,129,076 | (705,437 | ) | ||||||||||||||
Silver(b) | Long | 227 | March–2015 | 17,704,865 | (911,506 | ) | ||||||||||||||
WTI Crude(b) | Long | 214 | February–2015 | 11,399,780 | (3,276,533 | ) | ||||||||||||||
Subtotal — Commodity Risk | (7,881,531 | ) | ||||||||||||||||||
Australia 10 Year Bonds | Long | 1,759 | March–2015 | 184,022,334 | 2,370,516 | |||||||||||||||
Canada 10 Year Bonds | Long | 1,227 | March–2015 | 146,293,717 | 2,590,122 | |||||||||||||||
Euro Bonds | Long | 812 | March–2015 | 153,158,049 | 2,724,392 | |||||||||||||||
Japan 10 Year Bonds | Long | 69 | March–2015 | 85,149,549 | 516,221 | |||||||||||||||
Long Gilt | Long | 908 | March–2015 | 169,170,761 | 4,532,650 | |||||||||||||||
U.S. Treasury 20 Year Bonds | Long | 647 | March–2015 | 93,531,938 | 2,646,887 | |||||||||||||||
Subtotal — Interest Rate Risk | 15,380,788 | |||||||||||||||||||
Dow Jones EURO STOXX 50 Index | Long | 1,945 | March–2015 | 73,739,682 | 804,239 | |||||||||||||||
E-Mini S&P 500 Index | Long | 509 | March–2015 | 52,233,580 | 1,487,102 | |||||||||||||||
FTSE 100 Index | Long | 701 | March–2015 | 71,268,011 | 2,681,331 | |||||||||||||||
Hang Seng Index | Long | 357 | January–2015 | 54,436,676 | 520,632 | |||||||||||||||
Russell 2000 Index Mini | Long | 402 | March–2015 | 48,268,140 | 2,105,071 | |||||||||||||||
Tokyo Stock Price Index | Long | 593 | March–2015 | 69,693,345 | (1,616,900 | ) | ||||||||||||||
Subtotal — Market Risk | 5,981,475 | |||||||||||||||||||
Total Futures Contracts | $ | 13,480,732 | ||||||||||||||||||
Open Over-The-Counter Total Return Swap Agreements | ||||||||||||||||||||
Swap Agreements | Type of Contract | Counterparty | Number of Contracts | Termination Date | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||
Receive a return equal to the Barclays Commodity Strategy 1452 Excess Return Index and pay the product of (i) 0.33% of the Notional Amount multiplied by (ii) days in the period divided by 365.(b) | Long | Barclays Bank PLC | 39,600 | May–2015 | $ | 20,484,577 | $ | (229,217 | ) | |||||||||||
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.(b) | Long | Canadian Imperial Bank of Commerce | 254,000 | April–2015 | 20,775,041 | (490,576 | ) | |||||||||||||
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.(b) | Long | J.P. Morgan Chase Bank, N.A. | 146,000 | April–2015 | 14,463,286 | 52,721 | ||||||||||||||
Receive a return equal to the Macquarie Commodity Customized Product 118E Index and pay the product of (i) 0.33% of the Notional Amount multiplied by (ii) days in the period divided by 365.(b) | Long | Macquarie Bank Ltd. | 1,000 | July–2015 | 325,633 | (8,416 | ) | |||||||||||||
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.(b) | Long | Merrill Lynch International | 32,300 | May–2015 | 19,996,229 | 0 | ||||||||||||||
Receive a return equal to Merrill Lynch Gold Excess Return Index and pay the product of (i) 0.14% of the Notional Amount multiplied by (ii) days in the period divided by 365.(b) | Long | Merrill Lynch International | 111,800 | June–2015 | 17,420,676 | 0 |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Open Over-The-Counter Total Return Swap Agreements—(Continued) | ||||||||||||||||||||
Swap Agreements | Type of Contract | Counterparty | Number of Contracts | Termination Date | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||
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.(b) | Long | Morgan Stanley Capital Services LLC | 115,500 | October–2015 | $ | 12,852,216 | $ | (374,497 | ) | |||||||||||
Subtotal — Commodity Risk | (1,049,985 | ) | ||||||||||||||||||
Receive a return equal to the LIFFE Long Gilt Futures multiplied by 0.01% of the Notional Value | Long | Goldman Sachs International | 122 | March–2015 | 22,729,992 | 523,560 | ||||||||||||||
Subtotal — Interest Rate Risk | 523,560 | |||||||||||||||||||
Receive a return equal to the Hang Seng Index Futures multiplied by the Notional Value | Long | Goldman Sachs International | 159 | January–2015 | 24,244,906 | 213,728 | ||||||||||||||
Subtotal — Market Risk | 213,728 | |||||||||||||||||||
Total Swap Agreements | $ | (312,697 | ) |
Investments Abbreviations:
EMTN | – European Medium-Term Notes | |
LIBOR | – London Interbank Offered Rate | |
LIFFE | – London International Financial Futures and Options Exchange |
Index Information: | ||
Canadian Imperial Bank of Commerce Custom 2 Agriculture Commodity Index | — a commodity index composed of futures contracts on Sugar, Soybeans, Soybean Meal, and Cotton. | |
Monthly Rebalance Commodity Excess Return Index | — a commodity index composed of futures contracts on Soybean Meal, Soybeans, Sugar No.11 and Cotton No.2. | |
RBC Enhanced Agricultural Basket 01 Excess Return Index | — a commodity index composed of futures contracts on Cotton, Soybeans, Soybean Meal and Sugar. | |
Barclays Commodity Strategy 1452 Excess Return Index | — a commodity index that provides exposure to futures contracts on copper. | |
CIBC Dynamic Roll LME Copper Excess Return Index | — a commodity index composed of futures contracts on copper. | |
S&P GSCI Gold Index Excess Return | — a commodity index composed of futures contracts on gold. | |
Macquarie Commodity Customized Product 118E Index | — a basket of four indices that provide exposure to various components of the agricultural markets. The underlying commodities comprising the indices are: Sugar, Cotton, Soybeans, and Soybean Meal. | |
MLCX Dynamic Enhanced Copper Excess Return Index | — a commodity index composed of futures contracts on copper. | |
Merrill Lynch Gold Excess Return Index | — 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. |
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) | The investment is owned by the Subsidiary. See Note 5. |
(c) | All or a portion of the value was designated as collateral for swap agreements. See Note 1M and Note 4. |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
(e) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2014. |
(f) | 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, 2014 was $28,949,768, which represented 2.85% of the Fund’s Net Assets. |
(g) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(h) | Futures contracts collateralized by $22,341,000 cash held with Goldman Sachs & Co., the futures commission merchant. |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Assets and Liabilities
December 31, 2014
Consolidated Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $161,112,950) | $ | 157,207,122 | ||
Investments in affiliated money market funds, at value and cost | 824,954,129 | |||
Total investments, at value (Cost $986,067,079) | 982,161,251 | |||
Cash | 11,120,000 | |||
Receivable for: | ||||
Deposits with brokers | 22,341,000 | |||
Variation margin — futures contracts | 86,889 | |||
Fund shares sold | 307,348 | |||
Dividends and interest | 34,214 | |||
Swap agreements | 6,563 | |||
Investment for trustee deferred compensation and retirement plans | 90,719 | |||
Unrealized appreciation on swap agreements | 790,009 | |||
Total assets | 1,016,937,993 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 321,477 | |||
Swap agreements | 9,380 | |||
Accrued fees to affiliates | 1,109,805 | |||
Accrued trustees’ and officers’ fees and benefits | 550 | |||
Accrued other operating expenses | 57,823 | |||
Trustee deferred compensation and retirement plans | 104,110 | |||
Premiums received on swap agreements | 68 | |||
Unrealized depreciation on swap agreements | 1,102,706 | |||
Total liabilities | 2,705,919 | |||
Net assets applicable to shares outstanding | $ | 1,014,232,074 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 883,285,929 | ||
Undistributed net investment income | 40,798,593 | |||
Undistributed net realized gain | 80,885,592 | |||
Net unrealized appreciation | 9,261,960 | |||
$ | 1,014,232,074 | |||
Net Assets: |
| |||
Series I | $ | 11,397,346 | ||
Series II | $ | 1,002,834,728 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 926,355 | |||
Series II | 82,390,380 | |||
Series I: | ||||
Net asset value per share | $ | 12.30 | ||
Series II: | ||||
Net asset value per share | $ | 12.17 |
Investment income: |
| |||
Dividends from affiliated money market funds | $ | 362,583 | ||
Interest | 93,503 | |||
Total investment income | 456,086 | |||
Expenses: | ||||
Advisory fees | 11,819,326 | |||
Administrative services fees | 2,416,106 | |||
Custodian fees | 34,315 | |||
Distribution fees — Series II | 3,227,747 | |||
Transfer agent fees | 18,227 | |||
Trustees’ and officers’ fees and benefits | 41,577 | |||
Other | 122,696 | |||
Total expenses | 17,679,994 | |||
Less: Fees waived | (5,435,150 | ) | ||
Net expenses | 12,244,844 | |||
Net investment income (loss) | (11,788,758 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,988,344 | |||
Foreign currencies | (2,344,707 | ) | ||
Futures contracts | 99,044,136 | |||
Swap agreements | (14,527,301 | ) | ||
84,160,472 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (5,228,398 | ) | ||
Foreign currencies | 19,396 | |||
Futures contracts | 1,520,034 | |||
Swap agreements | (580,662 | ) | ||
(4,269,630 | ) | |||
Net realized and unrealized gain | 79,890,842 | |||
Net increase in net assets resulting from operations | $ | 68,102,084 |
See accompanying Notes to Consolidated Financial Statements which are an integral part of the financial statements.
Invesco V.I. Balanced-Risk Allocation Fund
Consolidated Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (11,788,758 | ) | $ | (13,300,908 | ) | ||
Net realized gain | 84,160,472 | 21,894,049 | ||||||
Change in net unrealized appreciation (depreciation) | (4,269,630 | ) | 11,089,536 | |||||
Net increase in net assets resulting from operations | 68,102,084 | 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 | (588,237 | ) | (273,003 | ) | ||||
Series ll | (78,667,991 | ) | (44,221,706 | ) | ||||
Total distributions from net realized gains | (79,256,228 | ) | (44,494,709 | ) | ||||
Share transactions–net: | ||||||||
Series l | 2,645,706 | (1,259,550 | ) | |||||
Series ll | (355,564,687 | ) | 73,671,743 | |||||
Net increase (decrease) in net assets resulting from share transactions | (352,918,981 | ) | 72,412,193 | |||||
Net increase (decrease) in net assets | (364,073,125 | ) | 24,145,176 | |||||
Net assets: | ||||||||
Beginning of year | 1,378,305,199 | 1,354,160,023 | ||||||
End of year (includes undistributed net investment income (loss) of $40,798,593 and $(121,668), respectively) | $ | 1,014,232,074 | $ | 1,378,305,199 |
Notes to Consolidated Financial Statements
December 31, 2014
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 on prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they
Invesco V.I. Balanced-Risk Allocation Fund
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, if available, 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, company performance and returns of referenced assets.
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 ask 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 net investment 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Consolidated Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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.
Invesco V.I. Balanced-Risk Allocation Fund
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 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 Counterparties 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 and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between 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 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. At the maturity date, a net cash flow is exchanged where the total return is equivalent to the return of the underlying reference less a financing rate, if any. As a receiver, the Fund would receive payments based on any positive total return and would owe payments in the event of a negative total return. As the payer, the Fund would owe payments on any net positive total return, and would receive payment in the event of a negative total return.
Changes in the value of swap agreements are recognized as unrealized gains (losses) in the Consolidated Statement of Operations by “marking to market” on a daily basis to reflect the value of the swap agreement at the end of each trading day. Payments received or paid at the beginning of the agreement are reflected as such on the Consolidated Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund accrues for the fixed payment stream and amortizes upfront payments, if any, on swap agreements on a daily basis with the net amount, recorded as a component of realized gain (loss) on the Consolidated Statement of Operations. A liquidation payment received or made at the termination of a swap agreement is recorded as realized gain (loss) on the Consolidated Statement of Operations. The Fund segregates liquid securities having a value at least equal to the amount of the potential obligation of a Fund under any swap transaction. Entering into these agreements involves, to varying degrees, lack of liquidity and elements of credit, market, and Counterparty risk in excess of amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that a swap is difficult to sell or liquidate; the Counterparty does not honor its obligations under the agreement and unfavorable interest rates and market fluctuations. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
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. |
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser less the amount paid by the Subsidiary 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.91%.
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.
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).
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. Acquired Fund Fees and Expenses are not operating expenses of the Fund directly, but are fees and expenses, including management fees of the investment companies in which the 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 year ended December 31, 2014, the Adviser waived advisory fees of $5,435,150.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $304,179 for accounting and fund administrative services and reimbursed $2,111,927 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 824,954,129 | $ | — | $ | — | $ | 824,954,129 | ||||||||
U.S. Treasury Securities | — | 128,257,354 | — | 128,257,354 | ||||||||||||
Commodity-Linked Securities | — | 28,949,768 | — | 28,949,768 | ||||||||||||
824,954,129 | 157,207,122 | — | 982,161,251 | |||||||||||||
Futures Contracts* | 13,480,732 | — | — | 13,480,732 | ||||||||||||
Swap Agreements* | — | (312,697 | ) | — | (312,697 | ) | ||||||||||
Total Investments | $ | 838,434,861 | $ | 156,894,425 | $ | — | $ | 995,329,286 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Commodity risk | ||||||||
Futures contracts(a) | $ | — | $ | (7,881,531 | ) | |||
Swap agreements(b) | 52,721 | (1,102,706 | ) | |||||
Interest rate risk | ||||||||
Futures contracts(a) | 15,380,788 | — | ||||||
Swap agreements(b) | 523,560 | — | ||||||
Market risk | ||||||||
Futures contracts(a) | 7,598,375 | (1,616,900 | ) | |||||
Swap agreements(b) | 213,728 | — | ||||||
Total | $ | 23,769,172 | $ | (10,601,137 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Consolidated Statement of Assets and Liabilities. |
(b) | Values are disclosed on the Consolidated Statement of Assets and Liabilities under the caption Unrealized appreciation on swap agreements and Unrealized depreciation on swap agreements. |
Invesco V.I. Balanced-Risk Allocation Fund
Effect of Derivative Investments for the year ended December 31, 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 Consolidated Statement of Operations | ||||||||
Futures Contracts | Swap Agreements | |||||||
Realized Gain (Loss) | ||||||||
Commodity risk | $ | (29,589,971 | ) | $ | (17,797,642 | ) | ||
Interest rate risk | 105,234,921 | 4,724,407 | ||||||
Market risk | 23,399,186 | (1,454,066 | ) | |||||
Change in Unrealized Appreciation (Depreciation) | ||||||||
Commodity risk | (8,035,151 | ) | (1,317,950 | ) | ||||
Interest rate risk | 25,841,272 | 523,560 | ||||||
Market risk | (16,286,087 | ) | 213,728 | |||||
Total | $ | 100,564,170 | $ | (15,107,963 | ) |
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 | $ | 1,728,647,507 | $ | 254,378,854 |
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | Gross amounts offset in Consolidated Statement of Assets & Liabilities | Net amounts of assets presented in Consolidated Statement of Assets & Liabilities | Collateral Received | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount(a) | |||||||||||||||||||||
Fund | ||||||||||||||||||||||||
Goldman Sachs International | $ | 737,288 | $ | — | $ | 737,288 | $ | (331,891 | ) | $ | — | $ | 405,397 | |||||||||||
Subsidiary | ||||||||||||||||||||||||
J.P. Morgan Chase Bank, N.A. | 52,721 | (357 | ) | 52,364 | (52,364 | ) | — | — | ||||||||||||||||
Goldman Sachs International | 736 | (736 | ) | — | — | — | — | |||||||||||||||||
Merrill Lynch International | 126,535 | (119,972 | ) | 6,563 | (6,563 | ) | — | — | ||||||||||||||||
Subtotal — Subsidiary | 179,992 | (121,065 | ) | 58,927 | (58,927 | ) | — | — | ||||||||||||||||
Total | $ | 917,280 | $ | (121,065 | ) | $ | 796,215 | $ | (390,818 | ) | $ | — | $ | 405,397 |
Invesco V.I. Balanced-Risk Allocation Fund
Liabilities: | ||||||||||||||||||||||||
Gross amounts | Gross amounts offset in Consolidated Statement of Assets & Liabilities | Net amounts of liabilities presented in Consolidated Statement of Assets & Liabilities | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount(a) | |||||||||||||||||||||
Subsidiary | ||||||||||||||||||||||||
Barclays Bank PLC | $ | 232,365 | $ | — | $ | 232,365 | $ | (232,365 | ) | $ | — | $ | — | |||||||||||
Canadian Imperial Bank of Commerce | 494,162 | — | 494,162 | (494,162 | ) | — | — | |||||||||||||||||
Goldman Sachs International | 866 | (736 | ) | 130 | — | — | 130 | |||||||||||||||||
J.P. Morgan Chase Bank, N.A. | 357 | (357 | ) | — | — | — | — | |||||||||||||||||
Macquarie Bank Ltd. | 8,434 | — | 8,434 | (8,434 | ) | — | — | |||||||||||||||||
Merrill Lynch International | 119,972 | (119,972 | ) | — | — | — | — | |||||||||||||||||
Morgan Stanley Capital Services LLC | 376,638 | — | 376,638 | (299,034 | ) | — | 77,604 | |||||||||||||||||
Total | $ | 1,232,794 | $ | (121,065 | ) | $ | 1,111,729 | $ | (1,033,995 | ) | $ | — | $ | 77,734 |
(a) | The Fund and the Subsidiary are recognized as separate legal entities and as such are subject to separate netting arrangements with the Counterparty. |
NOTE 5—Subsidiary Information
The Fund’s Consolidated Schedule of Investments includes the holdings, including any investments in derivatives, of both the Fund and the Subsidiary. The Fund’s Consolidated Statement of Assets and Liabilities, Consolidated Statement of Operations and Consolidated Statement of Changes in Net Assets include the account balances of both the Fund and the Subsidiary and all interfund transactions have been eliminated.
The table below summarizes the financial information of the Subsidiary recognized in the consolidated financial statements referred to above.
Selected Financial Information | Invesco Cayman Commodity Fund IV Ltd. (the “Subsidiary”) | |||
Total assets | $ | 229,840,129 | ||
Total liabilities | (1,107,595 | ) | ||
Net assets | 228,732,534 | |||
Total investment income | 119,421 | |||
Net investment income (loss) | (2,775,414 | ) | ||
Net realized gain (loss) from: | ||||
Investment securities | 1,982,946 | |||
Futures contracts | (29,592,323 | ) | ||
Swap agreements | (17,797,643 | ) | ||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (5,224,337 | ) | ||
Futures contracts | (8,035,151 | ) | ||
Swap agreements | (1,317,950 | ) | ||
Net increase (decrease) in net assets resulting from operations | $ | (62,759,872 | ) |
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 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.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 8—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 43,655,744 | $ | 54,852,811 | ||||
Long-term capital gain | 35,600,484 | 13,096,883 | ||||||
Total distributions | $ | 79,256,228 | $ | 67,949,694 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 82,228,218 | ||
Undistributed long-term gain | 47,606,334 | |||
Net unrealized appreciation (depreciation) — investments | (3,905,828 | ) | ||
Net unrealized appreciation — other investments | 5,117,022 | |||
Temporary book/tax differences | (99,601 | ) | ||
Shares of beneficial interest | 883,285,929 | |||
Total net assets | $ | 1,014,232,074 |
The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to futures contracts and swap agreements.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $42,750,000 and $40,203,568, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $67,960,282 and $0, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 4,528 | ||
Aggregate unrealized (depreciation) of investment securities | (3,910,356 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (3,905,828 | ) |
Cost of investments is the same for financial reporting and tax purposes.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign futures, swap income and net operating losses, on December 31, 2014, undistributed net investment income (loss) was increased by $52,709,019, undistributed net realized gain was increased by $4,821,131 and shares of beneficial interest was decreased by $57,530,150. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Balanced-Risk Allocation Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 316,598 | $ | 4,028,214 | 207,164 | $ | 2,643,732 | ||||||||||
Series II | 14,185,151 | 177,408,617 | 38,806,552 | 487,478,913 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 48,615 | 588,237 | 34,804 | 427,741 | ||||||||||||
Series II | 6,566,610 | 78,667,991 | 5,534,502 | 67,520,918 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (155,787 | ) | (1,970,745 | ) | (343,623 | ) | (4,331,023 | ) | ||||||||
Series II | (50,545,455 | ) | (611,641,295 | ) | (39,055,450 | ) | (481,328,088 | ) | ||||||||
Net increase in share activity | (29,584,268 | ) | $ | (352,918,981 | ) | 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 88% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 12—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 to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 12.30 | $ | (0.08 | ) | $ | 0.80 | $ | 0.72 | $ | — | $ | (0.72 | ) | $ | (0.72 | ) | $ | 12.30 | 5.91 | % | $ | 11,397 | 0.69 | %(d)(e) | 1.11 | %(e) | (0.65 | )%(e) | 60 | % | |||||||||||||||||||||||||
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 | (d) | 1.15 | (0.59 | ) | 188 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/11(f) | 13.09 | (0.04 | ) | 1.28 | 1.24 | (0.10 | ) | (2.70 | ) | (2.80 | ) | 11.53 | 11.00 | 4,472 | 0.71 | (d) | 1.22 | (0.32 | ) | 142 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(g) | 12.00 | 0.10 | 1.15 | 1.25 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.09 | 10.57 | 17 | 0.89 | 1.29 | 0.88 | (h) | 444 | ||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 12.21 | (0.12 | ) | 0.80 | 0.68 | — | (0.72 | ) | (0.72 | ) | 12.17 | 5.62 | 1,002,835 | 0.94 | (d)(e) | 1.36 | (e) | (0.90 | )(e) | 60 | ||||||||||||||||||||||||||||||||||||
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 | (d) | 1.40 | (0.84 | ) | 188 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/11(f) | 13.05 | (0.07 | ) | 1.27 | 1.20 | (0.06 | ) | (2.70 | ) | (2.76 | ) | 11.49 | 10.61 | 257,898 | 0.96 | (d) | 1.47 | (0.57 | ) | 142 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(g) | 12.10 | 0.07 | 1.04 | 1.11 | (0.02 | ) | (0.14 | ) | (0.16 | ) | 13.05 | 9.32 | 75 | 1.14 | 1.54 | 0.59 | (h) | 444 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | In addition to the fees and expenses which the Fund bears directly; the Fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Because the underlying funds have varied expenses and fee levels and the Fund may own different proportions at different times, the amount of fees and expenses incurred indirectly by the Fund will vary. Estimated underlying fund expenses are not expenses that are incurred directly by your Fund. They are expenses that are incurred directly by the underlying funds and are deducted from the value of the funds your Fund invests in. The effect of the estimated underlying fund expenses that you bear indirectly is included in your Fund’s total return. Estimated acquired fund fees from underlying funds were 0.02%, 0.02% and 0.04% for the years ended December 31, 2014, 2012 and 2011, respectively. |
(e) | Ratios are based on average daily net assets (000’s omitted) of $9,681 and $1,291,099 for Series I and Series II shares, respectively. |
(f) | Prior to May 2, 2011, the Fund operated as Invesco Van Kampen V.I. Global Tactical Asset Allocation Fund (the “Predecessor Fund”). On such date, holders of the Predecessor Fund’s Series I and Series II shares received Series I and Series II shares, respectively, of the Fund. |
(g) | On June 1, 2010, the Class I and Class II shares of the Invesco Van Kampen Life Investment Trust Global Tactical Asset Allocation Portfolio were reorganized into Series I and Series II shares, respectively, of the Predecessor Fund. |
(h) | Ratio of net investment income (loss) to average net assets without fee waivers and/or expenses absorbed for the year ended December 31, 2010 was 0.48% for Series I shares and 0.19% for Series II shares. |
Invesco V.I. Balanced-Risk Allocation Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and Shareholders of Invesco V.I. Balanced-Risk Allocation Fund:
In our opinion, the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, and the related consolidated statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Balanced-Risk Allocation Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Balanced-Risk Allocation Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 992.90 | $ | 3.42 | $ | 1,021.78 | $ | 3.47 | 0.68 | % | ||||||||||||
Series II | 1,000.00 | 992.00 | 4.67 | 1,020.52 | 4.74 | 0.93 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Balanced-Risk Allocation Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 35,600,484 | ||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 0.05 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Balanced-Risk Allocation Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Balanced-Risk Allocation Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Comstock Fund underperformed its style-specific benchmark, the Russell 1000 Value Index. Stock selection was the main driver of Fund performance for the reporting period, as portfolio construction is based solely on bottom-up stock selection.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.39 | % | |||
Series II Shares | 9.10 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 13.45 | ||||
Lipper VUF Large-Cap Value Funds Indexn (Peer Group Index) | 10.83 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities.
Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, most US equity market indexes delivered strong gains. Sector performance within the Russell 1000 Value Index was mixed for the reporting period, with some sectors, like information technology, utilities and health care returning over 20%, while other sectors, like materials and telecommunication services posted low single-digit returns. Energy was the only sector to post a negative return.
Strong stock selection in, and underweight exposure to, the materials sector contributed to relative Fund performance. Notably, Alcoa had a large positive impact on absolute and relative Fund performance, returning almost 50% for the year. Also, having no exposure to mining stocks boosted Fund performance, as many mining companies’ margins and earnings were negatively affected by declines in the price of gold and other metals during 2014.
Overweight exposure to the information technology sector, and stock selection within the sector, boosted Fund performance. Within the hardware and equipment industry, Hewlett-Packard was a clear contributor. Hewlett-Packard returned over 40% for the reporting period.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the portfolio. Derivatives were used for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period. This was mainly due to the strength of the US dollar compared to the foreign currencies in which the fund’s non-US holdings were denominated.
On the negative side, stock selection in and overweight exposure to the energy sector was the largest detractor for the reporting period, with most of the underperformance occurring from mid-September to year-end due to a sharp decline in the price of oil. In the oil services and equipment industry, Weatherford International was the largest absolute and relative detractor for the year, falling by more than 20%, after being a large contributor during the first two quarters of 2014. Also, not owning Exxon Mobil was a large detractor from Fund performance; the company was one of the few energy companies to post positive performance.
Weak stock selection in the consumer discretionary sector also hurt Fund performance relative to our style-specific benchmark. Fund holdings such as media giant Viacom and automobile manufacturer General Motors posted negative returns. Investor confidence in General Motors eroded somewhat after the firm
Portfolio Composition | |||||
By sector
| |||||
Financials | 24.2 | % | |||
Consumer Discretionary | 17.0 | ||||
Energy | 14.7 | ||||
Information Technology | 12.4 | ||||
Health Care | 12.3 | ||||
Industrials | 6.8 | ||||
Consumer Staples | 4.6 | ||||
Materials | 1.7 | ||||
Utilities | 1.0 | ||||
Telecommunication Services | 0.9 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 4.4 |
Top 10 Equity Holdings*
|
| ||||
1. Citigroup Inc. | 4.4 | % | |||
2. JPMorgan Chase & Co. | 3.1 | ||||
3. General Electric Co. | 2.5 | ||||
4. Suncor Energy, Inc. | 2.3 | ||||
5. Royal Dutch Shell PLC- Class A-ADR | 2.2 | ||||
6. Carnival Corp. | 2.1 | ||||
7. Bank of America Corp. | 1.9 | ||||
8. Cisco Systems, Inc. | 1.9 | ||||
9. Merck & Co., Inc. | 1.9 | ||||
10. Wells Fargo & Co. | 1.9 |
Top Five Industries*
| |||||
1. Diversified Banks | 11.7 | % | |||
2. Pharmaceuticals | 9.0 | ||||
3. Integrated Oil & Gas | 8.3 | ||||
4. Movies & Entertainment | 3.9 | ||||
5. Systems Software | 3.3 |
Total Net Assets | $2.2 billion | |||
Total Number of Holdings* | 77 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Comstock Fund
announced a recall of faulty ignition switches after a 10-year delay.
Weak stock selection in the health care sector also detracted from relative Fund performance. This was particularly true of Fund holdings in the pharmaceutical and biotech industries. Sanofi posted a double-digit negative return and was an absolute and relative detractor from Fund performance for the year.
Stock selection in the financials sector also hurt our relative performance. Gains in holdings such as Allstate were offset by anemic returns from Citigroup, which disappointed investors by failing to pass the US Federal Reserve’s “stress test,” thereby preventing company management from raising its dividend early in the year.
Having material underweight exposure to the utilities sector detracted from our relative performance, as utilities was one of the best performing sectors of the Russell 1000 Value Index during the reporting period.
Although the Fund was underweight the financials sector and overweight the energy sector compared to our style-specific benchmark at the close of the year, we have a favorable view of large diversified financial companies and have been adding to our positions in the energy sector. The Fund’s exposure to each sector has a higher beta than the benchmark.1 Therefore, the Fund may be more sensitive to broad moves within these sectors for the foreseeable future.
Strong equity market returns over the past few years are making it ever more important to focus on valuations and stock selection through intense fundamental analysis. As value managers, we believe the very low earnings expectations that characterize most holdings in the portfolio, combined with historically attractive valuations, may provide downside protection in a volatile equity market.
Thank you for your investment in Invesco V.I. Comstock Fund and for sharing our long-term investment horizon.
1 | Beta is a measure of risk representing how a security is expected to respond to general market movements. |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Kevin Holt Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Comstock Fund. | ||
He joined Invesco in 2010. Mr. Holt earned a bachelor’s degree from the University of Iowa and an MBA from the University of Chicago Booth School of Business. | ||
Devin Armstrong Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Comstock Fund. He | ||
joined Invesco in 2010. Mr. Armstrong earned a BS in psychology and finance from the University of Illinois and an MBA in finance from Columbia University. | ||
Matt Seinsheimer Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Comstock Fund. He | ||
joined Invesco in 1998. Mr. Seinsheimer earned a BBA from Southern Methodist University and an MBA from The University of Texas at Austin. | ||
James Warwick Portfolio Manager, is manager of Invesco V.I. Comstock Fund. He joined Invesco in 2010. Mr. Warwick | ||
earned a BBA from Stephen F. Austin State University and an MBA from the University of Houston. |
Invesco V.I. Comstock Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (4/30/99) | 7.17 | % | |||
10 Years | 7.11 | ||||
5 Years | 15.09 | ||||
1 Year | 9.39 | ||||
Series II Shares | |||||
Inception (9/18/00) | 7.28 | % | |||
10 Years | 6.85 | ||||
5 Years | 14.79 | ||||
1 Year | 9.10 |
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, 2016. See current prospectus for more information. |
Invesco V.I. Comstock Fund
Invesco V.I. Comstock Fund’s investment objective is to seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that
could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including
REITs or similar structures, tend to be small-and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
Invesco V.I. Comstock Fund |
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Value Funds Index is an unmanaged index considered representative of large-cap value variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Comstock Fund |
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–95.60% |
| |||||||
Aerospace & Defense–2.08% | ||||||||
Honeywell International Inc. | 170,847 | $ | 17,071,032 | |||||
Textron Inc. | 671,237 | 28,265,790 | ||||||
45,336,822 | ||||||||
Aluminum–0.81% | ||||||||
Alcoa Inc. | 1,117,804 | 17,650,125 | ||||||
Apparel, Accessories & Luxury Goods–0.47% | ||||||||
Fossil Group, Inc.(b) | 91,939 | 10,181,325 | ||||||
Application Software–1.34% | ||||||||
Autodesk, Inc.(b) | 159,502 | 9,579,690 | ||||||
Citrix Systems, Inc.(b) | 308,249 | 19,666,286 | ||||||
29,245,976 | ||||||||
Asset Management & Custody Banks–3.21% | ||||||||
Bank of New York Mellon Corp. (The) | 805,076 | 32,661,933 | ||||||
State Street Corp. | 476,118 | 37,375,263 | ||||||
70,037,196 | ||||||||
Auto Parts & Equipment–1.68% | ||||||||
Johnson Controls, Inc. | 758,917 | 36,686,048 | ||||||
Automobile Manufacturers–1.84% | ||||||||
General Motors Co. | 1,146,765 | 40,033,566 | ||||||
Broadcasting–0.46% | ||||||||
CBS Corp.–Class B | 179,747 | 9,947,199 | ||||||
Cable & Satellite–2.77% | ||||||||
Comcast Corp.–Class A | 547,688 | 31,771,381 | ||||||
Time Warner Cable Inc. | 188,138 | 28,608,264 | ||||||
60,379,645 | ||||||||
Communications Equipment–1.94% | ||||||||
Cisco Systems, Inc. | 1,520,490 | 42,292,429 | ||||||
Department Stores–1.45% | ||||||||
Kohl’s Corp. | 516,276 | 31,513,487 | ||||||
Diversified Banks–11.73% | ||||||||
Bank of America Corp. | 2,366,183 | 42,331,014 | ||||||
Citigroup Inc. | 1,767,353 | 95,631,471 | ||||||
JPMorgan Chase & Co. | 1,080,550 | 67,620,819 | ||||||
U.S. Bancorp | 194,062 | 8,723,087 | ||||||
Wells Fargo & Co. | 753,875 | 41,327,427 | ||||||
255,633,818 | ||||||||
Drug Retail–0.91% | ||||||||
CVS Health Corp. | 205,834 | 19,823,873 | ||||||
Electric Utilities–0.52% | ||||||||
FirstEnergy Corp. | 290,374 | 11,321,682 |
Shares | Value | |||||||
Electrical Components & Equipment–0.97% | ||||||||
Emerson Electric Co. | 342,452 | $ | 21,139,562 | |||||
Electronic Components–0.93% | ||||||||
Corning Inc. | 880,033 | 20,179,157 | ||||||
General Merchandise Stores–1.04% | ||||||||
Target Corp. | 299,095 | 22,704,302 | ||||||
Health Care Equipment–0.65% | ||||||||
Medtronic, Inc. | 197,387 | 14,251,341 | ||||||
Health Care Services–0.79% | ||||||||
Express Scripts Holding Co.(b) | 204,220 | 17,291,307 | ||||||
Hotels, Resorts & Cruise Lines–2.14% | ||||||||
Carnival Corp. | 1,028,046 | 46,601,325 | ||||||
Housewares & Specialties–0.70% | ||||||||
Newell Rubbermaid Inc. | 399,981 | 15,235,276 | ||||||
Hypermarkets & Super Centers–0.66% | ||||||||
Wal-Mart Stores, Inc. | 168,604 | 14,479,712 | ||||||
Industrial Conglomerates–2.47% | ||||||||
General Electric Co. | 2,133,015 | 53,901,289 | ||||||
Industrial Machinery–1.32% | ||||||||
Ingersoll-Rand PLC | 452,605 | 28,690,631 | ||||||
Integrated Oil & Gas–8.34% | ||||||||
BP PLC–ADR (United Kingdom) | 987,243 | 37,633,703 | ||||||
Chevron Corp. | 223,190 | 25,037,454 | ||||||
Occidental Petroleum Corp. | 257,471 | 20,754,737 | ||||||
Royal Dutch Shell PLC–Class A–ADR (United Kingdom) | 715,347 | 47,892,482 | ||||||
Suncor Energy, Inc. (Canada) | 1,587,046 | 50,436,322 | ||||||
181,754,698 | ||||||||
Integrated Telecommunication Services–1.45% | ||||||||
Verizon Communications Inc. | 393,335 | 18,400,211 | ||||||
Vivendi S.A. (France) | 530,335 | 13,229,835 | ||||||
31,630,046 | ||||||||
Internet Software & Services–2.28% | ||||||||
eBay Inc.(b) | 655,431 | 36,782,788 | ||||||
Yahoo! Inc.(b) | 253,833 | 12,821,105 | ||||||
49,603,893 | ||||||||
Investment Banking & Brokerage–2.79% | ||||||||
Goldman Sachs Group, Inc. (The) | 119,888 | 23,237,891 | ||||||
Morgan Stanley | 967,169 | 37,526,157 | ||||||
60,764,048 | ||||||||
Life & Health Insurance–2.31% | ||||||||
Aflac, Inc. | 300,460 | 18,355,102 | ||||||
MetLife, Inc. | 589,693 | 31,896,494 | ||||||
50,251,596 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Shares | Value | |||||||
Managed Health Care–1.85% | ||||||||
Anthem, Inc. | 197,929 | $ | 24,873,737 | |||||
UnitedHealth Group Inc. | 152,075 | 15,373,262 | ||||||
40,246,999 | ||||||||
Movies & Entertainment–3.86% | ||||||||
Time Warner Inc. | 168,626 | 14,404,033 | ||||||
Twenty-First Century Fox, Inc.–Class B | 805,240 | 29,705,303 | ||||||
Viacom Inc.–Class B | 532,347 | 40,059,112 | ||||||
84,168,448 | ||||||||
Multi-Utilities–0.49% | ||||||||
PG&E Corp. | 198,884 | 10,588,584 | ||||||
Oil & Gas Drilling–0.64% | ||||||||
Noble Corp. PLC | 845,044 | 14,002,379 | ||||||
Oil & Gas Equipment & Services–2.59% | ||||||||
Halliburton Co. | 475,673 | 18,708,219 | ||||||
Weatherford International PLC(b) | 3,292,326 | 37,697,133 | ||||||
56,405,352 | ||||||||
Oil & Gas Exploration & Production–3.07% | ||||||||
California Resources Corp.(b) | 102,987 | 567,458 | ||||||
Devon Energy Corp. | 367,904 | 22,519,404 | ||||||
Murphy Oil Corp. | 507,508 | 25,639,304 | ||||||
QEP Resources Inc. | 903,093 | 18,260,541 | ||||||
66,986,707 | ||||||||
Packaged Foods & Meats–3.04% | ||||||||
ConAgra Foods, Inc. | 988,557 | 35,864,848 | ||||||
Mondelez International Inc.–Class A | 422,847 | 15,359,918 | ||||||
Unilever N.V.–New York Shares (United Kingdom) | 386,532 | 15,090,209 | ||||||
66,314,975 | ||||||||
Paper Products–0.93% | ||||||||
International Paper Co. | 376,079 | 20,150,313 | ||||||
Pharmaceuticals–9.00% | ||||||||
AbbVie Inc. | 251,869 | 16,482,307 | ||||||
Bristol-Myers Squibb Co. | 317,563 | 18,745,744 |
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 186,813 | $ | 7,984,388 | |||||
Merck & Co., Inc. | 732,347 | 41,589,986 | ||||||
Novartis AG (Switzerland) | 377,836 | 34,752,122 | ||||||
Pfizer Inc. | 1,047,683 | 32,635,325 | ||||||
Roche Holding AG–ADR (Switzerland) | 505,271 | 17,155,517 | ||||||
Sanofi–ADR (France) | 586,691 | 26,758,977 | ||||||
196,104,366 | ||||||||
Property & Casualty Insurance–1.44% | ||||||||
Allstate Corp. (The) | 445,940 | 31,327,285 | ||||||
Regional Banks–2.71% | ||||||||
Fifth Third Bancorp | 1,185,311 | 24,150,712 | ||||||
PNC Financial Services Group, Inc. (The) | 381,589 | 34,812,364 | ||||||
58,963,076 | ||||||||
Semiconductors–1.10% | ||||||||
Intel Corp. | 658,242 | 23,887,602 | ||||||
Systems Software–3.29% | ||||||||
Microsoft Corp. | 855,263 | 39,726,967 | ||||||
Symantec Corp. | 1,247,689 | 32,009,461 | ||||||
71,736,428 | ||||||||
Technology Hardware, Storage & Peripherals–1.54% | ||||||||
Hewlett-Packard Co. | 834,929 | 33,505,701 | ||||||
Total Common Stocks & Other Equity Interests |
| 2,082,949,589 | ||||||
Money Market Funds–5.18% |
| |||||||
Liquid Assets Portfolio– | 56,457,501 | 56,457,501 | ||||||
Premier Portfolio–Institutional | 56,457,500 | 56,457,500 | ||||||
Total Money Market Funds |
| 112,915,001 | ||||||
TOTAL INVESTMENTS–100.78% |
| 2,195,864,590 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.78)% |
| (16,911,574 | ) | |||||
NET ASSETS–100.00% |
| $ | 2,178,953,016 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Comstock Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $1,698,999,398) | $ | 2,082,949,589 | ||
Investments in affiliated money market funds, at value and cost | 112,915,001 | |||
Total investments, at value (Cost $1,811,914,399) | 2,195,864,590 | |||
Cash | 115,647 | |||
Foreign currencies, at value (Cost $189) | 188 | |||
Receivable for: | ||||
Fund shares sold | 655,551 | |||
Dividends | 2,984,834 | |||
Fund expenses absorbed | 10,962 | |||
Investment for trustee deferred compensation and retirement plans | 183,626 | |||
Forward foreign currency contracts outstanding | 3,700,100 | |||
Total assets | 2,203,515,498 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 21,860,560 | |||
Accrued fees to affiliates | 2,441,561 | |||
Accrued trustees’ and officers’ fees and benefits | 1,120 | |||
Accrued other operating expenses | 44,967 | |||
Trustee deferred compensation and retirement plans | 214,274 | |||
Total liabilities | 24,562,482 | |||
Net assets applicable to shares outstanding | $ | 2,178,953,016 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,757,888,266 | ||
Undistributed net investment income | 32,694,287 | |||
Undistributed net realized gain | 752,607 | |||
Net unrealized appreciation | 387,617,856 | |||
$ | 2,178,953,016 | |||
Net Assets: |
| |||
Series I | $ | 338,158,949 | ||
Series II | $ | 1,840,794,067 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 17,647,077 | |||
Series II | 96,464,243 | |||
Series I: | ||||
Net asset value per share | $ | 19.16 | ||
Series II: | ||||
Net asset value per share | $ | 19.08 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,056,099) | $ | 55,066,166 | ||
Dividends from affiliated money market funds | 18,422 | |||
Total investment income | 55,084,588 | |||
Expenses: | ||||
Advisory fees | 12,334,879 | |||
Administrative services fees | 5,656,378 | |||
Custodian fees | 86,235 | |||
Distribution fees — Series II | 4,672,537 | |||
Transfer agent fees | 37,048 | |||
Trustees’ and officers’ fees and benefits | 56,243 | |||
Other | 100,986 | |||
Total expenses | 22,944,306 | |||
Less: Fees waived | (1,207,144 | ) | ||
Net expenses | 21,737,162 | |||
Net investment income | 33,347,426 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 243,586,850 | |||
Foreign currencies | (25,816 | ) | ||
Forward foreign currency contracts | 17,012,372 | |||
260,573,406 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (106,133,655 | ) | ||
Foreign currencies | (39,363 | ) | ||
Forward foreign currency contracts | 4,315,474 | |||
(101,857,544 | ) | |||
Net realized and unrealized gain | 158,715,862 | |||
Net increase in net assets resulting from operations | $ | 192,063,288 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 33,347,426 | $ | 24,032,151 | ||||
Net realized gain | 260,573,406 | 153,555,605 | ||||||
Change in net unrealized appreciation (depreciation) | (101,857,544 | ) | 454,948,048 | |||||
Net increase in net assets resulting from operations | 192,063,288 | 632,535,804 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,492,631 | ) | (4,795,702 | ) | ||||
Series ll | (20,122,085 | ) | (25,448,903 | ) | ||||
Total distributions from net investment income | (24,614,716 | ) | (30,244,605 | ) | ||||
Share transactions–net: | ||||||||
Series l | 1,255,194 | (21,202,269 | ) | |||||
Series ll | (217,613,521 | ) | (244,847,685 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (216,358,327 | ) | (266,049,954 | ) | ||||
Net increase (decrease) in net assets | (48,909,755 | ) | 336,241,245 | |||||
Net assets: | ||||||||
Beginning of year | 2,227,862,771 | 1,891,621,526 | ||||||
End of year (includes undistributed net investment income of $32,694,287 and $23,909,284, respectively) | $ | 2,178,953,016 | $ | 2,227,862,771 |
Notes to Financial Statements
December 31, 2014
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 trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Comstock Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security trades is not the current value as of the close of the NYSE. Foreign securities’ prices meeting the approved degree of certainty that the price is not reflective of current value will be priced at the indication of fair value from the independent pricing service. Multiple factors may be considered by the independent pricing service in determining adjustments to reflect fair value and may include information relating to sector indices, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economic upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.
Securities for which market prices are not provided by any of the above methods may be valued based upon quotes furnished by independent sources. The last bid price may be used to value equity securities. The mean between the last bid and ask 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 net investment 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. Comstock Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.56%.
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, 2016, 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, 2016. The fee waiver agreement cannot be terminated during its term.
Invesco V.I. Comstock 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 year ended December 31, 2014, the Adviser waived advisory fees of $1,207,144.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $440,643 for accounting and fund administrative services and reimbursed $5,215,735 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 | $ | 2,147,882,633 | $ | 47,981,957 | $ | — | $ | 2,195,864,590 | ||||||||
Forward Foreign Currency Contracts* | — | 3,700,100 | — | 3,700,100 | ||||||||||||
Total Investments | $ | 2,147,882,633 | $ | 51,682,057 | $ | — | $ | 2,199,564,690 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 3,700,100 | $ | — |
(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 year ended December 31, 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 | ||||
Realized Gain: | ||||
Currency risk | $ | 17,012,372 | ||
Change in Unrealized Appreciation: | ||||
Currency risk | 4,315,474 | |||
Total | $ | 21,327,846 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 223,368,365 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/16/15 | Barclays Bank PLC | CAD | 11,136,734 | USD | 9,652,975 | $ | 9,582,613 | $ | 70,362 | |||||||||||||||||
01/16/15 | Canadian Imperial Bank of Commerce | CAD | 11,136,733 | USD | 9,655,150 | 9,582,612 | 72,538 | |||||||||||||||||||
01/16/15 | Deutsche Bank Securities Inc. | CAD | 11,136,734 | USD | 9,649,906 | 9,582,613 | 67,293 | |||||||||||||||||||
01/16/15 | Goldman Sachs International | CAD | 11,136,734 | USD | 9,648,543 | 9,582,613 | 65,930 | |||||||||||||||||||
01/16/15 | Barclays Bank PLC | CHF | 11,480,359 | USD | 11,837,008 | 11,551,587 | 285,421 | |||||||||||||||||||
01/16/15 | Canadian Imperial Bank of Commerce | CHF | 11,480,359 | USD | 11,839,816 | 11,551,588 | 288,228 | |||||||||||||||||||
01/16/15 | Deutsche Bank Securities Inc. | CHF | 11,480,359 | USD | 11,837,057 | 11,551,588 | 285,469 | |||||||||||||||||||
01/16/15 | Goldman Sachs International | CHF | 11,480,359 | USD | 11,837,740 | 11,551,587 | 286,153 | |||||||||||||||||||
01/16/15 | Canadian Imperial Bank of Commerce | EUR | 17,218,598 | USD | 21,335,565 | 20,839,403 | 496,162 | |||||||||||||||||||
01/16/15 | Deutsche Bank Securities Inc. | EUR | 17,218,598 | USD | 21,333,482 | 20,839,403 | 494,079 | |||||||||||||||||||
01/16/15 | Goldman Sachs International | EUR | 17,218,598 | USD | 21,339,525 | 20,839,403 | 500,122 | |||||||||||||||||||
01/16/15 | RBC Capital Markets Corp. | EUR | 17,218,598 | USD | 21,333,378 | 20,839,403 | 493,975 | |||||||||||||||||||
01/16/15 | Barclays Bank PLC | GBP | 6,273,281 | USD | 9,851,278 | 9,777,079 | 74,199 | |||||||||||||||||||
01/16/15 | Canadian Imperial Bank of Commerce | GBP | 6,273,280 | USD | 9,850,524 | 9,777,078 | 73,446 | |||||||||||||||||||
01/16/15 | Deutsche Bank Securities Inc. | GBP | 6,273,280 | USD | 9,850,637 | 9,777,078 | 73,559 | |||||||||||||||||||
01/16/15 | Goldman Sachs International | GBP | 6,273,280 | USD | 9,850,241 | 9,777,077 | 73,164 | |||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk | $ | 3,700,100 |
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts | Gross amounts | Net amounts of assets | Collateral Received | Net | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Barclays Bank PLC | $ | 429,982 | $ | — | $ | 429,982 | $ | — | $ | — | $ | 429,982 | ||||||||||||
Canadian Imperial Bank of Commerce | 930,374 | — | 930,374 | — | — | 930,374 | ||||||||||||||||||
Deutsche Bank Securities Inc. | 920,400 | — | 920,400 | — | — | 920,400 | ||||||||||||||||||
Goldman Sachs International | 925,369 | — | 925,369 | — | — | 925,369 | ||||||||||||||||||
RBC Capital Markets Corp. | 493,975 | — | 493,975 | — | — | 493,975 | ||||||||||||||||||
Total | $ | 3,700,100 | $ | — | $ | 3,700,100 | $ | — | $ | — | $ | 3,700,100 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 24,614,716 | $ | 30,244,605 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 32,902,663 | ||
Undistributed long-term gain | 5,603,863 | |||
Net unrealized appreciation — investments | 382,799,034 | |||
Net unrealized appreciation (depreciation) — other investments | (32,434 | ) | ||
Temporary book/tax differences | (208,376 | ) | ||
Shares of beneficial interest | 1,757,888,266 | |||
Total net assets | $ | 2,178,953,016 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $258,810,033 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward as of December 31, 2014.
Invesco V.I. Comstock Fund
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $419,345,545 and $659,964,976, 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 | $ | 481,699,118 | ||
Aggregate unrealized (depreciation) of investment securities | (98,900,084 | ) | ||
Net unrealized appreciation of investment securities | $ | 382,799,034 |
Cost of investments for tax purposes is $1,813,065,556.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and fair fund settlements, on December 31, 2014, undistributed net investment income was increased by $52,293 and undistributed net realized gain was decreased by $52,293. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 4,721,043 | $ | 87,225,388 | 1,838,995 | $ | 28,829,985 | ||||||||||
Series II | 5,163,219 | 94,533,512 | 6,957,139 | 109,015,706 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 239,991 | 4,492,632 | 296,764 | 4,795,702 | ||||||||||||
Series II | 1,078,354 | 20,122,085 | 1,579,696 | 25,448,903 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,881,994 | ) | (90,462,826 | ) | (3,486,962 | ) | (54,827,956 | ) | ||||||||
Series II | (18,159,674 | ) | (332,269,118 | ) | (24,285,108 | ) | (379,312,294 | ) | ||||||||
Net increase (decrease) in share activity | (11,839,061 | ) | $ | (216,358,327 | ) | (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 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. Comstock 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(d) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 17.75 | $ | 0.32 | $ | 1.34 | $ | 1.66 | $ | (0.25 | ) | $ | — | $ | (0.25 | ) | $ | 19.16 | 9.39 | % | $ | 338,159 | 0.78 | %(e) | 0.83 | %(e) | 1.73 | %(e) | 19 | % | ||||||||||||||||||||||||||
Year ended 12/31/13 | 13.27 | 0.22 | 4.53 | 4.75 | (0.27 | ) | — | (0.27 | ) | 17.75 | 35.97 | 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 | 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 | ) | 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 | 223,354 | 0.61 | 0.73 | 1.58 | 21 | |||||||||||||||||||||||||||||||||||||||
Series II(d) |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 17.68 | 0.27 | 1.33 | 1.60 | (0.20 | ) | — | (0.20 | ) | 19.08 | 9.10 | 1,840,794 | 1.03 | (e) | 1.08 | (e) | 1.48 | (e) | 19 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 13.22 | 0.17 | 4.52 | 4.69 | (0.23 | ) | — | (0.23 | ) | 17.68 | 35.65 | 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 | 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 | ) | 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 | 1,664,751 | 0.86 | 0.98 | 1.32 | 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. 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. |
(d) | 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. |
(e) | Ratios are based on average daily net assets (000’s omitted) of $328,236 and $1,869,015 for Series I and Series II shares, respectively. |
Invesco V.I. Comstock Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Comstock Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Comstock Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | 1,026.20 | $ | 3.97 | $ | 1,021.29 | $ | 3.96 | 0.78 | % | |||||||||||||
Series II | 1,000.00 | 1,024.90 | 5.24 | 1,020.03 | 5.23 | 1.03 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Comstock Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Comstock Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | �� | |||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Comstock Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Comstock Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Comstock Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Comstock Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Core Equity Fund’s returns were positive, with investments in the consumer staples and telecommunication services sectors making the strongest impact on results. The Fund lagged its broad market benchmark, the S&P 500 Index, and its style-specific benchmark, the Russell 1000 Index. Investments in the industrials, health care and consumer discretionary sectors were the largest detractors from the Fund’s results relative to its style-specific benchmark. The Fund’s allocation to cash also tempered results for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.14 | % | |||
Series II Shares | 7.85 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 1000 Index‚ (Style-Specific Index) | 13.24 | ||||
Lipper VUF Large-Cap Core Funds Indexn (Peer Group Index) | 11.58 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, major US equity market indexes delivered strong double-digit gains, with all sectors of the S&P 500 Index posting gains, with the exception of the energy sector, which was negative. The utilities sector had the highest return of any sector.
Hospital operator HCA Holdings was the top contributor during the reporting period. HCA owns and operates approximately 165 hospitals and approximately 115 free-standing surgery centers in the US and the
UK. Citing higher patient admissions and benefits from the Affordable Care Act, HCA reported better-than-expected earnings during the year, while raising its earnings outlook for the full year.
Also contributing to Fund results for the reporting period was Celgene, a biopharmaceutical company engaged in the research, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. Celgene outperformed during the reporting period due to general strength in the biotechnology group, as well as a good earnings report and growing evidence that patent issues affecting a key drug will be settled.
Allergan was another significant contributor to performance relative to the Fund’s style-specific index. Allergan is a multi-specialty health care company focusing on research, development and distribution of various pharmaceutical and medical device products. During the reporting period, the specialty health care company, best known as the maker of Botox, received a hostile takeover offer from Valeant Pharmaceuticals (not a Fund holding). We sold our holding in Allergan before the close of the reporting period.
The industrials sector was one of the largest detractors for the reporting period. Within this sector, Sandvik, an industrial company that manufactures engineering tools for metal cutting, mining and construction equipment was the largest detractor. The company reported disappointing earnings due to weakness in the mining industry.
Also hampering Fund performance was Sanofi. The company reported weakening US sales of Lantus, its insulin drug for the treatment of diabetes. Additionally, toward the end of the year, the company
Portfolio Composition | |||||
By sector | |||||
Information Technology | 19.1 | % | |||
Health Care | 18.0 | ||||
Financials | 15.8 | ||||
Consumer Discretionary | 11.9 | ||||
Industrials | 10.6 | ||||
Energy | 7.4 | ||||
Consumer Staples | 4.0 | ||||
Utilities | 1.2 | ||||
Telecommunication Services | 1.1 | ||||
Materials | 1.0 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 9.9 |
Top 10 Equity Holdings* | |||||
1. Berkshire Hathaway Inc.- Class A | 2.8 | % | |||
2. American Express Co. | 2.7 | ||||
3. TE Connectivity Ltd. | 2.6 | ||||
4. Northern Trust Corp. | 2.4 | ||||
5. Marsh & McLennan Cos., Inc. | 2.2 | ||||
6. QUALCOMM, Inc. | 2.2 | ||||
7. Taiwan Semiconductor Manufacturing Co. Ltd. | 2.1 | ||||
8. Express Scripts Holding Co. | 2.1 | ||||
9. Analog Devices, Inc. | 2.0 | ||||
10. Celgene Corp. | 2.0 |
Top Five Industries* | |||||
1. Pharmaceuticals | 8.9 | % | |||
2. Industrial Machinery | 6.3 | ||||
3. Communications Equipment | 4.7 | ||||
4. Semiconductors | 4.1 | ||||
5. Oil & Gas Exploration & Production | 3.5 |
Total Net Assets | $1.3 billion | ||||
Total Number of Holdings* | 71 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Core Equity Fund
ousted its chief executive officer in a move that surprised many investors and precipitated a sharp sell-off.
Other notable detractors such as Halliburton and Weatherford were significantly impacted by the sharp decline in oil prices, as the energy sector was the worst-performing sector for 2014 on an absolute basis. We sold our holding in Weatherford before the close of the reporting period.
During the reporting period, we reduced our exposure to the consumer staples and information technology sectors. We slightly increased our exposure to the consumer discretionary sector, though at the close of the year the Fund remained underweight compared to its style-specific benchmark in this sector. At the end of the reporting period, the industrials sector was our largest overweight position relative to the Russell 1000 Index. Our largest underweight position was in the consumer staples sector.
Regardless of market conditions, our goal for Invesco V.I. Core Equity Fund remains the same: to serve as a conservative cornerstone for your investment portfolio. We seek to provide attractive upside participation with strong potential downside protection, so that over a full market cycle the Fund may deliver superior investment results with the potential for reduced risk and a smoother investor experience.
As always, we thank you for your continued investment in Invesco V.I. Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Ronald Sloan Chartered Financial Analyst, Portfolio Manager and Chief Investment Officer of Invesco’s global core | ||
equity team, is lead manager of Invesco V.I. Core Equity Fund. He joined Invesco in 1998. Mr. Sloan earned a BS in business administration and an MBA from the University of Missouri. | ||
Brian Nelson Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Core Equity Fund. He joined | ||
Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara.
Assisted by the Global Core Equity Team |
Invesco V.I. Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/2/94) | 8.52 | % | |||
10 Years | 7.58 | ||||
5 Years | 11.75 | ||||
1 Year | 8.14 | ||||
Series II Shares | |||||
Inception (10/24/01) | 7.03 | % | |||
10 Years | 7.31 | ||||
5 Years | 11.47 | ||||
1 Year | 7.85 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.90% 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
Invesco V.I. Core Equity Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Cash/cash equivalents risk. Holding cash or cash equivalents may negatively affect performance.
Debt securities risk. The Fund may invest in debt securities that are affected by changing interest rates and changes in their effective maturities and credit quality.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Index is an unmanaged index considered representative of large-cap stocks. The Russell 1000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Large-Cap Core Funds Index is an unmanaged index considered representative of large-cap core variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Core Equity Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–90.09% |
| |||||||
Advertising–1.05% | ||||||||
Publicis Groupe S.A. (France) | 187,822 | $ | 13,452,963 | |||||
Apparel, Accessories & Luxury Goods–2.60% | ||||||||
Hermes International (France) | 3,774 | 1,346,327 | ||||||
LVMH Moet Hennessy Louis Vuitton S.A. (France) | 77,377 | 12,236,444 | ||||||
Prada S.p.A. (Italy) | 975,400 | 5,528,181 | ||||||
PVH Corp. | 110,505 | 14,163,426 | ||||||
33,274,378 | ||||||||
Asset Management & Custody Banks–2.42% | ||||||||
Northern Trust Corp. | 460,721 | 31,052,595 | ||||||
Auto Parts & Equipment–1.19% | ||||||||
Johnson Controls, Inc. | 315,617 | 15,256,926 | ||||||
Biotechnology–2.70% | ||||||||
Celgene Corp.(b) | 233,474 | 26,116,401 | ||||||
Gilead Sciences, Inc.(b) | 89,476 | 8,434,008 | ||||||
34,550,409 | ||||||||
Brewers–1.08% | ||||||||
Molson Coors Brewing Co.–Class B | 184,991 | 13,785,529 | ||||||
Cable & Satellite–1.06% | ||||||||
Comcast Corp.–Class A | 234,280 | 13,590,583 | ||||||
Casinos & Gaming–1.07% | ||||||||
Las Vegas Sands Corp. | 236,574 | 13,759,144 | ||||||
Communications Equipment–4.70% | ||||||||
Cisco Systems, Inc. | 584,320 | 16,252,861 | ||||||
F5 Networks, Inc.(b) | 122,471 | 15,978,179 | ||||||
QUALCOMM, Inc. | 376,658 | 27,996,989 | ||||||
60,228,029 | ||||||||
Construction Machinery & Heavy Trucks–0.67% | ||||||||
Caterpillar Inc. | 93,239 | 8,534,166 | ||||||
Consumer Finance–2.67% | ||||||||
American Express Co. | 368,363 | 34,272,494 | ||||||
Department Stores–1.51% | ||||||||
Macy’s, Inc. | 294,448 | 19,359,956 | ||||||
Distillers & Vintners–1.16% | ||||||||
Diageo PLC (United Kingdom) | 517,521 | 14,844,040 | ||||||
Diversified Banks–1.46% | ||||||||
U.S. Bancorp | 415,308 | 18,668,095 | ||||||
Electric Utilities–1.16% | ||||||||
Duke Energy Corp. | 177,824 | 14,855,417 | ||||||
Electrical Components & Equipment–1.05% | ||||||||
Eaton Corp. PLC(b) | 197,796 | 13,442,216 |
Shares | Value | |||||||
Electronic Equipment & Instruments–0.38% | ||||||||
Keysight Technologies, Inc.(b) | 145,592 | $ | 4,916,642 | |||||
Electronic Manufacturing Services–2.61% | ||||||||
TE Connectivity Ltd. (Switzerland) | 527,911 | 33,390,371 | ||||||
Food Retail–0.75% | ||||||||
Kroger Co. (The) | 150,696 | 9,676,190 | ||||||
Health Care Facilities–1.89% | ||||||||
HCA Holdings, Inc.(b) | 330,827 | 24,279,394 | ||||||
Health Care Services–2.06% | ||||||||
Express Scripts Holding Co.(b) | 312,306 | 26,442,949 | ||||||
Heavy Electrical Equipment–1.43% | ||||||||
ABB Ltd. (Switzerland) | 867,019 | 18,340,766 | ||||||
Home Improvement Retail–1.33% | ||||||||
Lowe’s Cos., Inc. | 247,670 | 17,039,696 | ||||||
Industrial Machinery–6.32% | ||||||||
FANUC Corp. (Japan) | 26,000 | 4,291,721 | ||||||
Illinois Tool Works Inc. | 178,076 | 16,863,797 | ||||||
Parker Hannifin Corp. | 120,618 | 15,553,691 | ||||||
Sandvik AB (Sweden) | 1,182,196 | 11,510,899 | ||||||
SKF AB–Class B (Sweden) | 830,277 | 17,466,843 | ||||||
Stanley Black & Decker Inc. | 159,432 | 15,318,227 | ||||||
81,005,178 | ||||||||
Insurance Brokers–2.21% | ||||||||
Marsh & McLennan Cos., Inc. | 493,879 | 28,269,634 | ||||||
Integrated Oil & Gas–0.57% | ||||||||
Chevron Corp. | 65,414 | 7,338,143 | ||||||
Investment Banking & Brokerage–1.16% | ||||||||
Charles Schwab Corp. (The) | 490,975 | 14,822,535 | ||||||
IT Consulting & Other Services–1.66% | ||||||||
International Business Machines Corp. | 132,589 | 21,272,579 | ||||||
Life Sciences Tools & Services–2.49% | ||||||||
Agilent Technologies, Inc. | 291,185 | 11,921,114 | ||||||
Thermo Fisher Scientific, Inc. | 159,746 | 20,014,576 | ||||||
31,935,690 | ||||||||
Movies & Entertainment–0.87% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 290,845 | 11,169,902 | ||||||
Multi-Sector Holdings–2.77% | ||||||||
Berkshire Hathaway Inc.–Class A(b) | 157 | 35,482,000 | ||||||
Oil & Gas Equipment & Services–3.31% | ||||||||
Cameron International Corp.(b) | 314,882 | 15,728,356 | ||||||
Halliburton Co. | 369,384 | 14,527,873 | ||||||
Schlumberger Ltd. | 143,150 | 12,226,441 | ||||||
42,482,670 |
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 Exploration & Production–3.54% | ||||||||
Anadarko Petroleum Corp. | 177,458 | $ | 14,640,285 | |||||
EOG Resources, Inc. | 215,814 | 19,869,995 | ||||||
Pioneer Natural Resources Co. | 72,832 | 10,841,043 | ||||||
45,351,323 | ||||||||
Packaged Foods & Meats–1.04% | ||||||||
Danone (France) | 202,978 | 13,353,760 | ||||||
Paper Products–1.01% | ||||||||
International Paper Co. | 241,225 | 12,924,836 | ||||||
Pharmaceuticals–8.85% | ||||||||
Bayer AG (Germany) | 97,314 | 13,306,843 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 338,356 | 14,461,335 | ||||||
Merck & Co., Inc. | 328,981 | 18,682,831 | ||||||
Roche Holding AG (Switzerland) | 71,522 | 19,387,306 | ||||||
Sanofi–ADR (France) | 351,990 | 16,054,264 | ||||||
Shire PLC–ADR (Ireland) | 68,133 | 14,480,988 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 296,702 | 17,063,332 | ||||||
113,436,899 | ||||||||
Property & Casualty Insurance–3.11% | ||||||||
Allstate Corp. (The) | 196,196 | 13,782,769 | ||||||
Progressive Corp. (The) | 965,472 | 26,058,089 | ||||||
39,840,858 | ||||||||
Railroads–2.35% | ||||||||
Norfolk Southern Corp. | 110,365 | 12,097,108 | ||||||
Union Pacific Corp. | 151,326 | 18,027,466 | ||||||
30,124,574 | ||||||||
Semiconductor Equipment–1.64% | ||||||||
Applied Materials, Inc. | 462,122 | 11,516,080 | ||||||
KLA–Tencor Corp. | 134,659 | 9,469,221 | ||||||
20,985,301 |
Shares | Value | |||||||
Semiconductors–4.12% | ||||||||
Analog Devices, Inc. | 471,838 | $ | 26,196,446 | |||||
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,047,823 | 26,641,889 | ||||||
52,838,335 | ||||||||
Systems Software–2.39% | ||||||||
Microsoft Corp. | 343,026 | 15,933,557 | ||||||
Oracle Corp. | 325,909 | 14,656,128 | ||||||
30,589,685 | ||||||||
Technology Hardware, Storage & Peripherals–1.61% | ||||||||
EMC Corp. | 694,137 | 20,643,634 | ||||||
Trading Companies & Distributors–0.02% | ||||||||
Veritiv Corp.(b) | 4,611 | 239,172 | ||||||
Wireless Telecommunication Services–1.05% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 394,360 | 13,475,281 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,154,594,937 | ||||||
Money Market Funds–9.79% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 62,730,082 | 62,730,082 | ||||||
Premier Portfolio–Institutional | 62,730,082 | 62,730,082 | ||||||
Total Money Market Funds |
| 125,460,164 | ||||||
TOTAL INVESTMENTS–99.88% |
| 1,280,055,101 | ||||||
OTHER ASSETS LESS LIABILITIES–0.12% |
| 1,569,259 | ||||||
NET ASSETS–100.00% |
| $ | 1,281,624,360 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $806,173,781) | $ | 1,154,594,937 | ||
Investments in affiliated money market funds, at value and cost | 125,460,164 | |||
Total investments, at value (Cost $931,633,945) | 1,280,055,101 | |||
Foreign currencies, at value (Cost $1,879,118) | 1,698,891 | |||
Receivable for: | ||||
Fund shares sold | 268,506 | |||
Dividends | 1,554,915 | |||
Investment for trustee deferred compensation and retirement plans | 438,855 | |||
Other assets | 16,324 | |||
Total assets | 1,284,032,592 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 946,258 | |||
Accrued fees to affiliates | 905,110 | |||
Accrued trustees’ and officers’ fees and benefits | 754 | |||
Accrued other operating expenses | 51,051 | |||
Trustee deferred compensation and retirement plans | 505,059 | |||
Total liabilities | 2,408,232 | |||
Net assets applicable to shares outstanding | $ | 1,281,624,360 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 802,376,089 | ||
Undistributed net investment income | 12,093,366 | |||
Undistributed net realized gain | 118,939,970 | |||
Net unrealized appreciation | 348,214,935 | |||
$ | 1,281,624,360 | |||
Net Assets: |
| |||
Series I | $ | 1,096,218,573 | ||
Series II | $ | 185,405,787 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 26,738,331 | |||
Series II | 4,574,310 | |||
Series I: | ||||
Net asset value per share | $ | 41.00 | ||
Series II: | ||||
Net asset value per share | $ | 40.53 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,034,115) | $ | 24,669,861 | ||
Dividends from affiliated money market funds | 63,485 | |||
Interest | 26,376 | |||
Total investment income | 24,759,722 | |||
Expenses: | ||||
Advisory fees | 8,003,098 | |||
Administrative services fees | 3,493,862 | |||
Custodian fees | 124,062 | |||
Distribution fees — Series II | 432,928 | |||
Transfer agent fees | 81,772 | |||
Trustees’ and officers’ fees and benefits | 53,270 | |||
Other | 106,395 | |||
Total expenses | 12,295,387 | |||
Less: Fees waived | (242,203 | ) | ||
Net expenses | 12,053,184 | |||
Net investment income | 12,706,538 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 122,893,233 | |||
Foreign currencies | (72,367 | ) | ||
122,820,866 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (33,486,568 | ) | ||
Foreign currencies | (207,769 | ) | ||
(33,694,337 | ) | |||
Net realized and unrealized gain | 89,126,529 | |||
Net increase in net assets resulting from operations | $ | 101,833,067 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 12,706,538 | $ | 10,753,222 | ||||
Net realized gain | 122,820,866 | 105,331,945 | ||||||
Change in net unrealized appreciation (depreciation) | (33,694,337 | ) | 200,766,398 | |||||
Net increase in net assets resulting from operations | 101,833,067 | 316,851,565 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (9,589,714 | ) | (15,433,838 | ) | ||||
Series ll | (1,212,906 | ) | (1,757,717 | ) | ||||
Total distributions from net investment income | (10,802,620 | ) | (17,191,555 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (5,354,120 | ) | — | |||||
Series ll | (863,267 | ) | — | |||||
Total distributions from net realized gains | (6,217,387 | ) | — | |||||
Share transactions–net: | ||||||||
Series l | (144,895,006 | ) | (134,770,231 | ) | ||||
Series ll | 15,983,835 | 17,964,440 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (128,911,171 | ) | (116,805,791 | ) | ||||
Net increase (decrease) in net assets | (44,098,111 | ) | 182,854,219 | |||||
Net assets: | ||||||||
Beginning of year | 1,325,722,471 | 1,142,868,252 | ||||||
End of year (includes undistributed net investment income of $12,093,366 and $10,258,645, respectively) | $ | 1,281,624,360 | $ | 1,325,722,471 |
Notes to Financial Statements
December 31, 2014
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
Invesco V.I. Core Equity Fund
appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security 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 ask 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 net investment 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. Core Equity Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.61%.
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
Invesco V.I. Core Equity Fund
advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless 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 year ended December 31, 2014, the Adviser waived advisory fees of $242,203.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $306,994 for accounting and fund administrative services and reimbursed $3,186,868 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 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 December 31, 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 | $ | 1,128,528,470 | $ | 151,526,631 | $ | — | $ | 1,280,055,101 |
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. 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 10,802,620 | $ | 17,191,555 | ||||
Long-term capital gain | 6,217,387 | — | ||||||
Total distributions | $ | 17,020,007 | $ | 17,191,555 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 17,567,561 | ||
Undistributed long-term gain | 117,328,499 | |||
Net unrealized appreciation — investments | 344,488,581 | |||
Net unrealized appreciation — other investments | 349,246 | |||
Temporary book/tax differences | (485,616 | ) | ||
Shares of beneficial interest | 802,376,089 | |||
Total net assets | $ | 1,281,624,360 |
The difference between book-basis and tax-basis unrealized appreciation is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $398,403,797 and $465,786,357, 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 | $ | 365,789,369 | ||
Aggregate unrealized (depreciation) of investment securities | (21,300,788 | ) | ||
Net unrealized appreciation of investment securities | $ | 344,488,581 |
Cost of investments for tax purposes is $935,566,520.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2014, undistributed net investment income was decreased by $69,197 and undistributed net realized gain was increased by $69,197. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Core Equity Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 867,189 | $ | 35,223,181 | 1,238,342 | $ | 43,467,088 | ||||||||||
Series II | 844,518 | 33,538,747 | 1,014,754 | 35,054,079 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 367,532 | 14,921,814 | 428,004 | 15,433,838 | ||||||||||||
Series II | 51,685 | 2,076,173 | 49,236 | 1,757,717 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,860,851 | ) | (195,040,001 | ) | (5,596,646 | ) | (193,671,157 | ) | ||||||||
Series II | (495,254 | ) | (19,631,085 | ) | (548,495 | ) | (18,847,356 | ) | ||||||||
Net increase (decrease) in share activity | (3,225,181 | ) | $ | (128,911,171 | ) | (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 43% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
NOTE 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 38.43 | $ | 0.40 | $ | 2.72 | $ | 3.12 | $ | (0.35 | ) | $ | (0.20 | ) | $ | (0.55 | ) | $ | 41.00 | 8.12 | % | $ | 1,096,219 | 0.88 | %(d) | 0.90 | %(d) | 1.01 | %(d) | 35 | % | |||||||||||||||||||||||||
Year ended 12/31/13 | 30.14 | 0.31 | 8.47 | 8.78 | (0.49 | ) | — | (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 | ) | — | (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 | ) | — | (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 | ) | — | (0.25 | ) | 27.03 | 9.56 | 1,345,658 | 0.87 | 0.89 | 0.87 | 47 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 38.03 | 0.30 | 2.67 | 2.97 | (0.27 | ) | (0.20 | ) | (0.47 | ) | 40.53 | 7.82 | 185,406 | 1.13 | (d) | 1.15 | (d) | 0.76 | (d) | 35 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 29.86 | 0.22 | 8.39 | 8.61 | (0.44 | ) | — | (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 | ) | — | (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 | ) | — | (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 | ) | — | (0.20 | ) | 26.82 | 9.25 | 35,025 | 1.12 | 1.14 | 0.62 | 47 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $1,139,845 and $173,171 for Series I and Series II shares, respectively. |
Invesco V.I. Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Core Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 996.90 | $ | 4.48 | $ | 1,020.72 | $ | 4.53 | 0.89 | % | ||||||||||||
Series II | 1,000.00 | 995.70 | 5.73 | 1,019.46 | 5.80 | 1.14 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 6,217,387 | ||
Corporate Dividends Received Deduction* | 99.95 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Core Equity Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Diversified Dividend Fund delivered positive returns and performed in line with its broad market and style-specific indexes. The Fund’s returns were largely driven by strength in utility, consumer staples and industrial stocks. Energy was the worst-performing sector in regard to absolute returns, but the Fund’s underweight exposure and positive stock selection in the sector helped returns versus the Russell 1000 Value Index. Relative results were hurt by select holdings in the consumer discretionary sector and the Fund’s underweight exposure to the information technology and financials sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 12.83 | % | |||
Series II Shares | 12.54 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 13.45 | ||||
Lipper VUF Large-Cap Value Fund Indexn (Peer Group Index) | 10.83 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
During the year ended December 31, 2014, major US stock market indexes posted double-digit gains. While corporate earnings were generally resilient throughout the year, driven by strong profitability across many sectors, investors worried about signs of economic weakness across Europe and many emerging markets.
During the year, our total return approach continued to emphasize long-term capital appreciation, current income and capital preservation. We believe the Fund may serve as an equity foundation within a well-diversified asset allocation strategy, complementing more aggressive and cyclical investments. As always, we continued to look for dividend-paying companies with strong profitability, solid balance sheets and capital allocation policies that support sustained or increasing
dividends and share repurchases. We performed extensive fundamental research, incorporating both financial statement analysis and an assessment of the potential reward relative to the downside risk, to determine a fair valuation over our two- to three-year investment horizon for each stock. We believe this process may provide a valuable combination of dividend income, price appreciation and capital preservation. Also during the year, we maintained a rigorous sell discipline and considered selling or trimming stocks that no longer met our investment criteria.
The Fund’s investments in the utilities sector performed well during the year and made the largest contribution to returns. Exelon was among the top contributors to Fund performance. The company announced its intent to acquire Pepco Holdings, also held by the Fund. The combined company would increase the integrated
utility’s regulated earnings. In conjunction with the proposed acquisition, Exelon continued to strengthen its balance sheet through the divestiture of non-core assets. Also as a result of the acquisition, unregulated earnings were expected to strengthen as the company’s generation fleet benefits from proposed structural changes to the competitive wholesale electricity market in the Northeast.
Several of the Fund’s holdings in the industrials sector also performed well. General Dynamics was the largest contributor to results. General Dynamics’ commercial aerospace division saw improved profitability and an increase in its funded backlog. Additionally, during the year, the company accelerated the return of capital to shareholders by increasing both its dividend and stock buybacks.
The Fund’s underweight position in the energy sector helped relative results, as energy was the worst-performing sector in the Russell 1000 Value Index for the year. We limited our exposure to the sector in recent years as companies struggled to improve their return on equity as a result of elevated capital intensity and industry overcapacity. However, we have found investment opportunities in the sector where valuations declined to near previous trough levels and where recently lowered capital expenditures have improved profitability.
The consumer discretionary sector lagged the overall market over the past year as many companies faced a difficult pricing environment, given lackluster consumer spending. We selectively increased the Fund’s investments in the sector as several companies have seen strong improvements in their fundamentals in recent years. Our investments were focused in areas where our research
Portfolio Composition | |||||
By sector | |||||
Consumer Staples | 24.4 | % | |||
Financials | 17.3 | ||||
Consumer Discretionary | 13.0 | ||||
Utilities | 13.0 | ||||
Industrials | 8.4 | ||||
Health Care | 6.2 | ||||
Energy | 4.5 | ||||
Information Technology | 3.3 | ||||
Telecommunication Services | 2.9 | ||||
Materials | 1.3 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 5.7 |
Top 10 Equity Holdings* | ||||||||
1. | General Mills, Inc. | 3.3 | % | |||||
2. | Heineken N.V. | 2.5 | ||||||
3. | Campbell Soup Co. | 2.5 | ||||||
4. | Coca-Cola Co. (The) | 2.3 | ||||||
5. | Zions Bancorp. | 2.2 | ||||||
6. | Walgreens Boots Alliance, Inc. | 2.0 | ||||||
7. | General Dynamics Corp. | 2.0 | ||||||
8. | Kraft Foods Group, Inc. | 1.9 | ||||||
9. | Exelon Corp. | 1.9 | ||||||
10. | Target Corp. | 1.9 |
Top Five Industries* | ||||||||
1. | Packaged Foods & Meats | 9.5 | % | |||||
2. | Electric Utilities | 8.8 | ||||||
3. | Regional Banks | 7.4 | ||||||
4. | Pharmaceuticals | 4.4 | ||||||
5. | Aerospace & Defense | 3.8 |
Total Net Assets | $ | 436.2 million | |||||
Total Number of Holdings* | 78 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Diversified Dividend Fund
indicated that the market was overly pessimistic about the firms’ near-term prospects and there was a clear path to achieving our estimates of their normalized earnings power.
Several of the Fund’s investments in the consumer discretionary sector under-performed during the year. Coach was the largest detractor from Fund performance during the year. Shares of the luxury goods maker underperformed as the company lost market share in North America. Coach reduced its promotional activity ahead of its new designer’s collection, which led to lowered sales and margin expectations. Longer term, we believe the company’s structural benefits to margins remain in place, namely its outlet positioning, lower wholesale mix, smaller apparel offering and more profitable international business. Guess? also underperformed as the US women’s retail environment remained highly competitive. Cyclical weakness in southern Europe also negatively impacted the company’s sales and earnings.
The Fund’s underweight positions in the information technology and financials sectors also detracted from relative results.
The economic recovery over the past five years and the robust profit cycle that followed have taken a fairly traditional path. Early in the cycle, profitability recovered quickly as companies took costs out of their businesses and restrained capital investments due to a cautious economic outlook. As confidence in the profit cycle improved, management teams increased their business investments. High levels of profitability, coupled with historically low interest rates, allowed companies to strengthen their balance sheets and return more capital to shareholders via dividend increases and stock buybacks.
At the close of the year, we remained cautious on the sustainability of current, historically high corporate operating margins, particularly in the more cyclical sectors. We regularly reevaluate the risk-reward potential of our holdings as indications of a mature profit cycle increase. Within our normalized earnings power and valuation framework, selective investment opportunities remain where companies are reasonably valued with what we believe are sustainable cash flows and margins over the next few years.
We remain focused on our total return strategy that emphasizes capital appreciation, current income and capital preservation over a full market cycle; we believe this strategy has served our investors well. Thank you for your continued investment in Invesco V.I. Diversified Dividend Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Meggan Walsh Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Diversified | ||
Dividend Fund. She joined Invesco in 1991. Ms. Walsh earned a BS in finance from the University of Mary-land and an MBA from Loyola University Maryland. | ||
Robert Botard Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Diversified Dividend | ||
Fund. He joined Invesco in 1993. Mr. Botard earned a BBA in finance and a BBA in international business from The University of Texas at Austin. He also earned a Master of International Management degree from the Thunderbird School of Global Management. | ||
Kristina Bradshaw Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Diversified Dividend | ||
Fund. She joined Invesco in 2006. Ms. Bradshaw earned a BBA with honors from The University of Texas at Austin and an MBA from Stan-ford University’s Graduate School of Business. | ||
Assisted by Invesco’s Dividend Value Team |
Invesco V.I. Diversified Dividend Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (3/1/90) | 8.23 | % | |||
10 Years | 6.52 | ||||
5 Years | 14.21 | ||||
1 Year | 12.83 | ||||
Series II Shares | |||||
Inception (6/5/00) | 5.24 | % | |||
10 Years | 6.25 | ||||
5 Years | 13.92 | ||||
1 Year | 12.54 |
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. Dividend Growth Fund. Share class returns will differ from the predecessor fund because of different expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.72% 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
Invesco V.I. Diversified Dividend Fund’s investment objective is to provide reasonable current income and long-term growth of income and capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Call risk. If interest rates fall, it is possible that issuers of debt securities with high interest rates will prepay or call their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net
asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Diversified Dividend Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–94.30% |
| |||||||
Aerospace & Defense–3.77% | ||||||||
General Dynamics Corp. | 62,529 | $ | 8,605,241 | |||||
Raytheon Co. | 72,389 | 7,830,318 | ||||||
16,435,559 | ||||||||
Air Freight & Logistics–0.97% | ||||||||
United Parcel Service, Inc.–Class B | 38,133 | 4,239,246 | ||||||
Apparel Retail–1.04% | ||||||||
Guess?, Inc. | 62,569 | 1,318,954 | ||||||
TJX Cos., Inc. (The) | 47,086 | 3,229,158 | ||||||
4,548,112 | ||||||||
Apparel, Accessories & Luxury Goods–1.73% | ||||||||
Coach, Inc. | 111,317 | 4,181,067 | ||||||
Columbia Sportswear Co. | 75,478 | 3,361,790 | ||||||
7,542,857 | ||||||||
Asset Management & Custody Banks–2.61% | ||||||||
Federated Investors, Inc.–Class B | 197,205 | 6,493,961 | ||||||
Legg Mason, Inc. | 91,919 | 4,905,717 | ||||||
11,399,678 | ||||||||
Auto Parts & Equipment–0.95% | ||||||||
Johnson Controls, Inc. | 85,327 | 4,124,707 | ||||||
Brewers–2.53% | ||||||||
Heineken N.V. (Netherlands) | 155,079 | 11,017,154 | ||||||
Building Products–1.19% | ||||||||
Masco Corp. | 206,711 | 5,209,117 | ||||||
Data Processing & Outsourced Services–1.02% | ||||||||
Automatic Data Processing, Inc. | 53,451 | 4,456,210 | ||||||
Department Stores–0.66% | ||||||||
Marks & Spencer Group PLC (United Kingdom) | 388,226 | 2,866,550 | ||||||
Distillers & Vintners–0.12% | ||||||||
Treasury Wine Estates Ltd. (Australia) | 139,192 | 542,045 | ||||||
Drug Retail–2.03% | ||||||||
Walgreens Boots Alliance, Inc. | 116,066 | 8,844,229 | ||||||
Electric Utilities–8.76% | ||||||||
American Electric Power Co., Inc. | 94,250 | 5,722,860 | ||||||
Duke Energy Corp. | 84,106 | 7,026,215 | ||||||
Entergy Corp. | 38,636 | 3,379,877 | ||||||
Exelon Corp. | 219,633 | 8,143,992 | ||||||
Pepco Holdings, Inc. | 240,303 | 6,471,360 | ||||||
PPL Corp. | 205,805 | 7,476,896 | ||||||
38,221,200 | ||||||||
Food Distributors–1.79% | ||||||||
Sysco Corp. | 196,921 | 7,815,794 |
Shares | Value | |||||||
Gas Utilities–1.00% | ||||||||
AGL Resources Inc. | 79,962 | $ | 4,358,729 | |||||
General Merchandise Stores–1.87% | ||||||||
Target Corp. | 107,243 | 8,140,816 | ||||||
Health Care Equipment–1.82% | ||||||||
Medtronic, Inc. | 28,483 | 2,056,472 | ||||||
Stryker Corp. | 62,430 | 5,889,022 | ||||||
7,945,494 | ||||||||
Heavy Electrical Equipment–1.03% | ||||||||
ABB Ltd. (Switzerland) | 211,846 | 4,481,353 | ||||||
Hotels, Resorts & Cruise Lines–2.10% | ||||||||
Accor S.A. (France) | 105,010 | 4,705,290 | ||||||
Marriott International Inc.–Class A | 56,932 | 4,442,404 | ||||||
9,147,694 | ||||||||
Household Products–3.44% | ||||||||
Kimberly-Clark Corp. | 60,390 | 6,977,461 | ||||||
Procter & Gamble Co. (The) | 88,271 | 8,040,605 | ||||||
15,018,066 | ||||||||
Housewares & Specialties–1.80% | ||||||||
Newell Rubbermaid Inc. | 206,238 | 7,855,605 | ||||||
Industrial Machinery–0.84% | ||||||||
Pentair PLC (United Kingdom) | 55,119 | 3,661,004 | ||||||
Integrated Oil & Gas–2.69% | ||||||||
Royal Dutch Shell PLC–Class B (United Kingdom) | 183,336 | 6,298,713 | ||||||
Total S.A. (France) | 105,608 | 5,445,291 | ||||||
11,744,004 | ||||||||
Integrated Telecommunication Services–2.88% | ||||||||
AT&T Inc. | 236,443 | 7,942,121 | ||||||
Deutsche Telekom AG (Germany) | 289,172 | 4,636,533 | ||||||
12,578,654 | ||||||||
Investment Banking & Brokerage–1.41% | ||||||||
Charles Schwab Corp. (The) | 203,329 | 6,138,503 | ||||||
Life & Health Insurance–2.18% | ||||||||
Lincoln National Corp. | 76,628 | 4,419,137 | ||||||
StanCorp Financial Group, Inc. | 73,076 | 5,105,089 | ||||||
9,524,226 | ||||||||
Motorcycle Manufacturers–0.31% | ||||||||
Harley-Davidson, Inc. | 20,390 | 1,343,905 | ||||||
Movies & Entertainment–1.02% | ||||||||
Time Warner Inc. | 51,931 | 4,435,946 | ||||||
Multi-Line Insurance–0.66% | ||||||||
Hartford Financial Services Group, Inc. (The) | 69,450 | 2,895,371 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Shares | Value | |||||||
Multi-Utilities–3.20% | ||||||||
Consolidated Edison, Inc. | 101,088 | $ | 6,672,819 | |||||
Dominion Resources, Inc. | 41,300 | 3,175,970 | ||||||
Sempra Energy | 37,016 | 4,122,102 | ||||||
13,970,891 | ||||||||
Oil & Gas Drilling–0.79% | ||||||||
Nabors Industries Ltd. | 266,127 | 3,454,328 | ||||||
Oil & Gas Equipment & Services–1.03% | ||||||||
Baker Hughes Inc. | 80,187 | 4,496,085 | ||||||
Packaged Foods & Meats–9.54% | ||||||||
Campbell Soup Co. | 245,840 | 10,816,960 | ||||||
General Mills, Inc. | 268,205 | 14,303,373 | ||||||
Kraft Foods Group, Inc. | 134,981 | 8,457,910 | ||||||
Mead Johnson Nutrition Co. | 31,449 | 3,161,882 | ||||||
Mondelez International Inc.–Class A | 133,706 | 4,856,870 | ||||||
41,596,995 | ||||||||
Paper Packaging–1.36% | ||||||||
Avery Dennison Corp. | 50,893 | 2,640,329 | ||||||
Sonoco Products Co. | 74,944 | 3,275,053 | ||||||
5,915,382 | ||||||||
Paper Products–0.59% | ||||||||
International Paper Co. | 48,311 | 2,588,503 | ||||||
Personal Products–0.74% | ||||||||
L’Oreal S.A. (France) | 19,251 | 3,232,128 | ||||||
Pharmaceuticals–4.41% | ||||||||
Bristol-Myers Squibb Co. | 56,484 | 3,334,251 | ||||||
Eli Lilly and Co. | 116,273 | 8,021,674 | ||||||
Johnson & Johnson | 54,292 | 5,677,314 | ||||||
Novartis AG (Switzerland) | 23,915 | 2,199,624 | ||||||
19,232,863 | ||||||||
Property & Casualty Insurance–0.85% | ||||||||
Travelers Cos., Inc. (The) | 34,998 | 3,704,538 | ||||||
Regional Banks–7.37% | ||||||||
Cullen/Frost Bankers, Inc. | 22,086 | 1,560,155 | ||||||
Fifth Third Bancorp | 184,717 | 3,763,609 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
KeyCorp | 510,574 | $ | 7,096,978 | |||||
M&T Bank Corp. | 37,753 | 4,742,532 | ||||||
SunTrust Banks, Inc. | 132,093 | 5,534,697 | ||||||
Zions Bancorp. | 330,865 | 9,432,961 | ||||||
32,130,932 | ||||||||
Restaurants–1.50% | ||||||||
Darden Restaurants, Inc. | 111,241 | 6,522,060 | ||||||
Semiconductors–1.77% | ||||||||
Linear Technology Corp. | 100,358 | 4,576,325 | ||||||
Texas Instruments Inc. | 59,234 | 3,166,946 | ||||||
7,743,271 | ||||||||
Soft Drinks–2.30% | ||||||||
Coca-Cola Co. (The) | 237,560 | 10,029,783 | ||||||
Specialized REIT’s–0.55% | ||||||||
Weyerhaeuser Co. | 66,700 | 2,393,863 | ||||||
Systems Software–0.49% | ||||||||
Microsoft Corp. | 45,629 | 2,119,467 | ||||||
Thrifts & Mortgage Finance–1.68% | ||||||||
Hudson City Bancorp, Inc. | 723,424 | 7,321,051 | ||||||
Tobacco–1.91% | ||||||||
Altria Group, Inc. | 95,247 | 4,692,820 | ||||||
Philip Morris International Inc. | 44,497 | 3,624,280 | ||||||
8,317,100 | ||||||||
Total Common Stocks & Other Equity Interests |
| 411,301,068 | ||||||
Money Market Funds–5.37% |
| |||||||
Liquid Assets Portfolio–Institutional Class(b) | 11,722,094 | 11,722,094 | ||||||
Premier Portfolio–Institutional | 11,722,094 | 11,722,094 | ||||||
Total Money Market Funds | 23,444,188 | |||||||
TOTAL INVESTMENTS–99.67% | 434,745,256 | |||||||
OTHER ASSETS LESS LIABILITIES–0.33% | 1,437,835 | |||||||
NET ASSETS–100.00% | $ | 436,183,091 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $295,130,004) | $ | 411,301,068 | ||
Investments in affiliated money market funds, at value and cost | 23,444,188 | |||
Total investments, at value (Cost $318,574,192) | 434,745,256 | |||
Foreign currencies, at value (Cost $157,346) | 156,583 | |||
Receivable for: | ||||
Investments sold | 617,934 | |||
Fund shares sold | 275,001 | |||
Dividends | 614,128 | |||
Investment for trustee deferred compensation and retirement plans | 79,771 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 415,248 | |||
Total assets | 436,903,921 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 26,686 | |||
Fund shares reacquired | 295,781 | |||
Accrued fees to affiliates | 248,969 | |||
Accrued trustees’ and officers’ fees and benefits | 559 | |||
Accrued other operating expenses | 37,771 | |||
Trustee deferred compensation and retirement plans | 111,064 | |||
Total liabilities | 720,830 | |||
Net assets applicable to shares outstanding | $ | 436,183,091 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 342,467,212 | ||
Undistributed net investment income | 6,919,424 | |||
Undistributed net realized gain (loss) | (29,785,980 | ) | ||
Net unrealized appreciation | 116,582,435 | |||
$ | 436,183,091 | |||
Net Assets: |
| |||
Series I | $ | 330,370,430 | ||
Series II | $ | 105,812,661 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 14,234,678 | |||
Series II | 4,578,106 | |||
Series I: | ||||
Net asset value per share | $ | 23.21 | ||
Series II: | ||||
Net asset value per share | $ | 23.11 |
Investment income: | ||||
Dividends (net of foreign withholding taxes of $114,866) | $ | 10,635,925 | ||
Dividends from affiliated money market funds | 6,872 | |||
Total investment income | 10,642,797 | |||
Expenses: | ||||
Advisory fees | 2,086,885 | |||
Administrative services fees | 809,738 | |||
Custodian fees | 31,785 | |||
Distribution fees — Series II | 250,357 | |||
Transfer agent fees | 31,386 | |||
Trustees’ and officers’ fees and benefits | 33,542 | |||
Other | 68,548 | |||
Total expenses | 3,312,241 | |||
Less: Fees waived | (23,860 | ) | ||
Net expenses | 3,288,381 | |||
Net investment income | 7,354,416 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 26,406,596 | |||
Foreign currencies | (8,255 | ) | ||
Forward foreign currency contracts | 1,358,033 | |||
Option contracts written | 75,824 | |||
27,832,198 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 14,715,199 | |||
Foreign currencies | (4,486 | ) | ||
Forward foreign currency contracts | 426,703 | |||
15,137,416 | ||||
Net realized and unrealized gain | 42,969,614 | |||
Net increase in net assets resulting from operations | $ | 50,324,030 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Dividend Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 7,354,416 | $ | 6,615,506 | ||||
Net realized gain | 27,832,198 | 31,216,111 | ||||||
Change in net unrealized appreciation | 15,137,416 | 65,226,663 | ||||||
Net increase in net assets resulting from operations | 50,324,030 | 103,058,280 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (5,512,687 | ) | (6,904,089 | ) | ||||
Series ll | (1,491,240 | ) | (1,824,400 | ) | ||||
Total distributions from net investment income | (7,003,927 | ) | (8,728,489 | ) | ||||
Share transactions–net: | ||||||||
Series l | (24,086,977 | ) | (23,555,974 | ) | ||||
Series ll | (2,258,538 | ) | 4,386,872 | |||||
Net increase (decrease) in net assets resulting from share transactions | (26,345,515 | ) | (19,169,102 | ) | ||||
Net increase in net assets | 16,974,588 | 75,160,689 | ||||||
Net assets: | ||||||||
Beginning of year | 419,208,503 | 344,047,814 | ||||||
End of year (includes undistributed net investment income of $6,919,424 and $6,546,094, respectively) | $ | 436,183,091 | $ | 419,208,503 |
Notes to Financial Statements
December 31, 2014
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 ask 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 net investment 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
Invesco V.I. Diversified Dividend Fund
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.49%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $23,860.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $102,169 for accounting and fund administrative services and reimbursed $707,569 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $591 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 394,499,153 | $ | 40,246,103 | $ | — | $ | 434,745,256 | ||||||||
Forward Foreign Currency Contracts* | — | 415,248 | — | 415,248 | ||||||||||||
Total Investments | $ | 394,499,153 | $ | 40,661,351 | $ | — | $ | 435,160,504 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 415,248 | $ | — |
(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 year ended December 31, 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 | Options | |||||||
Realized Gain: | ||||||||
Currency risk | $ | 1,358,033 | $ | — | ||||
Equity risk | — | 75,824 | ||||||
Change in Unrealized Appreciation: | ||||||||
Currency risk | 426,703 | — | ||||||
Total | $ | 1,784,736 | $ | 75,824 |
The table below summarizes the twelve month average notional value of forward foreign currency contracts and the six month average notional value of options written during the period.
Forward Foreign Currency Contracts | Options | |||||||
Average notional value | $ | 13,927,688 | $ | 1,650,833 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/14/15 | Citigroup Global Markets Inc. | EUR | 6,450,312 | USD | 8,038,024 | $ | 7,806,564 | $ | 231,460 | |||||||||||||||||
01/14/15 | Deutsche Bank Securities Inc. | EUR | 5,093,408 | USD | 6,348,144 | 6,164,356 | 183,788 | |||||||||||||||||||
Total Forward Foreign Currency Contracts — Currency Risk |
| $ | 415,248 |
Currency Abbreviations:
EUR | – Euro | |
USD | – U.S. Dollar |
Transactions During the Period | ||||||||
Call Option Contracts | ||||||||
Number of Contracts | Premiums Received | |||||||
Beginning of period | — | $ | — | |||||
Written | 1,158 | 87,359 | ||||||
Closed | (516 | ) | (54,971 | ) | ||||
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts | 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 | |||||||||||||||||||||
Citigroup Global Markets Inc. | $ | 231,460 | | $ | — | $ | 231,460 | $ | — | $ | — | $ | 231,460 | |||||||||||
Deutsche Bank Securities Inc. | | 183,788 | | — | 183,788 | — | — | 183,788 | ||||||||||||||||
Total | $ | 415,248 | $ | — | $ | 415,248 | $ | — | $ | — | $ | 415,248 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 7,003,927 | $ | 8,728,489 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 7,024,818 | ||
Net unrealized appreciation — investments | 115,550,042 | |||
Net unrealized appreciation (depreciation) — other investments | (3,877 | ) | ||
Temporary book/tax differences | (105,395 | ) | ||
Capital loss carryforward | (28,749,709 | ) | ||
Shares of beneficial interest | 342,467,212 | |||
Total net assets | $ | 436,183,091 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. Diversified Dividend Fund
The Fund utilized $28,236,061 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 2,667,775 | $ | — | $ | 2,667,775 | ||||||
December 31, 2017 | 26,081,934 | — | 26,081,934 | |||||||||
$ | 28,749,709 | $ | — | $ | 28,749,709 |
* | 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 year ended December 31, 2014 was $24,241,838 and $60,057,181, 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 | $ | 121,757,213 | ||
Aggregate unrealized (depreciation) of investment securities | (6,207,171 | ) | ||
Net unrealized appreciation of investment securities | $ | 115,550,042 |
Cost of investments for tax purposes is $319,195,214.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and fair funds settlements, on December 31, 2014, undistributed net investment income was increased by $22,841 and undistributed net realized gain (loss) was decreased by $22,841. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,417,493 | $ | 53,705,907 | 2,000,631 | $ | 37,904,984 | ||||||||||
Series II | 860,331 | 18,781,741 | 1,107,260 | 21,023,400 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 252,066 | 5,512,687 | 357,170 | 6,904,089 | ||||||||||||
Series II | 68,405 | 1,491,240 | 94,676 | 1,824,400 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,800,793 | ) | (83,305,571 | ) | (3,605,314 | ) | (68,365,047 | ) | ||||||||
Series II | (1,033,108 | ) | (22,531,519 | ) | (980,095 | ) | (18,460,928 | ) | ||||||||
Net increase (decrease) in share activity | (1,235,606 | ) | $ | (26,345,515 | ) | (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. |
Invesco V.I. Diversified Dividend Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 20.93 | $ | 0.40 | $ | 2.26 | $ | 2.66 | $ | (0.38 | ) | $ | 23.21 | 12.83 | % | $ | 330,370 | 0.72 | %(d) | 0.73 | %(d) | 1.80 | %(d) | 6 | % | |||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 20.85 | 0.34 | 2.25 | 2.59 | (0.33 | ) | 23.11 | 12.54 | 105,813 | 0.97 | (d) | 0.98 | (d) | 1.55 | (d) | 6 | ||||||||||||||||||||||||||||||||
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 |
(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 based on average daily net assets (000’s omitted) of $322,330 and $100,143 for Series I and Series II shares, respectively. |
Invesco V.I. Diversified Dividend Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Diversified Dividend Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Diversified Dividend Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Diversified Dividend Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,043.50 | $ | 3.71 | $ | 1,021.58 | $ | 3.67 | 0.72 | % | ||||||||||||
Series II | 1,000.00 | 1,041.90 | 4.99 | 1,020.32 | 4.94 | 0.97 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Dividend Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Diversified Dividend Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Diversified Dividend Fund
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Annual Report to Shareholders
| December 31, 2014 | |||
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Invesco V.I. Diversified Income Fund
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIDIN-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Diversified Income Fund outperformed its broad market and style-specific indexes, the Barclays U.S. Aggregate Index and Barclays U.S. Credit index, respectively. Sector and security selection were the major contributors to performance for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.03 | % | |||
Series II Shares | 7.85 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 5.97 | ||||
Barclays U.S. Credit Index‚ (Style-Specific Index) | 7.53 | ||||
Lipper VUF Corporate Debt BBB-Rated Funds Indexn (Peer Group Index) | 5.87 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
The year ended December 31, 2014, turned out to be a surprisingly successful year for many bond market participants, given the predictions for rising rates that dominated the media and investor psyche at the beginning of the year. Falling long-term bond yields were a driving force behind generally positive intermediate- to long-term, higher-quality bond returns during 2014.
The year began on a positive note for bonds, buoyed by a general decline in yields on concerns over US economic growth following unexpectedly disruptive winter weather in the first quarter of 2014. Yields also were pushed lower due to demand driven by rising tensions in eastern Europe and the Middle East, which prompted investors to seek safety. The yield on the 10-year US Treasury note fell to 2.5% by the end of June.1 This happened despite the US Federal Reserve’s (the Fed) tapering of its quantitative easing via bond purchases beginning in January to $35 billion a month by the end of June.1
Despite growing geopolitical risk and softer-than-expected global economic
growth, investors’ demand for yield also fueled positive results in credit-related markets, such as emerging market debt and high yield corporate bonds, during the first half of the year. While a favorable supply/demand dynamic and solid credit fundamentals throughout the first part of the year supported an environment in which investors were willing to assume somewhat greater credit risk, these credit sectors experienced notable volatility near the end of the reporting period. A steep drop in oil prices in the second half of 2014 and concerns over the ongoing conflict between Russia and the Ukraine spurred notable sell-offs in both high yield corporate bonds and emerging market debt.
As the reporting period drew to a close, the most credit-sensitive markets made it to the finish line with positive, albeit subdued, returns after a bumpy ride throughout 2014. Meanwhile, long-term Treasury bonds were some of the best-performing bonds in 2014 as yields drifted lower, with the yield on the 30-year US Treasury bond ending the year at 2.75%, down from just under 4.00% at the start of the year.1
In this environment, the most interest rate sensitive or longer duration portions of the bond market performed well, while the credit sectors had mixed results depending on their underlying sensitivity to falling rates. Given this market backdrop, the Fund’s total returns were positive and outperformed its style-specific benchmark. The Fund’s positive absolute performance was boosted by its sensitivity to falling interest rates, and its out performance versus the Barclays U.S. Credit Index was driven mostly by favorable sector and security selection decisions throughout the year.
Outperformance from our sector selection was broad based, but mainly attributed to our consistent overweight allocations to the financial institutions and the communications and technology sectors, as well as underweight exposure to the consumer non-cyclical and utility sectors.
Off-benchmark holdings of longer maturity treasury bonds were also helpful for Fund performance versus the style-specific index. Allocations to high yield corporate bonds and US dollar-denominated emerging market debt were maintained within ranges of 10% to 20% and 5% to 10% of market value, respectively. Both these allocations were notable contributors to the Fund’s relative performance during the first half of 2014. While volatility in the credit sectors during the third and fourth quarters of 2014 quashed their full-year contribution to relative performance, credit sectors ended the year in positive territory.
Security selection throughout the reporting period was the largest contributor to the Fund’s outperformance versus its style-specific index, and it came from within several major credit market sectors represented in the Fund. The Fund’s financial institutions sector holdings meaningfully outperformed those of the style-specific benchmark. Security selection within the basic industry, capital goods, consumer non-cyclical and utility
Portfolio Composition | |||||
By security type, based on total investments
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Bonds and Notes | 93.9 | % | |||
U.S. Treasury Securities | 3.0 | ||||
Preferred Stocks | 1.1 | ||||
Security Types Each Less Than 1% of Portfolio | 2.0 |
Top 10 Fixed Income Issuers* | |||||
1. Alibaba Group Holding Ltd. | 3.3 | % | |||
2. U.S. Treasury | 2.9 | ||||
3. Verizon Communications, Inc. | 2.4 | ||||
4. Moody’s Corp. | 2.1 | ||||
5. EPR Properties | 1.6 | ||||
6. Ross Stores, Inc. | 1.6 | ||||
7. ConocoPhillips Co. | 1.6 | ||||
8. Cox Communications, Inc. | 1.6 | ||||
9. Citigroup Inc. | 1.6 | ||||
10. Electricite de France S.A. | 1.6 |
Total Net Assets | $18.0 million | ||||
Total Number of Holdings* | 453 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding U.S. Treasury bills.
Invesco V.I. Diversified Income Fund
sectors was also beneficial to relative performance.
Throughout the year, we used several strategies to help manage the Fund’s overall credit and currency risk. Our allocations to US Treasuries as well as our limited use of credit default swaps (notional value of less than 5% of the Fund) as hedges against credit market volatility were beneficial for liquidity, relative and absolute Fund performance for the year.
Credit default swaps helped dampen portfolio volatility in the second half of the year when credit markets were most unsettled. We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US dollar-denominated debt. The use of currency forward contracts had a slight positive impact on the Fund’s performance relative to our style-specific index for the reporting period due to the strengthening of the US dollar over the same time frame.
The Fund uses duration and yield curve positioning for risk management and for generating returns. Duration measures a portfolio’s price sensitivity to interest rate changes, with a shorter duration tending to be less sensitive to these changes. Yield curve positioning refers to actively emphasizing points (maturities) along the yield curve with favorable risk/return expectations. For the reporting period, the Fund’s slightly longer-than-benchmark duration (on average) was positive and contributed to relative returns. Duration was managed with cash bonds and futures positions. Buying and selling interest rate futures contracts was an important tool we used to manage interest rate risk.
Please note that our strategy can be implemented using derivative instruments, including futures, forwards, swaps and options. Therefore, a portion of the performance of the strategy, both positive and negative, can be attributed to these instruments. Derivatives can be a cost-effective way to gain or hedge exposure to certain risks. However, derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
We wish to remind you that the Fund is subject to interest rate risk, meaning when interest rates rise, the value of fixed income securities tend to fall. This risk may be greater in the current market environment because interest rates are at or near historic lows. The degree to which the value of fixed income securities may decline due to rising interest rates
may vary depending on the speed and magnitude of the increase in interest rates, as well as individual security characteristics such as price, maturity, duration and coupon and market forces such as supply and demand for similar securities. We are monitoring interest rates, and the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the Fed and certain foreign central banks. If interest rates rise, markets may experience increased volatility, which may affect the value and/ or liquidity of certain of the Fund’s investments.
We thank you for your investment in Invesco V.I. Diversified Income Fund.
1 | Source: Board of Governors of the Federal Reserve System (US) |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Chuck Burge Portfolio Manager, is manager of Invesco V.I. Diversified Income Fund. He joined Invesco in 2002. | ||
Mr. Burge earned a BS in economics from Texas A&M University and an MBA in finance and accounting from Rice University. | ||
Darren Hughes Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Diversified Income | ||
Fund. He joined Invesco in 1992. Mr. Hughes earned a BBA in finance and economics from Baylor University. | ||
Scott Roberts Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Diversified Income | ||
Fund. He joined Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston. |
Invesco V.I. Diversified Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/5/93) | 4.50 | % | |||
10 Years | 3.73 | ||||
5 Years | 7.10 | ||||
1 Year | 8.03 | ||||
Series II Shares | |||||
Inception (3/14/02) | 4.08 | % | |||
10 Years | 3.47 | ||||
5 Years | 6.81 | ||||
1 Year | 7.85 |
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, 2016. See current prospectus for more information. |
Invesco V.I. Diversified Income Fund
Invesco V.I. Diversified Income Fund’s investment objective is total return, comprised of current income and capital appreciation.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. The Fund engages in frequent trading of portfolio securities. Active trading results in added expenses and may result in a lower return.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign government debt risk. Investments in foreign government debt obligations involve certain risks in addition to those relating to foreign securities or debt securities generally. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the Fund may have limited recourse in the event of a default against the defaulting government. Without the approval of debt holders, some governmental debtors have in the past been able to reschedule or restructure their debt payments or declare moratoria on payments.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Geographic focus risk. From time to time the Fund may invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. If the Fund focuses its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging markets countries.
High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
Invesco V.I. Diversified Income Fund
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
About indexes used in this report
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Credit Index is an unmanaged index considered representative of publicly issued, SEC-registered US corporate and specified foreign debentures and secured notes.
The Lipper VUF Corporate Debt BBB-Rated Funds Index is an unmanaged index considered representative of corporate debt BBB-rated variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Diversified Income Fund
Schedule of Investments(a)
December 31, 2014
Principal Amount | Value | |||||||
Bonds and Notes–94.96% |
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Advertising–0.03% | ||||||||
Omnicom Group Inc., Sr. Unsec. Gtd. Global Notes, 3.63%, 05/01/22 | $ | 5,000 | $ | 5,146 | ||||
Aerospace & Defense–1.39% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | 16,000 | 17,440 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Bonds, 5.25%, 02/01/21(b) | 6,000 | 5,745 | ||||||
GenCorp Inc., Sec. Gtd. Global Notes, 7.13%, 03/15/21 | 19,000 | 19,997 | ||||||
L-3 Communications Corp., | 105,000 | 106,105 | ||||||
Sr. Unsec. Gtd. Notes, 4.95%, 02/15/21 | 60,000 | 65,208 | ||||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/22(b) | 6,000 | 6,105 | ||||||
TransDigm Inc., Sr. Unsec. Gtd. Sub. | 17,000 | 16,745 | ||||||
6.00%, 07/15/22 | 3,000 | 3,008 | ||||||
6.50%, 07/15/24 | 5,000 | 5,038 | ||||||
7.50%, 07/15/21 | 5,000 | 5,300 | ||||||
250,691 | ||||||||
Agricultural & Farm Machinery–0.03% | ||||||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 6.88%, 10/01/20 | 7,000 | 6,213 | ||||||
Agricultural Products–0.02% | ||||||||
Darling Ingredients, Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 01/15/22 | 3,000 | 2,970 | ||||||
Airlines–1.20% | ||||||||
Continental Airlines Pass Through Trust, Series 2009-1, Sr. Sec. Pass Through Ctfs., 9.00%, 07/08/16 | 89,563 | 98,743 | ||||||
Series 2009-2, Class B, Sec. Global Pass Through Ctfs., 9.25%, 05/10/17 | 7,381 | 8,068 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-2, Class A, Sr. Sec. Pass Through Ctfs., 4.95%, 05/23/19 | 40,696 | 43,621 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class B, Sec. Pass Through Ctfs., 4.63%, 09/03/22 | 50,000 | 49,375 | ||||||
United Continental Holdings Inc., Sr. Unsec. Gtd. Notes, 6.00%, 12/01/20 | 15,000 | 15,488 | ||||||
US Airways Pass Through Trust, Series 2012-1, Class B, Sec. Pass Through Ctfs., 8.00%, 10/01/19 | 896 | 1,010 | ||||||
216,305 | ||||||||
Alternative Carriers–0.17% | ||||||||
Level 3 Communications Inc., | 5,000 | 5,050 | ||||||
Level 3 Escrow II Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/22(b) | 15,000 | 15,150 |
Principal Amount | Value | |||||||
Alternative Carriers–(continued) | ||||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 6.13%, 01/15/21 | $ | 10,000 | $ | 10,400 | ||||
30,600 | ||||||||
Apparel Retail–1.84% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. Notes, 9.25%, 06/15/21(b) | 19,000 | 20,520 | ||||||
Men’s Wearhouse Inc. (The), Sr. Unsec. Gtd. Notes, 7.00%, 07/01/22(b) | 20,000 | 20,525 | ||||||
Neiman Marcus Group Ltd. LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/15/21(b) | 4,000 | 4,245 | ||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/24 | 285,000 | 285,687 | ||||||
330,977 | ||||||||
Apparel, Accessories & Luxury Goods–0.04% | ||||||||
William Carter Co. (The), Sr. Unsec. Gtd. Global Notes, 5.25%, 08/15/21 | 7,000 | 7,245 | ||||||
Application Software–0.07% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | 12,000 | 12,090 | ||||||
Asset Management & Custody Banks–1.87% | ||||||||
Affiliated Managers Group, Inc., Sr. Unsec. Global Notes, 4.25%, 02/15/24 | 100,000 | 104,451 | ||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(b) | 25,000 | 26,760 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, | 90,000 | 96,594 | ||||||
Carlyle Holdings II Finance LLC, Sr. Sec. Gtd. Notes, 5.63%, 03/30/43(b) | 75,000 | 87,729 | ||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(b) | 15,000 | 16,323 | ||||||
Signode Industrial Group Lux S.A./Signode Industrial Group U.S. Inc., Sr. Unsec. Notes, 6.38%, 05/01/22(b) | 5,000 | 4,850 | ||||||
336,707 | ||||||||
Auto Parts & Equipment–0.97% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/19(b) | 10,000 | 10,600 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, | 17,000 | 17,553 | ||||||
5.50%, 12/15/24 | 2,000 | 2,035 | ||||||
Johnson Controls, Inc., Sr. Unsec. Global Notes, 4.95%, 07/02/64 | 19,000 | 19,719 | ||||||
Magna International Inc. (Canada), Sr. Unsec. Global Notes, 3.63%, 06/15/24 | 100,000 | 100,793 | ||||||
Stackpole International Intermediate Co. S.A./Stackpole International Powder Metal (Canada), Sr. Sec. Gtd. Notes, 7.75%, 10/15/21(b) | 15,000 | 14,925 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/24 | 9,000 | 9,270 | ||||||
174,895 |
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–0.61% | ||||||||
General Motors Co., Sr. Unsec. Global Notes, 3.50%, 10/02/18 | $ | 80,000 | $ | 81,720 | ||||
General Motors Financial Co. Inc., Sr. Unsec. Gtd. Notes, 3.50%, 07/10/19 | 27,000 | 27,557 | ||||||
109,277 | ||||||||
Automotive Retail–0.12% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 05/01/20 | 12,000 | 13,457 | ||||||
CST Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/23 | 8,000 | 8,120 | ||||||
21,577 | ||||||||
Biotechnology–0.27% | ||||||||
Celgene Corp., Sr. Unsec. Global Notes, 4.63%, 05/15/44 | 47,000 | 48,963 | ||||||
Broadcasting–0.23% | ||||||||
Clear Channel Worldwide Holdings Inc., Series B, Sr. Unsec. Gtd. Global Notes, 6.50%, 11/15/22 | 9,000 | 9,315 | ||||||
iHeartCommunications Inc., | 5,000 | 4,925 | ||||||
Sr. Unsec. Global Notes, 10.00%, 01/15/18 | 12,000 | 10,350 | ||||||
Sinclair Television Group Inc., Sr. Unsec. Gtd. Notes, 5.63%, 08/01/24(b) | 16,000 | 15,560 | ||||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 2,000 | 2,020 | ||||||
42,170 | ||||||||
Building Products–0.62% | ||||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 25,000 | 25,625 | ||||||
Building Materials Holding Corp., Sr. Sec. Notes, 9.00%, 09/15/18(b) | 14,000 | 14,700 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/21 | 19,000 | 19,475 | ||||||
Norbord Inc. (Canada), Sr. Sec. Notes, 5.38%, 12/01/20(b) | 10,000 | 9,792 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 25,000 | 26,937 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, | 2,000 | 2,030 | ||||||
7.88%, 03/30/20(b) | 12,000 | 12,930 | ||||||
111,489 | ||||||||
Cable & Satellite–4.98% | ||||||||
Altice S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 7.75%, 05/15/22(b) | 230,000 | 230,863 | ||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 16,000 | 16,160 | ||||||
5.25%, 09/30/22 | 7,000 | 7,035 | ||||||
CCOH Safari LLC, Sr. Unsec. Gtd. Notes, 5.50%, 12/01/22 | 5,000 | 5,081 | ||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 4.25%, 01/15/33 | 80,000 | 85,089 |
Principal Amount | Value | |||||||
Cable & Satellite–(continued) | ||||||||
Cox Communications, Inc., Sr. Unsec. Notes, | $ | 75,000 | $ | 107,387 | ||||
9.38%, 01/15/19(b) | 140,000 | 176,293 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., | 50,000 | 51,781 | ||||||
Sr. Unsec. Gtd. Notes, 4.45%, 04/01/24 | 30,000 | 31,398 | ||||||
DISH DBS Corp., | 30,000 | 30,450 | ||||||
Sr. Unsec. Gtd. Notes, | 10,000 | 10,100 | ||||||
Hughes Satellite Systems Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 8,000 | 8,850 | ||||||
Intelsat Luxembourg S.A. (Luxembourg), Sr. Unsec. Gtd. Global Bonds, 7.75%, 06/01/21 | 19,000 | 19,143 | ||||||
8.13%, 06/01/23 | 11,000 | 11,275 | ||||||
Time Warner Cable, Inc., | 55,000 | 63,122 | ||||||
Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 38,000 | 41,913 | ||||||
895,940 | ||||||||
Casinos & Gaming–0.26% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/20 | 12,000 | 12,390 | ||||||
Caesars Entertainment Resort Properties LLC, Sr. Sec. Gtd. Notes, 8.00%, 10/01/20(b) | 2,000 | 1,960 | ||||||
Sec. Gtd. Notes, 11.00%, 10/01/21(b) | 4,000 | 3,670 | ||||||
Caesars Growth Properties Holdings LLC/Caesars Growth Properties Finance Inc., Sec. Gtd. Notes, 9.38%, 05/01/22(b) | 2,000 | 1,755 | ||||||
MGM Resorts International, | 5,000 | 5,262 | ||||||
Sr. Unsec. Gtd. Notes, | 8,000 | 8,080 | ||||||
7.75%, 03/15/22 | 12,000 | 13,380 | ||||||
46,497 | ||||||||
Catalog Retail–1.55% | ||||||||
QVC, Inc., Sr. Sec. Gtd. Global Notes, | 80,000 | 78,369 | ||||||
4.85%, 04/01/24 | 52,000 | 53,063 | ||||||
5.45%, 08/15/34 | 150,000 | 146,622 | ||||||
278,054 | ||||||||
Coal & Consumable Fuels–0.12% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/15/22(b) | 15,000 | 14,062 | ||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | 8,000 | 7,040 | ||||||
21,102 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Commercial Printing–0.08% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, 6.13%, 12/01/22(b) | $ | 4,000 | $ | 4,010 | ||||
RR Donnelley & Sons Co., Sr. Unsec. Global Notes, 7.88%, 03/15/21 | 10,000 | 11,075 | ||||||
15,085 | ||||||||
Communications Equipment–0.30% | ||||||||
Avaya Inc., Sr. Sec. Gtd. Notes, | 15,000 | 14,756 | ||||||
9.00%, 04/01/19(b) | 13,000 | 13,390 | ||||||
Juniper Networks Inc., Sr. Unsec. Global Notes, 4.50%, 03/15/24 | 25,000 | 25,289 | ||||||
53,435 | ||||||||
Computer & Electronics Retail–0.04% | ||||||||
Rent-A-Center, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/01/21 | 8,000 | 6,980 | ||||||
Construction & Engineering–0.16% | ||||||||
AECOM Technology Corp., Sr. Unsec. Gtd. Notes, | 5,000 | 5,186 | ||||||
5.88%, 10/15/24(b) | 8,000 | 8,265 | ||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 15,000 | 15,825 | ||||||
29,276 | ||||||||
Construction Machinery & Heavy Trucks–0.46% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, 8.50%, 11/01/19(b) | 13,000 | 13,650 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 20,000 | 20,850 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | 11,000 | 11,275 | ||||||
6.75%, 06/15/21 | 5,000 | 5,200 | ||||||
Navistar International Corp., Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 16,000 | 15,760 | ||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 03/01/22 | 15,000 | 15,337 | ||||||
82,072 | ||||||||
Construction Materials–0.19% | ||||||||
Building Materials Corp. of America, Sr. Unsec. Notes, 5.38%, 11/15/24(b) | 5,000 | 5,016 | ||||||
CPG Merger Sub LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/01/21(b) | 3,000 | 3,082 | ||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, | 3,000 | 2,970 | ||||||
7.50%, 02/15/19(b) | 12,000 | 11,880 | ||||||
US Concrete, Inc., Sr. Sec. Gtd. Global Notes, 8.50%, 12/01/18 | 11,000 | 11,550 | ||||||
34,498 | ||||||||
Consumer Finance–0.45% | ||||||||
Ally Financial Inc., Sr. Unsec. Global Notes, 5.13%, 09/30/24 | 3,000 | 3,075 |
Principal Amount | Value | |||||||
Consumer Finance–(continued) | ||||||||
Navient Corp., Sr. Unsec. Medium-Term Global Notes, 6.25%, 01/25/16 | $ | 75,000 | $ | 78,420 | ||||
81,495 | ||||||||
Data Processing & Outsourced Services–0.45% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | 30,000 | 30,754 | ||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | 19,000 | 19,998 | ||||||
First Data Corp., | 12,000 | 13,890 | ||||||
Sr. Unsec. Gtd. Global Notes, 12.63%, 01/15/21 | 14,000 | 16,625 | ||||||
81,267 | ||||||||
Distillers & Vintners–0.04% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Global Notes, 10.00%, 04/30/18(c) | 2,000 | 1,700 | ||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Notes, 4.75%, 11/15/24 | 5,000 | 5,063 | ||||||
6,763 | ||||||||
Diversified Banks–9.22% | ||||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(b) | 200,000 | 198,910 | ||||||
Bank of America Corp., | 130,000 | 140,208 | ||||||
Sr. Unsec. Notes, 5.88%, 01/05/21 | 35,000 | 40,767 | ||||||
Series Z, Jr. Unsec. Sub. Notes, 6.50%(d) | 85,000 | 87,125 | ||||||
Bank of China Ltd. (China), Unsec. Sub. Notes, 5.00%, 11/13/24(b) | 200,000 | 205,865 | ||||||
Citigroup Inc., | 95,000 | 92,538 | ||||||
5.50%, 09/13/25 | 65,000 | 72,003 | ||||||
Series A, Jr. Unsec. Sub. Global Notes, 5.95%(d) | 60,000 | 59,100 | ||||||
Series N, Jr. Unsec. Sub. Global Notes, 5.80%(d) | 55,000 | 55,275 | ||||||
Credit Suisse (Switzerland), Sr. Unsec. Notes, 3.00%, 10/29/21 | 37,000 | 36,774 | ||||||
HSBC Holdings PLC (United Kingdom), Sr. Unsec. Global Notes, 4.00%, 03/30/22 | 45,000 | 47,965 | ||||||
Intesa Sanpaolo SpA (Italy), Sr. Unsec. Gtd. Notes, 3.88%, 01/15/19 | 200,000 | 207,310 | ||||||
JPMorgan Chase & Co., | 120,000 | 120,000 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(d) | 40,000 | 39,300 | ||||||
PNC Bank, N.A., Unsec. Sub. Global Notes, 3.80%, 07/25/23 | 45,000 | 46,595 |
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 Banks–(continued) | ||||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | $ | 12,000 | $ | 13,105 | ||||
Wells Fargo & Co., Unsec. Sub. Global Notes, 5.38%, 11/02/43 | 170,000 | 194,880 | ||||||
1,657,720 | ||||||||
Diversified Metals & Mining–0.92% | ||||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, | 2,000 | 1,923 | ||||||
6.88%, 04/01/22(b) | 18,000 | 15,097 | ||||||
Glencore Funding LLC (Switzerland), Sr. Unsec. Gtd. Notes, 4.13%, 05/30/23(b) | 63,000 | 60,570 | ||||||
HudBay Minerals, Inc. (Canada), | 11,000 | 10,780 | ||||||
Sr. Unsec. Gtd. Notes, 9.50%, 10/01/20(b) | 2,000 | 1,950 | ||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, 7.13%, 07/15/28 | 20,000 | 26,392 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, 5.25%, 11/08/42 | 54,000 | 48,477 | ||||||
165,189 | ||||||||
Drug Retail–1.24% | ||||||||
CVS Pass Through Trust, Sr. Sec. Mortgage Pass Through Ctfs., 5.77%, 01/10/33(b) | 157,637 | 181,729 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Gtd. Global Notes, 3.80%, 11/18/24 | 41,000 | 41,862 | ||||||
223,591 | ||||||||
Electric Utilities–1.55% | ||||||||
Electricite de France S.A. (France), | ||||||||
Jr. Unsec. Sub. Notes, 5.63%(b)(d) | 100,000 | 105,510 | ||||||
Sr. Unsec. Notes, | 145,000 | 172,720 | ||||||
LSP Energy L.P./LSP Batesville Funding Corp., Series D, Sr. Sec. Bonds, 8.16%, 07/15/25(e) | 25,000 | 0 | ||||||
278,230 | ||||||||
Electrical Components & Equipment–0.03% | ||||||||
Sensata Technologies B.V. (Netherlands), Sr. Unsec. Gtd. Notes, 4.88%, 10/15/23(b) | 5,000 | 5,000 | ||||||
Environmental & Facilities Services–0.03% | ||||||||
ADS Waste Holdings, Inc., Sr. Unsec. Gtd. Global Notes, 8.25%, 10/01/20 | 6,000 | 6,030 | ||||||
Food Retail–0.19% | ||||||||
Kroger Co. (The), Sr. Unsec. Notes, 2.95%, 11/01/21 | 35,000 | 34,746 | ||||||
Gas Utilities–0.15% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, | 15,000 | 14,775 | ||||||
6.75%, 01/15/22 | 3,000 | 2,970 |
Principal Amount | Value | |||||||
Gas Utilities–(continued) | ||||||||
Suburban Propane Partners, L.P./ Suburban Energy Finance Corp., | $ | 5,000 | $ | 4,850 | ||||
7.38%, 08/01/21 | 4,000 | 4,210 | ||||||
26,805 | ||||||||
General Merchandise Stores—0.31% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/23 | 62,000 | 56,550 | ||||||
Gold–1.92% | ||||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 4.40%, 05/30/21 | 130,000 | 131,455 | ||||||
5.70%, 05/30/41 | 50,000 | 49,087 | ||||||
Kinross Gold Corp. (Canada), Sr. Unsec. Gtd. Notes, 5.95%, 03/15/24(b) | 75,000 | 70,406 | ||||||
New Gold Inc. (Canada), Sr. Unsec. Notes, 6.25%, 11/15/22(b) | 19,000 | 18,715 | ||||||
Newcrest Finance Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.75%, 11/15/41(b) | 35,000 | 30,874 | ||||||
Yamana Gold Inc. (Canada), Sr. Unsec. Global Notes, 4.95%, 07/15/24 | 45,000 | 44,178 | ||||||
344,715 | ||||||||
Health Care Distributors–0.41% | ||||||||
McKesson Corp., Sr. Unsec. Global Notes, 3.80%, 03/15/24 | 71,000 | 73,284 | ||||||
Health Care Equipment–1.51% | ||||||||
Becton, Dickinson and Co., Sr. Unsec. Notes, 4.69%, 12/15/44 | 39,000 | 42,122 | ||||||
CareFusion Corp., Sr. Unsec. Global Notes, | 40,000 | 41,202 | ||||||
4.88%, 05/15/44 | 45,000 | 47,879 | ||||||
Medtronic Inc., | 40,000 | 43,225 | ||||||
Sr. Unsec. Notes, | 45,000 | 46,087 | ||||||
4.63%, 03/15/45(b) | 39,000 | 42,274 | ||||||
Universal Hospital Services Inc., Sec. Gtd. Global Notes, 7.63%, 08/15/20 | 10,000 | 8,625 | ||||||
271,414 | ||||||||
Health Care Facilities–0.68% | ||||||||
Community Health Systems, Inc., | 5,000 | 5,237 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/22 | 15,917 | 16,952 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/21 | 18,000 | 19,305 | ||||||
HCA, Inc., Sr. Sec. Gtd. Global Notes, | 19,000 | 20,900 | ||||||
6.50%, 02/15/20 | 19,000 | 21,351 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Health Care Facilities–(continued) | ||||||||
LifePoint Hospitals, Inc., | $ | 2,000 | $ | 2,060 | ||||
Tenet Healthcare Corp., | 9,000 | 9,720 | ||||||
Sr. Unsec. Global Notes, | 10,000 | 10,525 | ||||||
8.13%, 04/01/22 | 14,000 | 15,750 | ||||||
121,800 | ||||||||
Health Care REIT’s–0.83% | ||||||||
HCP, Inc., | 45,000 | 47,356 | ||||||
Sr. Unsec. Notes, 3.75%, 02/01/16 | 25,000 | 25,703 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 75,000 | 76,547 | ||||||
149,606 | ||||||||
Health Care Services–0.88% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 3.50%, 06/15/24 | 85,000 | 84,963 | ||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, 6.63%, 04/01/22(b) | 15,000 | 15,525 | ||||||
Omnicare Inc., Sr. Unsec. Gtd. Notes, 5.00%, 12/01/24 | 7,000 | 7,201 | ||||||
Orlando Lutheran Towers Inc., Unsec. Bonds, 8.00%, 07/01/17 | 50,000 | 50,289 | ||||||
157,978 | ||||||||
Home Improvement Retail–0.10% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Notes, 6.38%, 07/15/22(b) | 19,000 | 18,335 | ||||||
Homebuilding–1.14% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/21(b) | 23,000 | 21,821 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/21 | 12,000 | 12,120 | ||||||
K. Hovnanian Enterprises Inc., | 6,000 | 6,225 | ||||||
Sr. Unsec. Gtd. Notes, | 10,000 | 9,500 | ||||||
8.00%, 11/01/19(b) | 4,000 | 3,850 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, 7.00%, 12/15/21 | 4,000 | 4,230 | ||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 165,000 | 137,505 | ||||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 10,000 | 9,850 | ||||||
205,101 | ||||||||
Hotels, Resorts & Cruise Lines–0.39% | ||||||||
Carnival Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 10/15/20 | 60,000 | 62,858 | ||||||
Choice Hotels International, Inc., Sr. Unsec. Gtd. Notes, 5.75%, 07/01/22 | 4,000 | 4,300 |
Principal Amount | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
NCL Corp. Ltd., Sr. Unsec. Notes, 5.25%, 11/15/19(b) | $ | 2,000 | $ | 2,025 | ||||
69,183 | ||||||||
Household Products–0.10% | ||||||||
Reynolds Group Issuer Inc./LLC, Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 17,000 | 17,489 | ||||||
Independent Power Producers & Energy Traders–0.28% | ||||||||
AES Corp., Sr. Unsec. Global Notes, | 10,000 | 11,450 | ||||||
8.00%, 10/15/17 | 1,000 | 1,135 | ||||||
Calpine Corp., Sr. Unsec. Global Notes, 5.38%, 01/15/23 | 14,000 | 14,245 | ||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, 7.88%, 05/15/21 | 22,000 | 23,870 | ||||||
50,700 | ||||||||
Industrial Machinery–1.14% | ||||||||
EnPro Industries, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 09/15/22(b) | 2,000 | 2,017 | ||||||
Ingersoll-Rand Luxembourg Finance S.A., Sr. Unsec. Gtd. Global Notes, 2.63%, 05/01/20 | 17,000 | 16,960 | ||||||
3.55%, 11/01/24 | 79,000 | 78,762 | ||||||
4.65%, 11/01/44 | 34,000 | 35,555 | ||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, 5.25%, 10/01/54 | 55,000 | 55,727 | ||||||
Waterjet Holdings, Inc., Sr. Sec. Gtd. Notes, 7.63%, 02/01/20(b) | 16,000 | 16,500 | ||||||
205,521 | ||||||||
Industrial REIT’s–0.29% | ||||||||
Prologis L.P., Sr. Unsec. Gtd. Global Notes, 4.25%, 08/15/23 | 49,000 | 51,839 | ||||||
Integrated Oil & Gas–1.93% | ||||||||
BP Capital Markets PLC (United Kingdom), Sr. Unsec. Gtd. Notes, 3.54%, 11/04/24 | 59,000 | 58,033 | ||||||
California Resources Corp., Sr. Unsec. Gtd. Notes, 5.50%, 09/15/21(b) | 20,000 | 17,200 | ||||||
Ecopetrol S.A. (Colombia), Sr. Unsec. Global Notes, 5.88%, 05/28/45 | 135,000 | 125,888 | ||||||
Petrobras Global Finance B.V. (Brazil), Sr. Unsec. Gtd. Global Notes, 4.88%, 03/17/20 | 155,000 | 145,743 | ||||||
346,864 | ||||||||
Integrated Telecommunication Services–4.20% | ||||||||
AT&T Inc., Sr. Unsec. Global Notes, | 60,000 | 60,253 | ||||||
2.95%, 05/15/16 | 35,000 | 35,905 | ||||||
CenturyLink, Inc., Series V, Sr. Unsec. Global Notes, 5.63%, 04/01/20 | 5,000 | 5,233 | ||||||
Telefonica Emisiones SAU (Spain), | 90,000 | 100,869 | ||||||
7.05%, 06/20/36 | 95,000 | 127,077 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Verizon Communications, Inc., | $ | 30,000 | $ | 30,919 | ||||
5.05%, 03/15/34 | 95,000 | 102,417 | ||||||
5.15%, 09/15/23 | 25,000 | 27,740 | ||||||
6.40%, 09/15/33 | 165,000 | 205,270 | ||||||
Sr. Unsec. Notes, 5.01%, 08/21/54(b) | 58,000 | 60,265 | ||||||
755,948 | ||||||||
Internet Software & Services–3.56% | ||||||||
Alibaba Group Holding Ltd. (China), | 200,000 | 198,036 | ||||||
3.60%, 11/28/24(b) | 200,000 | 198,675 | ||||||
4.50%, 11/28/34(b) | 200,000 | 205,045 | ||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/22 | 20,000 | 21,450 | ||||||
EarthLink Holdings Corp., | 5,000 | 5,075 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/19 | 8,000 | 7,980 | ||||||
Equinix Inc., Sr. Unsec. Notes, 5.38%, 01/01/22 | 3,000 | 3,015 | ||||||
639,276 | ||||||||
Investment Banking & Brokerage–2.78% | ||||||||
Charles Schwab Corp. (The), Series A, Jr. Unsec. Sub. Notes, 7.00%(d) | 45,000 | 52,369 | ||||||
Goldman Sachs Group, Inc. (The), | 85,000 | 90,559 | ||||||
Series L, Jr. Unsec. Sub. | 55,000 | 55,825 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(b) | 105,000 | 117,902 | ||||||
Morgan Stanley, Series F, Sr. Unsec. Medium-Term Global Notes, 5.63%, 09/23/19 | 130,000 | 147,071 | ||||||
Raymond James Financial, Inc., Sr. Unsec. Notes, 4.25%, 04/15/16 | 35,000 | 36,313 | ||||||
500,039 | ||||||||
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 | 5,113 | ||||||
Life & Health Insurance–3.65% | ||||||||
Dai-ichi Life Insurance Co., Ltd. (The) (Japan), Jr. Unsec. Sub. | 85,000 | 88,931 | ||||||
MetLife Inc., | 110,000 | 111,347 | ||||||
Sr. Unsec. Notes, 6.75%, 06/01/16 | 55,000 | 59,324 | ||||||
Nationwide Financial Services, Inc., | 165,000 | 186,924 | ||||||
Prudential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38 | 130,000 | 152,587 |
Principal Amount | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
TIAA Asset Management Finance Co. LLC, Sr. Unsec. Notes, 4.13%, 11/01/24(b) | $ | 55,000 | $ | 56,518 | ||||
655,631 | ||||||||
Managed Health Care–0.27% | ||||||||
Cigna Corp., Sr. Unsec. Notes, 4.50%, 03/15/21 | 45,000 | 49,198 | ||||||
Marine–0.09% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Notes, 8.13%, 11/15/21(b) | 17,000 | 16,745 | ||||||
Metal & Glass Containers–0.22% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/22 | 11,000 | 11,371 | ||||||
Berry Plastics Corp., Sec. Gtd. Notes, 5.50%, 05/15/22 | 24,000 | 24,540 | ||||||
Owens-Brockway Glass Container Inc., Sr. Unsec. Notes, 5.00%, 01/15/22(b) | 3,000 | 3,064 | ||||||
38,975 | ||||||||
Movies & Entertainment–0.91% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.88%, 02/15/22 | 4,000 | 4,090 | ||||||
DreamWorks Animation SKG, Inc., Sr. Unsec. Gtd. Notes, 6.88%, 08/15/20(b) | 12,000 | 12,420 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Global Notes, 5.35%, 12/15/43 | 75,000 | 85,512 | ||||||
Viacom Inc., Sr. Unsec. Global Notes, 5.85%, 09/01/43 | 55,000 | 61,435 | ||||||
163,457 | ||||||||
Multi-Line Insurance–2.18% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 180,000 | 231,461 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, 4.50%, 07/16/44 | 50,000 | 52,734 | ||||||
Nationwide Mutual Insurance Co., Unsec. Sub. Notes, 4.95%, 04/22/44(b) | 100,000 | 106,838 | ||||||
391,033 | ||||||||
Multi-Sector Holdings–0.26% | ||||||||
Burlington Northern Santa Fe LLC, | 30,000 | 30,631 | ||||||
4.55%, 09/01/44 | 15,000 | 16,122 | ||||||
46,753 | ||||||||
Multi-Utilities–0.40% | ||||||||
Enable Midstream Partners L.P., Sr. Unsec. Notes, 3.90%, 05/15/24(b) | 75,000 | 72,339 | ||||||
Office REIT’s–0.54% | ||||||||
Government Properties Income Trust, Sr. Unsec. Notes, 3.75%, 08/15/19 | 50,000 | 50,705 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Office REIT’s–(continued) | ||||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/24 | $ | 45,000 | $ | 46,454 | ||||
97,159 | ||||||||
Office Services & Supplies–0.20% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/24 | 35,000 | 36,243 | ||||||
Oil & Gas Drilling—0.70% | ||||||||
Pioneer Energy Services Corp., Sr. Unsec. Gtd. Global Notes, 6.13%, 03/15/22 | 5,000 | 3,650 | ||||||
Rowan Cos. Inc., Sr. Unsec. Gtd. Notes, | 48,000 | 45,448 | ||||||
5.85%, 01/15/44 | 86,000 | 77,498 | ||||||
126,596 | ||||||||
Oil & Gas Equipment & Services–0.10% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | 4,000 | 3,980 | ||||||
Exterran Partners L.P./EXLP Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 04/01/21 | 15,000 | 13,500 | ||||||
17,480 | ||||||||
Oil & Gas Exploration & Production–4.25% | ||||||||
Anadarko Petroleum Corp., Sr. Unsec. Notes, 3.45%, 07/15/24 | 30,000 | 29,413 | ||||||
Antero Resources Corp., Sr. Unsec. Gtd. Notes, 5.13%, 12/01/22(b) | 10,000 | 9,500 | ||||||
Antero Resources Finance Corp., | 8,000 | 7,780 | ||||||
6.00%, 12/01/20 | 3,000 | 3,023 | ||||||
Approach Resources Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 06/15/21 | 8,000 | 6,140 | ||||||
Carrizo Oil & Gas Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/20(b) | 3,000 | 2,895 | ||||||
Chesapeake Energy Corp., | 19,000 | 18,715 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/20 | 5,000 | 5,425 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, | 62,000 | 59,985 | ||||||
5.88%, 05/01/22 | 5,000 | 5,250 | ||||||
Concho Resources Inc., | 2,000 | 2,020 | ||||||
5.50%, 04/01/23 | 9,000 | 9,090 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 01/15/22 | 2,000 | 2,110 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | 124,000 | 125,503 | ||||||
4.15%, 11/15/34 | 49,000 | 50,469 | ||||||
4.30%, 11/15/44 | 103,000 | 108,709 | ||||||
Continental Resources Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/22 | 125,000 | 121,250 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Denbury Resources Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 05/01/22 | $ | 13,000 | $ | 11,960 | ||||
Devon Energy Corp., Sr. Unsec. Global Notes, | 25,000 | 24,938 | ||||||
3.25%, 05/15/22 | 80,000 | 78,632 | ||||||
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | 3,000 | 2,565 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Notes, 6.88%, 02/01/20 | 6,000 | 6,165 | ||||||
Noble Energy Inc., Sr. Unsec. Notes, 3.90%, 11/15/24 | 27,000 | 26,791 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 15,000 | 15,150 | ||||||
Rosetta Resources, Inc., | 6,000 | 5,505 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 06/01/22 | 5,000 | 4,587 | ||||||
RSP Permian, Inc., Sr. Unsec. Gtd. Notes, 6.63%, 10/01/22(b) | 6,000 | 5,640 | ||||||
SM Energy Co., | 11,000 | 10,725 | ||||||
6.50%, 01/01/23 | 2,000 | 1,940 | ||||||
Sr. Unsec. Notes, 6.13%, 11/15/22(b) | 3,000 | 2,843 | ||||||
764,718 | ||||||||
Oil & Gas Refining & Marketing–0.21% | ||||||||
Calumet Specialty Products Partners L.P./Calumet Finance Corp., Sr. Unsec. Gtd. Notes, 6.50%, 04/15/21(b) | 18,000 | 16,110 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, | 20,000 | 19,850 | ||||||
5.88%, 03/01/22 | 2,000 | 1,975 | ||||||
37,935 | ||||||||
Oil & Gas Storage & Transportation—2.88% | ||||||||
Access Midstream Partners L.P./ACMP Finance Corp., Sr. Unsec. Gtd. Global Notes, 4.88%, 05/15/23 | 27,000 | 27,675 | ||||||
Crestwood Midstream Partners L.P./Crestwood Midstream Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 12/15/20 | 18,000 | 17,325 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 2,000 | 2,250 | ||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, | 142,000 | 142,650 | ||||||
3.90%, 02/15/24 | 56,000 | 56,878 | ||||||
EQT Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 4.00%, 08/01/24 | 65,000 | 64,512 | ||||||
Kinder Morgan Energy Partners LP, Sr. Unsec. Gtd. Notes, | 85,000 | 85,229 | ||||||
5.40%, 09/01/44 | 100,000 | 100,555 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Oil & Gas Storage & Transportation—(continued) | ||||||||
NGL Energy Partners L.P./NGL Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 10/15/21(b) | $ | 5,000 | $ | 4,962 | ||||
Teekay Corp. (Bermuda), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 5,000 | 5,650 | ||||||
Teekay Offshore Partners L.P./Teekay Offshore Finance Corp. (Bermuda), Sr. Unsec. Global Notes, 6.00%, 07/30/19 | 3,000 | 2,777 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., | 5,000 | 5,050 | ||||||
Sr. Unsec. Gtd. Notes, | 2,000 | 2,040 | ||||||
517,553 | ||||||||
Other Diversified Financial Services–0.92% | ||||||||
Football Trust V, Sec. Pass Through Ctfs., 5.35%, 10/05/20(b) | 100,000 | 111,118 | ||||||
Voya Financial, Inc., Jr. Unsec. Gtd. Sub. Global Notes, 5.65%, 05/15/53 | 55,000 | 54,725 | ||||||
165,843 | ||||||||
Packaged Foods & Meats–1.10% | ||||||||
Diamond Foods Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 21,000 | 21,682 | ||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/19 | 45,000 | 44,744 | ||||||
Mead Johnson Nutrition Co., Sr. Unsec. Global Notes, 4.60%, 06/01/44 | 97,000 | 102,990 | ||||||
Post Holdings Inc., | 12,000 | 12,120 | ||||||
Sr. Unsec. Gtd. Notes, | 3,000 | 2,948 | ||||||
Smithfield Foods Inc., Sr. Unsec. Notes, | 2,000 | 2,055 | ||||||
6.63%, 08/15/22 | 4,000 | 4,230 | ||||||
WhiteWave Foods Co. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 6,000 | 6,195 | ||||||
196,964 | ||||||||
Paper Packaging–1.17% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, | 2,000 | 2,025 | ||||||
4.88%, 11/15/22 | 12,000 | 12,075 | ||||||
Klabin Finance S.A. (Brazil), Sr. Unsec. Gtd. Notes, 5.25%, 07/16/24(b) | 200,000 | 195,750 | ||||||
209,850 | ||||||||
Paper Products–0.14% | ||||||||
Mercer International Inc., Sr. Unsec. Gtd. Notes, 7.00%, 12/01/19(b) | 5,000 | 5,069 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 19,000 | 19,427 | ||||||
24,496 |
Principal Amount | Value | |||||||
Personal Products–0.41% | ||||||||
Estee Lauder Cos. Inc. (The), Sr. Unsec. Global Notes, 3.70%, 08/15/42 | $ | 60,000 | $ | 57,289 | ||||
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | 17,000 | 17,021 | ||||||
74,310 | ||||||||
Pharmaceuticals–2.55% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, | 36,000 | 36,211 | ||||||
4.85%, 06/15/44 | 60,000 | 60,983 | ||||||
Bristol-Myers Squibb Co., Sr. Unsec. Deb., 6.88%, 08/01/97 | 74,000 | 109,722 | ||||||
Perrigo Finance PLC, Sr. Unsec. Gtd. Notes, 3.90%, 12/15/24 | 200,000 | 203,287 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/21(b) | 8,000 | 8,220 | ||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, | 14,000 | 14,227 | ||||||
6.38%, 10/15/20(b) | 15,000 | 15,750 | ||||||
6.75%, 08/15/21(b) | 4,000 | 4,200 | ||||||
7.50%, 07/15/21(b) | 5,000 | 5,438 | ||||||
458,038 | ||||||||
Property & Casualty Insurance–2.06% | ||||||||
Allstate Corp. (The), Unsec. Sub. Global Notes, 5.75%, 08/15/53 | 75,000 | 79,125 | ||||||
CNA Financial Corp., Sr. Unsec. Notes, 7.35%, 11/15/19 | 160,000 | 191,497 | ||||||
Liberty Mutual Group Inc., Jr. Unsec. Gtd. Sub. Bonds, 7.80%, 03/15/37(b) | 45,000 | 52,875 | ||||||
W.R. Berkley Corp., Sr. Unsec. Notes, 7.38%, 09/15/19 | 40,000 | 47,665 | ||||||
371,162 | ||||||||
Real Estate Development—0.03% | ||||||||
AV Homes, Inc., Sr. Unsec. Notes, 8.50%, 07/01/19(b) | 5,000 | 4,838 | ||||||
Real Estate Services—0.02% | ||||||||
Kennedy-Wilson Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/01/24 | 4,000 | 4,030 | ||||||
Regional Banks—1.63% | ||||||||
CIT Group Inc., Sr. Unsec. Global Notes, | 3,000 | 3,075 | ||||||
5.00%, 08/01/23 | 10,000 | 10,275 | ||||||
Fifth Third Bancorp, | 70,000 | 72,200 | ||||||
Unsec. Sub. Notes, 4.30%, 01/16/24 | 55,000 | 57,684 | ||||||
Series J, Jr. Unsec. Sub. | 45,000 | 43,875 | ||||||
First Niagara Financial Group Inc., Unsec. Sub. Notes, 7.25%, 12/15/21 | 35,000 | 39,723 | ||||||
SunTrust Banks, Inc., Jr. Unsec. Sub. | 55,000 | 55,550 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Regional Banks—(continued) | ||||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | $ | 10,000 | $ | 11,175 | ||||
293,557 | ||||||||
Reinsurance–0.36% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/23 | 60,000 | 64,838 | ||||||
Renewable Electricity–0.21% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 36,000 | 38,103 | ||||||
Residential REIT’s–0.65% | ||||||||
Essex Portfolio L.P., Sr. Unsec. Gtd. Global Notes, 3.63%, 08/15/22 | 115,000 | 117,065 | ||||||
Restaurants–0.66% | ||||||||
1011778 BC ULC/ New Red Finance, Inc. (Canada), Sec. Notes, | 115,000 | 118,162 | ||||||
Security & Alarm Services–0.04% | ||||||||
ADT Corp. (The), Sr. Unsec. Global Notes, 6.25%, 10/15/21 | 7,000 | 7,245 | ||||||
Semiconductor Equipment–0.26% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 6.38%, 10/01/22 | 36,000 | 35,010 | ||||||
Entegris Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/22(b) | 11,000 | 11,220 | ||||||
46,230 | ||||||||
Semiconductors–0.17% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 6.00%, 01/15/22(b) | 8,000 | 8,380 | ||||||
Micron Technology, Inc., Sr. Unsec. Notes, | 4,000 | 4,080 | ||||||
5.88%, 02/15/22(b) | 17,000 | 18,020 | ||||||
30,480 | ||||||||
Specialized Finance–2.87% | ||||||||
Aircastle Ltd., | 18,000 | 20,070 | ||||||
Sr. Unsec. Notes, 5.13%, 03/15/21 | 6,000 | 6,045 | ||||||
CME Group Inc., Sr. Unsec. Global Notes, 5.30%, 09/15/43 | 45,000 | 55,222 | ||||||
International Lease Finance Corp., | 10,000 | 10,925 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 30,000 | 36,600 | ||||||
Moody’s Corp., | 110,000 | 125,079 | ||||||
Sr. Unsec. Global Notes, | 45,000 | 45,409 | ||||||
4.88%, 02/15/24 | 158,000 | 173,195 | ||||||
5.25%, 07/15/44 | 35,000 | 39,384 |
Principal Amount | Value | |||||||
Specialized Finance–(continued) | ||||||||
MSCI Inc., Sr. Unsec. Gtd. Notes., 5.25%, 11/15/24(b) | $ | 3,000 | $ | 3,127 | ||||
515,056 | ||||||||
Specialized REIT’s–1.73% | ||||||||
Crown Castle International Corp., | 9,000 | 9,203 | ||||||
Sr. Unsec. Notes, 4.88%, 04/15/22 | 9,000 | 9,135 | ||||||
EPR Properties, Sr. Unsec. Gtd. Global Notes, 7.75%, 07/15/20 | 245,000 | 293,411 | ||||||
311,749 | ||||||||
Specialty Chemicals–0.06% | ||||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/23 | 10,000 | 10,062 | ||||||
Specialty Stores–0.69% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Sub. Notes, 5.88%, 12/15/20(b) | 23,000 | 23,259 | ||||||
Outerwall, Inc., Sr. Unsec. Gtd. Global Notes, 6.00%, 03/15/19 | 4,000 | 3,940 | ||||||
Tiffany & Co., Sr. Unsec. Notes, | 29,000 | 29,245 | ||||||
4.90%, 10/01/44(b) | 66,000 | 68,305 | ||||||
124,749 | ||||||||
Steel–0.82% | ||||||||
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.63%, 10/01/21 | 7,000 | 6,475 | ||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | 24,000 | 24,960 | ||||||
6.75%, 02/25/22 | 13,000 | 13,858 | ||||||
Magnetation LLC/ Mag Finance Corp., | 16,000 | 11,120 | ||||||
Steel Dynamics, Inc., | 3,000 | 3,203 | ||||||
Sr. Unsec. Gtd. Notes, | 2,000 | 2,045 | ||||||
5.50%, 10/01/24(b) | 4,000 | 4,080 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, | 3,000 | 3,131 | ||||||
7.38%, 02/01/20(b) | 18,000 | 18,787 | ||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | 65,000 | 60,434 | ||||||
148,093 | ||||||||
Technology Hardware, Storage & Peripherals–0.48% | ||||||||
Seagate HDD Cayman, | 45,000 | 46,519 | ||||||
Sr. Unsec. Gtd. Notes, 5.75%, 12/01/34(b) | 38,000 | 40,232 | ||||||
86,751 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
Tobacco–1.34% | ||||||||
Altria Group, Inc., | $ | 40,000 | $ | 40,090 | ||||
4.75%, 05/05/21 | 55,000 | 60,927 | ||||||
Philip Morris International Inc., Sr. Unsec. Global Notes, 4.25%, 11/10/44 | 89,000 | 90,961 | ||||||
Reynolds American Inc., Sr. Unsec. Gtd. Global Notes, 4.85%, 09/15/23 | 45,000 | 48,587 | ||||||
240,565 | ||||||||
Trading Companies & Distributors–0.49% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, 3.88%, 04/01/21 | 85,000 | 85,611 | ||||||
United Rentals North America Inc., Sr. Unsec. Gtd. Notes, 6.13%, 06/15/23 | 2,000 | 2,115 | ||||||
87,726 | ||||||||
Water Utilities–0.35% | ||||||||
Aquarion Co. Inc., Sr. Unsec. Notes, 4.00%, 08/15/24(b) | 63,000 | 62,823 | ||||||
Wireless Telecommunication Services–2.52% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(b) | 120,000 | 133,722 | ||||||
Rogers Communications Inc. (Canada), | 50,000 | 48,560 | ||||||
4.50%, 03/15/43 | 30,000 | 30,500 | ||||||
5.00%, 03/15/44 | 100,000 | 109,699 | ||||||
SBA Communications Corp., Sr. Unsec. Notes, | 18,000 | 17,505 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/28 | 10,000 | 8,850 | ||||||
Sprint Communications Inc., | 12,000 | 11,130 | ||||||
11.50%, 11/15/21 | 2,000 | 2,445 | ||||||
Sr. Unsec. Gtd. Notes, | 27,000 | 29,160 | ||||||
9.00%, 11/15/18(b) | 7,000 | 7,980 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Global Notes, | 6,000 | 6,000 | ||||||
7.88%, 09/15/23 | 6,000 | 5,955 | ||||||
T-Mobile USA, Inc., | 12,000 | 12,330 | ||||||
Sr. Unsec. Gtd. Notes, | 18,000 | 18,405 | ||||||
6.84%, 04/28/23 | 10,000 | 10,387 | ||||||
452,628 | ||||||||
Total Bonds and Notes |
| 17,075,073 |
Principal Amount | Value | |||||||
U.S. Treasury Securities–3.08% |
| |||||||
U.S. Treasury Bills–0.22% | ||||||||
0.08%, 08/20/15(g)(h) | $ | 25,000 | $ | 24,976 | ||||
0.09%, 08/20/15(g)(h) | 15,000 | 14,986 | ||||||
39,962 | ||||||||
U.S. Treasury Notes–2.14% | ||||||||
1.63%, 12/31/19 | 152,900 | 152,656 | ||||||
2.25%, 11/15/24 | 231,400 | 233,078 | ||||||
385,734 | ||||||||
U.S. Treasury Bonds–0.72% | ||||||||
3.13%, 08/15/44 | 119,900 | 129,074 | ||||||
Total U.S. Treasury Securities |
| 554,770 | ||||||
Shares | ||||||||
Preferred Stocks–1.08% |
| |||||||
Diversified Banks–0.03% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 200 | 5,130 | ||||||
Investment Banking & Brokerage–0.74% | ||||||||
Morgan Stanley, 6.88% Pfd. | 5,000 | 133,050 | ||||||
Reinsurance–0.31% | ||||||||
Reinsurance Group of America, Inc., 6.20% Sr. Unsec. Sub. Pfd. | 2,000 | 55,520 | ||||||
Total Preferred Stocks |
| 193,700 | ||||||
Principal Amount | ||||||||
Municipal Obligations–0.91% |
| |||||||
Florida Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17(e) | $ | 65,000 | 41,601 | |||||
Florida Hurricane Catastrophe Fund Finance Corp.; Series 2013 A, RB, 3.00%, 07/01/20 | 55,000 | 55,965 | ||||||
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 | 66,926 | ||||||
Total Municipal Obligations | 164,492 | |||||||
Asset-Backed Securities–0.62% |
| |||||||
Credit Suisse Mortgage Trust, Series 2009-2R, Class 1A11, Floating Rate Pass Through Ctfs., 2.62%, 09/26/34(b)(f) | 21,863 | 21,961 | ||||||
Wells Fargo Mortgage Backed Securities Trust, Series 2004-Z, Class 2A1, Floating Rate Pass Through Ctfs., 2.61%, 12/25/34(f) | 89,352 | 90,050 | ||||||
Total Asset-Backed Securities | 112,011 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–0.49% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.25% | ||||||||
Pass Through Ctfs., | ||||||||
6.50%, 05/01/16 to 08/01/32 | $ | 3,315 | $ | 3,749 | ||||
6.00%, 05/01/17 to 12/01/31 | 30,915 | 34,733 | ||||||
5.50%, 09/01/17 | 5,418 | 5,732 | ||||||
44,214 | ||||||||
Federal National Mortgage Association (FNMA)–0.17% | ||||||||
Pass Through Ctfs., | 12,387 | 13,179 | ||||||
6.50%, 05/01/16 to 09/01/31 | 2,143 | 2,373 | ||||||
5.00%, 11/01/18 | 8,705 | 9,315 | ||||||
7.50%, 04/01/29 | 3,813 | 4,330 | ||||||
8.00%, 04/01/32 | 1,256 | 1,269 | ||||||
30,466 | ||||||||
Government National Mortgage Association (GNMA)–0.07% | ||||||||
Pass Through Ctfs., | 4,333 | 4,752 | ||||||
8.50%, 11/15/24 | 1,288 | 1,294 | ||||||
7.00%, 07/15/31 to 08/15/31 | 1,438 | 1,698 | ||||||
6.50%, 11/15/31 to 03/15/32 | 2,995 | 3,423 | ||||||
6.00%, 11/15/32 | 1,493 | 1,726 | ||||||
12,893 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $81,253) |
| 87,573 |
Shares | Value | |||||||
Common Stocks & Other Equity Interests–0.02% |
| |||||||
Broadcasting–0.01% | ||||||||
Adelphia Communications Corp.(i) | 900 | $ | 693 | |||||
Adelphia Recovery Trust–Series ACC-1(i) | 87,412 | 210 | ||||||
903 | ||||||||
Paper Products–0.01% | ||||||||
NewPage Holdings Inc. | 28 | 2,520 | ||||||
Total Common Stocks & Other Equity Interests |
| 3,423 | ||||||
TOTAL INVESTMENTS–101.16% |
| 18,191,042 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.16)% |
| (209,022 | ) | |||||
NET ASSETS–100.00% |
| $ | 17,982,020 |
Investment Abbreviations:
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
RB | – Revenue Bonds |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | 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, 2014 was $4,846,381, which represented 26.95% 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 December 31, 2014 was $41,601, which represented less than 1% of the Fund’s Net Assets. |
(f) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2014. |
(g) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(h) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 4. |
(i) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(j) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $17,454,040) | $ | 18,191,042 | ||
Receivable for: | ||||
Fund shares sold | 27 | |||
Dividends and interest | 233,737 | |||
Fund expenses absorbed | 6,774 | |||
Premiums paid on swap agreements | 9,882 | |||
Investment for trustee deferred compensation and retirement plans | 65,102 | |||
Other assets | 369 | |||
Total assets | 18,506,933 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 12,298 | |||
Amount due custodian | 377,950 | |||
Swaps payable | 69 | |||
Variation margin — futures | 2,844 | |||
Accrued fees to affiliates | 10,178 | |||
Accrued trustees’ and officers’ fees and benefits | 453 | |||
Accrued other operating expenses | 40,396 | |||
Trustee deferred compensation and retirement plans | 67,173 | |||
Unrealized depreciation on swap agreements — OTC | 13,552 | |||
Total liabilities | 524,913 | |||
Net assets applicable to shares outstanding | $ | 17,982,020 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 24,670,803 | ||
Undistributed net investment income | 636,306 | |||
Undistributed net realized gain (loss) | (8,030,068 | ) | ||
Net unrealized appreciation | 704,979 | |||
$ | 17,982,020 | |||
Net Assets: |
| |||
Series I | $ | 17,821,403 | ||
Series II | $ | 160,617 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,787,340 | |||
Series II | 25,240 | |||
Series I: | ||||
Net asset value per share | $ | 6.39 | ||
Series II: | ||||
Net asset value per share | $ | 6.36 |
Investment income: |
| |||
Interest | $ | 894,481 | ||
Dividends | 23,768 | |||
Dividends from affiliated money market funds | 165 | |||
Total investment income | 918,414 | |||
Expenses: | ||||
Advisory fees | 115,098 | |||
Administrative services fees | 89,253 | |||
Custodian fees | 16,208 | |||
Distribution fees — Series II | 413 | |||
Transfer agent fees | 8,599 | |||
Trustees’ and officers’ fees and benefits | 22,710 | |||
Professional services fees | 47,649 | |||
Other | 40,583 | |||
Total expenses | 340,513 | |||
Less: Fees waived and expenses reimbursed | (196,820 | ) | ||
Net expenses | 143,693 | |||
Net investment income | 774,721 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 633,652 | |||
Foreign currencies | (844 | ) | ||
Futures contracts | (105,910 | ) | ||
Swap agreements | (6,353 | ) | ||
520,545 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 256,169 | |||
Foreign currencies | (52 | ) | ||
Futures contracts | (28,872 | ) | ||
Swap agreements | 4,709 | |||
231,954 | ||||
Net realized and unrealized gain | 752,499 | |||
Net increase in net assets resulting from operations | $ | 1,527,220 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Diversified Income Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 774,721 | $ | 889,582 | ||||
Net realized gain | 520,545 | 510,812 | ||||||
Change in net unrealized appreciation (depreciation) | 231,954 | (1,412,429 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 1,527,220 | (12,035 | ) | |||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | (933,648 | ) | (966,718 | ) | ||||
Series ll | (7,576 | ) | (9,476 | ) | ||||
Total distributions from net investment income | (941,224 | ) | (976,194 | ) | ||||
Share transactions–net: |
| |||||||
Series l | (2,430,969 | ) | (2,091,881 | ) | ||||
Series ll | (16,001 | ) | (94,274 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (2,446,970 | ) | (2,186,155 | ) | ||||
Net increase (decrease) in net assets | (1,860,974 | ) | (3,174,384 | ) | ||||
Net assets: |
| |||||||
Beginning of year | 19,842,994 | 23,017,378 | ||||||
End of year (includes undistributed net investment income of $636,306 and $813,859, respectively) | $ | 17,982,020 | $ | 19,842,994 |
Notes to Financial Statements
December 31, 2014
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, if available, 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, company performance and returns of referenced assets.
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 ask 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 net investment 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. Diversified 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. | 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 Counterparties 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 |
Invesco V.I. Diversified Income Fund
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 and credit default swap contracts (“CDS”) for investment purposes or to manage interest rate, currency or credit risk. Such transactions are agreements between 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 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.
An interest rate swap is an agreement between Counterparties pursuant to which the parties exchange a floating rate payment for a fixed rate payment based on a specified notional amount.
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. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited.
Notional amounts of each individual credit default swap agreement outstanding as of December 31, 2014 for which the Fund is the seller of protection are disclosed in the Notes to Schedule of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
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. |
Invesco V.I. Diversified 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 $250 million | 0.60% | |||
Over $250 million | 0.55% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 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 April 30, 2016, to waive advisory fees and/or reimburse expenses of all shares to the extent necessary to limit total annual fund operating expenses after fee waiver and/or expense reimbursement (excluding certain items discussed below) of Series I shares to 0.75% and Series II shares to 1.00% of average daily net assets. In determining the Adviser’s obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2016. 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 year ended December 31, 2014, the Adviser waived advisory fees of $115,098 and reimbursed Fund expenses of $81,722.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $39,253 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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. Diversified Income Fund
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 193,700 | $ | 3,423 | $ | — | $ | 197,123 | ||||||||
U.S. Treasury Securities | — | 554,770 | — | 554,770 | ||||||||||||
Corporate Debt Securities | — | 17,075,073 | 0 | 17,075,073 | ||||||||||||
U.S. Government Sponsored Securities | — | 87,573 | — | 87,573 | ||||||||||||
Asset-Backed Securities | — | 112,011 | — | 112,011 | ||||||||||||
Municipal Obligations | — | 164,492 | — | 164,492 | ||||||||||||
193,700 | 17,997,342 | 0 | 18,191,042 | |||||||||||||
Futures Contracts* | (18,471 | ) | — | — | (18,471 | ) | ||||||||||
Swap Agreements* | — | (13,552 | ) | — | (13,552 | ) | ||||||||||
Total Investments | $ | 175,229 | $ | 17,983,790 | $ | 0 | $ | 18,159,019 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk: | ||||||||
Swap agreements(a) | $ | — | $ | (13,552 | ) | |||
Interest rate risk: | ||||||||
Futures contracts(b) | 23,495 | (41,966 | ) | |||||
Total | $ | 23,495 | $ | (55,518 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized depreciation on swap agreements — 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 year ended December 31, 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 | $ | — | $ | (6,353 | ) | |||
Interest rate risk | (105,910 | ) | — | |||||
Change in Unrealized Appreciation (Depreciation): | ||||||||
Credit risk | — | 4,709 | ||||||
Interest rate risk | (28,872 | ) | — | |||||
Total | $ | (134,782 | ) | $ | (1,644 | ) |
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 | $ | 3,856,108 | $ | 250,000 |
Invesco V.I. Diversified Income Fund
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
U.S. Treasury 5 Year Notes | Long | 14 | March-2015 | $ | 1,665,016 | $ | 345 | |||||||||||||
U.S. Treasury Long Bonds | Long | 5 | March-2015 | 722,813 | 19,169 | |||||||||||||||
U.S. Ultra Bond | Short | 6 | March-2015 | (991,125 | ) | (41,966 | ) | |||||||||||||
U.S. Treasury 10 Year Notes | Short | 20 | March-2015 | (2,535,937 | ) | 3,981 | ||||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | (18,471 | ) |
Open Credit Default Swap Agreements — Credit Risk | ||||||||||||||||||||||||||||||
Counterparty | Reference Entity | Buy/Sell Protection | (Pay)/Receive Fixed Rate | Expiration Date | Implied Credit | Notional Value | Upfront Payments | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Bank of America Merrill Lynch | Citigroup Inc. | Buy | (1.00 | )% | 06/20/17 | 0.42 | % | $ | 250,000 | $ | 9,882 | $ | (13,552 | ) |
(a) | Implied credit spreads represent the current level as of December 31, 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.
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | 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 Merrill Lynch | $ | 9,882 | $ | (9,882 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts of Recognized Liabilities | 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 Merrill Lynch | $ | 13,621 | $ | (9,882 | ) | $ | 3,739 | $ | — | $ | — | $ | 3,739 |
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.
Invesco V.I. Diversified Income Fund
NOTE 6—Cash Balances
The Fund may borrow for leveraging in an amount up to 5% of the Fund’s total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund’s total assets.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 941,224 | $ | 976,194 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 695,824 | ||
Net unrealized appreciation — investments | 736,925 | |||
Net unrealized appreciation (depreciation) — other investments | (13,552 | ) | ||
Temporary book/tax differences | (65,371 | ) | ||
Capital loss carryforward | (8,042,609 | ) | ||
Shares of beneficial interest | 24,670,803 | |||
Total net assets | $ | 17,982,020 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $500,129 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 683,517 | $ | — | $ | 683,517 | ||||||
December 31, 2017 | 7,359,092 | — | 7,359,092 | |||||||||
$ | 8,042,609 | $ | — | $ | 8,042,609 |
* | 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 year ended December 31, 2014 was $21,491,433 and $23,265,140, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $26,570,579 and $27,022,436, 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 | $ | 966,321 | ||
Aggregate unrealized (depreciation) of investment securities | (229,396 | ) | ||
Net unrealized appreciation of investment securities | $ | 736,925 |
Cost of investments for tax purposes is $17,454,117.
Invesco V.I. Diversified Income Fund
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, paydown reclasses and swap agreement income, on December 31, 2014, undistributed net investment income was decreased by $11,050 and undistributed net realized gain (loss) was increased by $11,050. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 102,838 | $ | 668,280 | 132,970 | $ | 858,712 | ||||||||||
Series II | 1,535 | 10,010 | 551 | 3,523 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 147,963 | 933,648 | 157,960 | 966,718 | ||||||||||||
Series II | 1,128 | 7,097 | 1,556 | 9,476 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (622,528 | ) | (4,032,897 | ) | (608,755 | ) | (3,917,311 | ) | ||||||||
Series II | (5,168 | ) | (33,108 | ) | (16,908 | ) | (107,273 | ) | ||||||||
Net increase (decrease) in share activity | (374,232 | ) | $ | (2,446,970 | ) | (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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net Investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 6.23 | $ | 0.26 | $ | 0.24 | $ | 0.50 | $ | (0.34 | ) | $ | 6.39 | 8.03 | % | $ | 17,821 | 0.75 | %(d) | 1.77 | %(d) | 4.04 | %(d) | 255 | % | |||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 6.19 | 0.24 | 0.24 | 0.48 | (0.31 | ) | 6.36 | 7.85 | 161 | 1.00 | (d) | 2.02 | (d) | 3.79 | (d) | 255 | ||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $19,018 and $165 for Series I and Series II shares, respectively. |
NOTE 12—Subsequent Event
The Board of Trustees recently approved changes to the Fund’s investment strategies to reposition the Fund as a core plus bond fund, including changing the Fund’s name to Invesco V.I. Core Plus Bond Fund. These changes are scheduled to take effect on or about April 30, 2015.
Invesco V.I. Diversified Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Diversified Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Diversified Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Diversified Income Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,012.00 | $ | 3.80 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||||||
Series II | 1,000.00 | 1,009.90 | 5.07 | 1,020.16 | 5.09 | 1.00 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Diversified Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 2.31 | % | ||
U.S. Treasury Obligations* | 5.10 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Diversified Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Diversified Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Diversified Income Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Equally-Weighted S&P 500 Fund performed in line with its broad market index, the S&P 500 Index, but under-performed its style-specific benchmark, the S&P 500 Equal Weight Index. Relative to the S&P 500 Index, overweight exposures to the utilities, consumer discretionary and industrials sectors, along with relative underweight exposures to the telecommunications services and health care sectors contributed to the Fund’s performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 13.88 | % | |||
Series II Shares | 13.61 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
S&P 500 Equal Weight Index‚ (Style-Specific Index) | 14.49 | ||||
Lipper VUF Multi-Cap Core Funds Index¢ (Peer Group Index) | 7.52 | ||||
Source(s): ‚FactSet Research Systems Inc.; ¢Lipper Inc. |
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, major US equity market indexes delivered strong gains as nine of the 10 sectors of the S&P 500 posting positive returns with the energy sector being the exception. The utilities sector was the largest contributor to Fund results.
On an asset class basis, mid-cap stocks were the top contributors to Fund performance with mid-value stocks posting the highest contribution.
The Fund stayed true to its process by maintaining balanced exposure to all constituents
of the S&P 500 Index. On an absolute basis, the Fund posted positive returns for the reporting period. Sectors that contributed the most to overall Fund performance were the health care, financials and information technology sectors. The consumer discretionary, consumer staples, utilities and industrials sectors also contributed meaningfully to Fund returns.
The Fund gained exposure to the S&P 500 through futures contracts. For the reporting period, the Fund’s allocation to S&P 500 futures contracts was a slight contributor to Fund performance.
The top contributor to Fund performance for the reporting period was industrials sector holding Southwest Airlines. Benefiting from the drop in oil prices, Southwest Airlines delivered a triple-digit return for the reporting period. Delta Air Lines is another airline that benefited from declining oil prices and contributed to Fund returns.
Also posting a strong return for the reporting period was the producer of the Madden and FIFA video games, Electronic Arts. The information technology sector company beat earnings estimates and reached a six-year high due to strong sales and increased mobile use of its sports-related video games.
Additional contributors to Fund performance included health care holdings Edwards Lifesciences and Allergan. Edwards Lifesciences, the largest maker of heart valves inserted without cracking open the chest, beat analysts’ estimates on device demand. Allergan, the maker of Botox, benefited from the announcement that it will be acquired by Actavis (not a Fund holding) as it seeks to become one of the largest global drugmakers.
Portfolio Composition | |||||
By sector | |||||
Consumer Discretionary | 16.9 | % | |||
Financials | 16.2 | ||||
Industrials | 13.1 | ||||
Information Technology | 12.3 | ||||
Health Care | 10.6 | ||||
Energy | 8.6 | ||||
Consumer Staples | 7.7 | ||||
Utilities | 6.1 | ||||
Materials | 5.5 | ||||
Telecommunication Services | 1.2 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 1.8 |
Top 10 Equity Holdings*
| |||||||||||
1. | Nabors Industries Ltd. | 0.2 | % | ||||||||
2. | Denbury Resources Inc. | 0.2 | |||||||||
3. | Red Hat, Inc. | 0.2 | |||||||||
4. | ADT Corp. (The) | 0.2 | |||||||||
5. | Devon Energy Corp. | 0.2 | |||||||||
6. | CarMax, Inc. | 0.2 | |||||||||
7. | Noble Corp. PLC | 0.2 | |||||||||
8. | Allegheny Technologies, Inc. | 0.2 | |||||||||
9. | Chesapeake Energy Corp. | 0.2 | |||||||||
10. | Pioneer Natural Resources Co. | 0.2 |
Top Five Industries*
| |||||||||||
1. | Oil & Gas Exploration & Production | 3.7 | % | ||||||||
2. | Multi-Utilities | 2.8 | |||||||||
3. | Health Care Equipment | 2.7 | |||||||||
4. | Electric Utilities | 2.5 | |||||||||
5. | Pharmaceuticals | 2.5 |
Total Net Assets
| $71.1 million
| |||||||||
Total Number of Holdings* | 503 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Equally-Weighted S&P 500 Fund
Several stocks in the energy sector declined during the reporting period, including Transocean and Noble. Both Transocean and Noble are offshore rig contractors that are struggling due to falling oil prices resulting from a supply glut and decreasing demand. Ensco and Denbury Resources, both oil and gas companies, are two other stocks that detracted from returns due to the decline in oil prices.
Also detracting from Fund performance were consumer staples sector holding Avon Products and financials sector holding Genworth Financial.
We welcome new investors who joined the Fund during the year and thank you for your investment in Invesco V.I. Equally-Weighted S&P 500 Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Anthony Munchak Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equally-Weighted S&P 500 | ||
Fund. He joined Invesco in 2000. Mr. Munchak earned a BS and an MS in finance from Boston College and an MBA from Bentley College. | ||
Glen Murphy Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equally-Weighted S&P 500 | ||
Fund. He joined Invesco in 1995. Mr. Murphy earned a BA in business administration from the University of Massachusetts Amherst and an MS in finance from Boston College. | ||
Francis Orlando Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equally-Weighted S&P 500 | ||
Fund. He joined Invesco in 1987. Mr. Orlando earned a BA in business administration from Merrimack College and an MBA from Boston University. | ||
Daniel Tsai Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equally-Weighted S&P 500 | ||
Fund. He joined Invesco in 2000. Mr. Tsai earned a BS in mechanical engineering from National Taiwan University, an MS in mechanical engineering from the University of Michigan and an MS in computer science from Wayne State University. | ||
Anne Unflat Portfolio Manager, is manager of Invesco V.I. Equally-Weighted S&P 500 Fund. She joined Invesco in 1988. | ||
Ms. Unflat earned a BA in economics from Queens College and an MBA in finance from St. John’s University. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (11/9/94) | 11.14 | % | |||
10 Years | 9.18 | ||||
5 Years | 16.93 | ||||
1 Year | 13.88 | ||||
Series II Shares | |||||
Inception (7/24/00) | 8.83 | % | |||
10 Years | 8.91 | ||||
5 Years | 16.64 | ||||
1 Year | 13.61 |
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
Invesco V.I. Equally-Weighted S&P 500 Fund’s investment objective is to achieve a high level of total return on its assets through a combination of capital appreciation and current income.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by
foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Indexing risk. The Fund is operated as a passively managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Fund’s portfolio. The Fund will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the Adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares. The Fund’s ability to correlate its performance, before expenses, with the S&P 500 Index may be affected by, among other things, changes in securities markets, the manner in which the S&P 500 Index is calculated and the timing of purchases and sales, and also depends to some extent on the size of the Fund’s portfolio, the size of cash flows into and out of the Fund and differences between how and when the Fund and the Index are valued.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500® Equal Weight Index is the equally weighted version of the S&P 500 Index.
The Lipper VUF Multi-Cap Core Funds Index is an unmanaged index considered representative of multicap core variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Equally-Weighted S&P 500 Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.17% |
| |||||||
Advertising–0.39% | ||||||||
Interpublic Group of Cos., Inc. (The) | 6,882 | $ | 142,939 | |||||
Omnicom Group Inc. | 1,771 | 137,199 | ||||||
280,138 | ||||||||
Aerospace & Defense–2.17% | ||||||||
Boeing Co. (The) | 1,114 | 144,798 | ||||||
General Dynamics Corp. | 979 | 134,730 | ||||||
Honeywell International Inc. | 1,404 | 140,288 | ||||||
L-3 Communications Holdings, Inc. | 1,120 | 141,355 | ||||||
Lockheed Martin Corp. | 726 | 139,806 | ||||||
Northrop Grumman Corp. | 950 | 140,020 | ||||||
Precision Castparts Corp. | 584 | 140,674 | ||||||
Raytheon Co. | 1,290 | 139,539 | ||||||
Rockwell Collins, Inc. | 1,637 | 138,294 | ||||||
Textron Inc. | 3,424 | 144,184 | ||||||
United Technologies Corp. | 1,200 | 138,000 | ||||||
1,541,688 | ||||||||
Agricultural & Farm Machinery–0.19% | ||||||||
Deere & Co. | 1,558 | 137,836 | ||||||
Agricultural Products–0.20% | ||||||||
Archer-Daniels-Midland Co. | 2,701 | 140,452 | ||||||
Air Freight & Logistics–0.76% | ||||||||
C.H. Robinson Worldwide, Inc. | 1,862 | 139,445 | ||||||
Expeditors International of Washington, Inc. | 3,015 | 134,499 | ||||||
FedEx Corp. | 765 | 132,850 | ||||||
United Parcel Service, Inc.–Class B | 1,223 | 135,961 | ||||||
542,755 | ||||||||
Airlines–0.39% | ||||||||
Delta Air Lines, Inc. | 2,824 | 138,912 | ||||||
Southwest Airlines Co. | 3,252 | 137,625 | ||||||
276,537 | ||||||||
Alternative Carriers–0.20% | ||||||||
Level 3 Communications, Inc.(b) | 2,833 | 139,894 | ||||||
Aluminum–0.20% | ||||||||
Alcoa Inc. | 9,057 | 143,010 | ||||||
Apparel Retail–1.00% | ||||||||
Gap, Inc. (The) | 3,375 | 142,121 | ||||||
L Brands, Inc. | 1,614 | 139,692 | ||||||
Ross Stores, Inc. | 1,486 | 140,071 | ||||||
TJX Cos., Inc. (The) | 2,052 | 140,726 | ||||||
Urban Outfitters, Inc.(b) | 4,201 | 147,581 | ||||||
710,191 | ||||||||
Apparel, Accessories & Luxury Goods–1.35% | ||||||||
Coach, Inc. | 3,825 | 143,667 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–(continued) | ||||||||
Fossil Group, Inc.(b) | 1,258 | $ | 139,311 | |||||
Michael Kors Holdings Ltd.(b) | 1,749 | 131,350 | ||||||
PVH Corp. | 1,059 | 135,732 | ||||||
Ralph Lauren Corp. | 740 | 137,018 | ||||||
Under Armour, Inc.–Class A(b) | 1,956 | 132,812 | ||||||
VF Corp. | 1,852 | 138,715 | ||||||
958,605 | ||||||||
Application Software–0.97% | ||||||||
Adobe Systems Inc.(b) | 1,771 | 128,752 | ||||||
Autodesk, Inc.(b) | 2,286 | 137,297 | ||||||
Citrix Systems, Inc.(b) | 2,244 | 143,167 | ||||||
Intuit Inc. | 1,461 | 134,689 | ||||||
salesforce.com, inc.(b) | 2,444 | 144,954 | ||||||
688,859 | ||||||||
Asset Management & Custody Banks–1.97% | ||||||||
Affiliated Managers Group, Inc.(b) | 690 | 146,446 | ||||||
Ameriprise Financial, Inc. | 1,053 | 139,259 | ||||||
Bank of New York Mellon Corp. (The) | 3,373 | 136,843 | ||||||
BlackRock, Inc. | 394 | 140,879 | ||||||
Franklin Resources, Inc. | 2,495 | 138,148 | ||||||
Invesco Ltd.(c) | 3,492 | 138,004 | ||||||
Legg Mason, Inc. | 2,678 | 142,925 | ||||||
Northern Trust Corp. | 2,043 | 137,698 | ||||||
State Street Corp. | 1,789 | 140,436 | ||||||
T. Rowe Price Group Inc. | 1,642 | 140,982 | ||||||
1,401,620 | ||||||||
Auto Parts & Equipment–0.59% | ||||||||
BorgWarner, Inc. | 2,552 | 140,232 | ||||||
Delphi Automotive PLC (United Kingdom) | 1,930 | 140,350 | ||||||
Johnson Controls, Inc. | 2,920 | 141,153 | ||||||
421,735 | ||||||||
Automobile Manufacturers–0.41% | ||||||||
Ford Motor Co. | 8,984 | 139,252 | ||||||
General Motors Co. | 4,266 | 148,926 | ||||||
288,178 | ||||||||
Automotive Retail–0.80% | ||||||||
AutoNation, Inc.(b) | 2,347 | 141,782 | ||||||
AutoZone, Inc.(b) | 222 | 137,443 | ||||||
CarMax, Inc.(b) | 2,309 | 153,733 | ||||||
O’Reilly Automotive, Inc.(b) | 701 | 135,027 | ||||||
567,985 | ||||||||
Biotechnology–1.29% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 720 | 133,222 | ||||||
Amgen Inc. | 818 | 130,299 | ||||||
Biogen Idec Inc.(b) | 390 | 132,385 | ||||||
Celgene Corp.(b) | 1,175 | 131,435 |
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) | ||||||||
Gilead Sciences, Inc.(b) | 1,292 | $ | 121,784 | |||||
Regeneron Pharmaceuticals, Inc.(b) | 323 | 132,511 | ||||||
Vertex Pharmaceuticals Inc.(b) | 1,135 | 134,838 | ||||||
916,474 | ||||||||
Brewers–0.19% | ||||||||
Molson Coors Brewing Co.–Class B | 1,860 | 138,607 | ||||||
Broadcasting–0.58% | ||||||||
CBS Corp.–Class B | 2,517 | 139,291 | ||||||
Discovery Communications, Inc.–Class A(b) | 1,440 | 49,608 | ||||||
Discovery Communications, Inc.–Class C(b) | 2,661 | 89,729 | ||||||
Scripps Networks Interactive Inc.–Class A | 1,758 | 132,324 | ||||||
410,952 | ||||||||
Building Products–0.39% | ||||||||
Allegion PLC | 2,502 | 138,761 | ||||||
Masco Corp. | 5,577 | 140,540 | ||||||
279,301 | ||||||||
Cable & Satellite–0.79% | ||||||||
Cablevision Systems Corp.–Class A | 6,823 | 140,827 | ||||||
Comcast Corp.–Class A | 2,432 | 141,080 | ||||||
DIRECTV(b) | 1,613 | 139,847 | ||||||
Time Warner Cable Inc. | 927 | 140,960 | ||||||
562,714 | ||||||||
Casinos & Gaming–0.19% | ||||||||
Wynn Resorts Ltd. | 912 | 135,669 | ||||||
Coal & Consumable Fuels–0.19% | ||||||||
CONSOL Energy Inc. | 3,923 | 132,637 | ||||||
Commodity Chemicals–0.21% | ||||||||
LyondellBasell Industries N.V.–Class A | 1,907 | 151,397 | ||||||
Communications Equipment–1.18% | ||||||||
Cisco Systems, Inc. | 4,989 | 138,769 | ||||||
F5 Networks, Inc.(b) | 1,030 | 134,379 | ||||||
Harris Corp. | 1,948 | 139,905 | ||||||
Juniper Networks, Inc. | 6,377 | 142,335 | ||||||
Motorola Solutions, Inc. | 2,161 | 144,960 | ||||||
QUALCOMM, Inc. | 1,907 | 141,747 | ||||||
842,095 | ||||||||
Computer & Electronics Retail–0.40% | ||||||||
Best Buy Co., Inc. | 3,654 | 142,433 | ||||||
GameStop Corp.–Class A | 4,169 | 140,912 | ||||||
283,345 | ||||||||
Construction & Engineering–0.61% | ||||||||
Fluor Corp. | 2,367 | 143,511 | ||||||
Jacobs Engineering Group, Inc.(b) | 3,283 | 146,718 | ||||||
Quanta Services, Inc.(b) | 5,034 | 142,915 | ||||||
433,144 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–0.77% | ||||||||
Caterpillar Inc. | 1,488 | $ | 136,197 | |||||
Cummins Inc. | 955 | 137,682 | ||||||
Joy Global Inc. | 2,910 | 135,373 | ||||||
PACCAR Inc. | 1,989 | 135,272 | ||||||
544,524 | ||||||||
Construction Materials–0.39% | ||||||||
Martin Marietta Materials, Inc. | 1,253 | 138,231 | ||||||
Vulcan Materials Co. | 2,158 | 141,845 | ||||||
280,076 | ||||||||
Consumer Electronics–0.39% | ||||||||
Garmin Ltd. | 2,570 | 135,773 | ||||||
Harman International Industries, Inc. | 1,295 | 138,190 | ||||||
273,963 | ||||||||
Consumer Finance–0.79% | ||||||||
American Express Co. | 1,480 | 137,699 | ||||||
Capital One Financial Corp. | 1,679 | 138,602 | ||||||
Discover Financial Services | 2,178 | 142,637 | ||||||
Navient Corp. | 6,461 | 139,622 | ||||||
558,560 | ||||||||
Data Processing & Outsourced Services–2.15% | ||||||||
Alliance Data Systems Corp.(b) | 490 | 140,164 | ||||||
Automatic Data Processing, Inc. | 1,632 | 136,060 | ||||||
Computer Sciences Corp. | 2,195 | 138,395 | ||||||
Fidelity National Information Services, Inc. | 2,231 | 138,768 | ||||||
Fiserv, Inc.(b) | 1,970 | 139,811 | ||||||
MasterCard, Inc.–Class A | 1,600 | 137,856 | ||||||
Paychex, Inc. | 2,921 | 134,863 | ||||||
Total System Services, Inc. | 4,164 | 141,409 | ||||||
Visa Inc.–Class A | 524 | 137,393 | ||||||
Western Union Co. (The) | 7,913 | 141,722 | ||||||
Xerox Corp. | 10,028 | 138,988 | ||||||
1,525,429 | ||||||||
Department Stores–0.60% | ||||||||
Kohl’s Corp. | 2,351 | 143,505 | ||||||
Macy’s, Inc. | 2,159 | 141,954 | ||||||
Nordstrom, Inc. | 1,803 | 143,140 | ||||||
428,599 | ||||||||
Distillers & Vintners–0.40% | ||||||||
Brown-Forman Corp.–Class B | 1,555 | 136,591 | ||||||
Constellation Brands, Inc.–Class A(b) | 1,483 | 145,586 | ||||||
282,177 | ||||||||
Distributors–0.20% | ||||||||
Genuine Parts Co. | 1,314 | 140,033 | ||||||
Diversified Banks–1.17% | ||||||||
Bank of America Corp. | 7,863 | 140,669 | ||||||
Citigroup Inc. | 2,521 | 136,411 | ||||||
Comerica Inc. | 3,035 | 142,159 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Diversified Banks–(continued) | ||||||||
JPMorgan Chase & Co. | 2,242 | $ | 140,304 | |||||
U.S. Bancorp | 3,068 | 137,907 | ||||||
Wells Fargo & Co. | 2,507 | 137,434 | ||||||
834,884 | ||||||||
Diversified Chemicals–0.80% | ||||||||
Dow Chemical Co. (The) | 3,106 | 141,665 | ||||||
E. I. du Pont de Nemours and Co. | 1,941 | 143,518 | ||||||
Eastman Chemical Co. | 1,855 | 140,720 | ||||||
FMC Corp. | 2,448 | 139,609 | ||||||
565,512 | ||||||||
Diversified Metals & Mining–0.20% | ||||||||
Freeport-McMoRan Inc. | 6,174 | 144,225 | ||||||
Diversified REIT’s–0.20% | ||||||||
Vornado Realty Trust | 1,188 | 139,839 | ||||||
Diversified Support Services–0.21% | ||||||||
Cintas Corp. | 1,895 | 148,644 | ||||||
Drug Retail–0.40% | ||||||||
CVS Health Corp. | 1,497 | 144,176 | ||||||
Walgreens Boots Alliance, Inc. | 1,807 | 137,693 | ||||||
281,869 | ||||||||
Electric Utilities–2.54% | ||||||||
American Electric Power Co., Inc. | 2,294 | 139,292 | ||||||
Duke Energy Corp. | 1,628 | 136,003 | ||||||
Edison International | 2,103 | 137,704 | ||||||
Entergy Corp. | 1,558 | 136,294 | ||||||
Exelon Corp. | 3,748 | 138,976 | ||||||
FirstEnergy Corp. | 3,595 | 140,169 | ||||||
NextEra Energy, Inc. | 1,336 | 142,003 | ||||||
Northeast Utilities | 2,633 | 140,918 | ||||||
Pepco Holdings, Inc. | 5,030 | 135,458 | ||||||
Pinnacle West Capital Corp. | 2,055 | 140,377 | ||||||
PPL Corp. | 3,845 | 139,689 | ||||||
Southern Co. (The) | 2,810 | 137,999 | ||||||
Xcel Energy, Inc. | 3,889 | 139,693 | ||||||
1,804,575 | ||||||||
Electrical Components & Equipment–0.80% | ||||||||
AMETEK, Inc. | 2,771 | 145,837 | ||||||
Eaton Corp. PLC(b) | 2,080 | 141,357 | ||||||
Emerson Electric Co. | 2,304 | 142,226 | ||||||
Rockwell Automation, Inc. | 1,284 | 142,781 | ||||||
572,201 | ||||||||
Electronic Components–0.41% | ||||||||
Amphenol Corp.–Class A | 2,572 | 138,399 | ||||||
Corning Inc. | 6,529 | 149,710 | ||||||
288,109 | ||||||||
Electronic Equipment & Instruments–0.19% | ||||||||
FLIR Systems, Inc. | 4,216 | 136,219 |
Shares | Value | |||||||
Electronic Manufacturing Services–0.19% | ||||||||
TE Connectivity Ltd. (Switzerland) | 2,179 | $ | 137,822 | |||||
Environmental & Facilities Services–0.59% | ||||||||
Republic Services, Inc. | 3,478 | 139,989 | ||||||
Stericycle, Inc.(b) | 1,051 | 137,765 | ||||||
Waste Management, Inc. | 2,777 | 142,516 | ||||||
420,270 | ||||||||
Fertilizers & Agricultural Chemicals–0.59% | ||||||||
CF Industries Holdings, Inc. | 540 | 147,172 | ||||||
Monsanto Co. | 1,141 | 136,315 | ||||||
Mosaic Co. (The) | 3,019 | 137,817 | ||||||
421,304 | ||||||||
Food Distributors–0.19% | ||||||||
Sysco Corp. | 3,424 | 135,899 | ||||||
Food Retail–0.59% | ||||||||
Kroger Co. (The) | 2,187 | 140,427 | ||||||
Safeway Inc. | 3,892 | 136,687 | ||||||
Whole Foods Market, Inc. | 2,787 | 140,521 | ||||||
417,635 | ||||||||
Footwear–0.19% | ||||||||
NIKE, Inc.–Class B | 1,400 | 134,610 | ||||||
Gas Utilities–0.20% | ||||||||
AGL Resources Inc. | 2,631 | 143,416 | ||||||
General Merchandise Stores–0.78% | ||||||||
Dollar General Corp.(b) | 1,929 | 136,380 | ||||||
Dollar Tree, Inc.(b) | 1,976 | 139,071 | ||||||
Family Dollar Stores, Inc. | 1,699 | 134,578 | ||||||
Target Corp. | 1,859 | 141,117 | ||||||
551,146 | ||||||||
Gold–0.19% | ||||||||
Newmont Mining Corp. | 7,070 | 133,623 | ||||||
Health Care Distributors–0.76% | ||||||||
AmerisourceBergen Corp. | 1,480 | 133,437 | ||||||
Cardinal Health, Inc. | 1,698 | 137,079 | ||||||
McKesson Corp. | 655 | 135,965 | ||||||
Patterson Cos. Inc. | 2,839 | 136,556 | ||||||
543,037 | ||||||||
Health Care Equipment–2.68% | ||||||||
Abbott Laboratories | 3,082 | 138,752 | ||||||
Baxter International Inc. | 1,876 | 137,492 | ||||||
Becton, Dickinson and Co. | 982 | 136,655 | ||||||
Boston Scientific Corp.(b) | 10,360 | 137,270 | ||||||
C.R. Bard, Inc. | 803 | 133,796 | ||||||
CareFusion Corp.(b) | 2,287 | 135,711 | ||||||
Covidien PLC | 1,340 | 137,055 | ||||||
Edwards Lifesciences Corp.(b) | 1,044 | 132,985 | ||||||
Intuitive Surgical, Inc.(b) | 267 | 141,227 |
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) | ||||||||
Medtronic, Inc. | 1,856 | $ | 134,003 | |||||
St. Jude Medical, Inc. | 2,030 | 132,011 | ||||||
Stryker Corp. | 1,463 | 138,005 | ||||||
Varian Medical Systems, Inc.(b) | 1,581 | 136,772 | ||||||
Zimmer Holdings, Inc. | 1,208 | 137,011 | ||||||
1,908,745 | ||||||||
Health Care Facilities–0.39% | ||||||||
Tenet Healthcare Corp.(b) | 2,680 | 135,796 | ||||||
Universal Health Services, Inc.–Class B | 1,262 | 140,410 | ||||||
276,206 | ||||||||
Health Care REIT’s–0.55% | ||||||||
HCP, Inc. | 2,969 | 130,725 | ||||||
Health Care REIT, Inc. | 1,765 | 133,558 | ||||||
Ventas, Inc. | 1,809 | 129,705 | ||||||
393,988 | ||||||||
Health Care Services–0.79% | ||||||||
DaVita HealthCare Partners Inc.(b) | 1,834 | 138,907 | ||||||
Express Scripts Holding Co.(b) | 1,624 | 137,504 | ||||||
Laboratory Corp. of America Holdings(b) | 1,321 | 142,536 | ||||||
Quest Diagnostics Inc. | 2,123 | 142,368 | ||||||
561,315 | ||||||||
Health Care Supplies–0.19% | ||||||||
DENTSPLY International Inc. | 2,483 | 132,269 | ||||||
Health Care Technology–0.20% | ||||||||
Cerner Corp.(b) | 2,191 | 141,670 | ||||||
Home Entertainment Software–0.20% | ||||||||
Electronic Arts Inc.(b) | 2,999 | 140,998 | ||||||
Home Furnishings–0.39% | ||||||||
Leggett & Platt, Inc. | 3,246 | 138,312 | ||||||
Mohawk Industries, Inc.(b) | 875 | 135,940 | ||||||
274,252 | ||||||||
Home Improvement Retail–0.40% | ||||||||
Home Depot, Inc. (The) | 1,349 | 141,605 | ||||||
Lowe’s Cos., Inc. | 2,075 | 142,760 | ||||||
284,365 | ||||||||
Homebuilding–0.60% | ||||||||
D.R. Horton, Inc. | 5,596 | 141,523 | ||||||
Lennar Corp.–Class A | 3,183 | 142,630 | ||||||
PulteGroup Inc. | 6,669 | 143,117 | ||||||
427,270 | ||||||||
Homefurnishing Retail–0.20% | ||||||||
Bed Bath & Beyond Inc.(b) | 1,863 | 141,905 | ||||||
Hotel and Resort REIT’s–0.19% | ||||||||
Host Hotels & Resorts Inc. | 5,745 | 136,559 | ||||||
Hotels, Resorts & Cruise Lines–0.98% | ||||||||
Carnival Corp. | 3,135 | 142,109 |
Shares | Value | |||||||
Hotels, Resorts & Cruise Lines–(continued) | ||||||||
Marriott International Inc.–Class A | 1,754 | $ | 136,865 | |||||
Royal Caribbean Cruises Ltd. | 1,727 | 142,357 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 1,705 | 138,224 | ||||||
Wyndham Worldwide Corp. | 1,628 | 139,617 | ||||||
699,172 | ||||||||
Household Appliances–0.20% | ||||||||
Whirlpool Corp. | 745 | 144,336 | ||||||
Household Products–0.78% | ||||||||
Clorox Co. (The) | 1,354 | 141,100 | ||||||
Colgate-Palmolive Co. | 1,963 | 135,820 | ||||||
Kimberly-Clark Corp. | 1,194 | 137,955 | ||||||
Procter & Gamble Co. (The) | 1,503 | 136,908 | ||||||
551,783 | ||||||||
Housewares & Specialties–0.21% | ||||||||
Newell Rubbermaid Inc. | 3,895 | 148,361 | ||||||
Human Resource & Employment Services–0.19% | ||||||||
Robert Half International, Inc. | 2,371 | 138,419 | ||||||
Hypermarkets & Super Centers–0.39% | ||||||||
Costco Wholesale Corp. | 976 | 138,348 | ||||||
Wal-Mart Stores, Inc. | 1,606 | 137,923 | ||||||
276,271 | ||||||||
Independent Power Producers & Energy Traders–0.39% | ||||||||
AES Corp. (The) | 10,134 | 139,545 | ||||||
NRG Energy, Inc. | 5,026 | 135,451 | ||||||
274,996 | ||||||||
Industrial Conglomerates–0.78% | ||||||||
3M Co. | 856 | 140,658 | ||||||
Danaher Corp. | 1,607 | 137,736 | ||||||
General Electric Co.(d) | 5,390 | 136,205 | ||||||
Roper Industries, Inc. | 897 | 140,246 | ||||||
554,845 | ||||||||
Industrial Gases–0.59% | ||||||||
Air Products and Chemicals, Inc. | 974 | 140,480 | ||||||
Airgas, Inc. | 1,221 | 140,635 | ||||||
Praxair, Inc. | 1,087 | 140,832 | ||||||
421,947 | ||||||||
Industrial Machinery–1.99% | ||||||||
Dover Corp. | 1,985 | 142,364 | ||||||
Flowserve Corp. | 2,453 | 146,763 | ||||||
Illinois Tool Works Inc. | 1,443 | 136,652 | ||||||
Ingersoll-Rand PLC | 2,169 | 137,493 | ||||||
Pall Corp. | 1,444 | 146,147 | ||||||
Parker Hannifin Corp. | 1,093 | 140,942 | ||||||
Pentair PLC (United Kingdom) | 2,243 | 148,980 | ||||||
Snap-on Inc. | 1,014 | 138,655 | ||||||
Stanley Black & Decker Inc. | 1,437 | 138,067 | ||||||
Xylem, Inc. | 3,719 | 141,582 | ||||||
1,417,645 |
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 REIT’s–0.19% | ||||||||
Prologis, Inc. | 3,188 | $ | 137,180 | |||||
Insurance Brokers–0.38% | ||||||||
Aon PLC | 1,417 | 134,374 | ||||||
Marsh & McLennan Cos., Inc. | 2,383 | 136,403 | ||||||
270,777 | ||||||||
Integrated Oil & Gas–0.83% | ||||||||
Chevron Corp. | 1,315 | 147,517 | ||||||
Exxon Mobil Corp. | 1,555 | 143,760 | ||||||
Hess Corp. | 2,024 | 149,412 | ||||||
Occidental Petroleum Corp. | 1,814 | 146,226 | ||||||
586,915 | ||||||||
Integrated Telecommunication Services–0.98% | ||||||||
AT&T Inc. | 4,188 | 140,675 | ||||||
CenturyLink Inc. | 3,583 | 141,815 | ||||||
Frontier Communications Corp. | 21,516 | 143,512 | ||||||
Verizon Communications Inc. | 2,954 | 138,188 | ||||||
Windstream Holdings Inc. | 15,902 | 131,032 | ||||||
695,222 | ||||||||
Internet Retail–0.96% | ||||||||
Amazon.com, Inc.(b) | 437 | 135,623 | ||||||
Expedia, Inc. | 1,538 | 131,284 | ||||||
Netflix Inc.(b) | 402 | 137,327 | ||||||
Priceline Group Inc. (The)(b) | 121 | 137,965 | ||||||
TripAdvisor Inc.(b) | 1,860 | 138,868 | ||||||
681,067 | ||||||||
Internet Software & Services–1.15% | ||||||||
Akamai Technologies, Inc.(b) | 2,214 | 139,393 | ||||||
eBay Inc.(b) | 2,414 | 135,474 | ||||||
Facebook Inc.–Class A(b) | 1,730 | 134,974 | ||||||
Google Inc.–Class A(b) | 129 | 68,455 | ||||||
Google Inc.–Class C(b) | 129 | 67,906 | ||||||
VeriSign, Inc.(b) | 2,363 | 134,691 | ||||||
Yahoo! Inc.(b) | 2,680 | 135,367 | ||||||
816,260 | ||||||||
Investment Banking & Brokerage–0.80% | ||||||||
Charles Schwab Corp. (The) | 4,684 | 141,410 | ||||||
E*TRADE Financial Corp.(b) | 5,952 | 144,366 | ||||||
Goldman Sachs Group, Inc. (The) | 712 | 138,007 | ||||||
Morgan Stanley | 3,714 | 144,103 | ||||||
567,886 | ||||||||
IT Consulting & Other Services–0.80% | ||||||||
Accenture PLC–Class A | 1,644 | 146,826 | ||||||
Cognizant Technology Solutions | 2,668 | 140,497 | ||||||
International Business Machines Corp. | 866 | 138,941 | ||||||
Teradata Corp.(b) | 3,242 | 141,610 | ||||||
567,874 | ||||||||
Leisure Products–0.38% | ||||||||
Hasbro, Inc. | 2,401 | 132,031 |
Shares | Value | |||||||
Leisure Products–(continued) | ||||||||
Mattel, Inc. | 4,380 | $ | 135,539 | |||||
267,570 | ||||||||
Life & Health Insurance–1.39% | ||||||||
Aflac, Inc. | 2,310 | 141,118 | ||||||
Lincoln National Corp. | 2,447 | 141,118 | ||||||
MetLife, Inc. | 2,549 | 137,875 | ||||||
Principal Financial Group, Inc. | 2,662 | 138,264 | ||||||
Prudential Financial, Inc. | 1,554 | 140,575 | ||||||
Torchmark Corp. | 2,582 | 139,867 | ||||||
Unum Group | 4,203 | 146,601 | ||||||
985,418 | ||||||||
Life Sciences Tools & Services–0.77% | ||||||||
Agilent Technologies, Inc. | 3,390 | 138,787 | ||||||
PerkinElmer, Inc. | 3,227 | 141,117 | ||||||
Thermo Fisher Scientific, Inc. | 1,076 | 134,812 | ||||||
Waters Corp.(b) | 1,206 | 135,940 | ||||||
550,656 | ||||||||
Managed Health Care–0.96% | ||||||||
Aetna Inc. | 1,542 | 136,976 | ||||||
Anthem, Inc. | 1,097 | 137,860 | ||||||
Cigna Corp. | 1,324 | 136,253 | ||||||
Humana Inc. | 937 | 134,581 | ||||||
UnitedHealth Group Inc. | 1,363 | 137,786 | ||||||
683,456 | ||||||||
Metal & Glass Containers–0.41% | ||||||||
Ball Corp. | 2,026 | 138,113 | ||||||
Owens-Illinois, Inc.(b) | 5,559 | 150,037 | ||||||
288,150 | ||||||||
Motorcycle Manufacturers–0.19% | ||||||||
Harley-Davidson, Inc. | 2,027 | 133,600 | ||||||
Movies & Entertainment–0.78% | ||||||||
Time Warner Inc. | 1,639 | 140,003 | ||||||
Twenty-First Century Fox, Inc.–Class A | 3,649 | 140,140 | ||||||
Viacom Inc.–Class B | 1,845 | 138,836 | ||||||
Walt Disney Co. (The) | 1,472 | 138,648 | ||||||
557,627 | ||||||||
Multi-Line Insurance–0.99% | ||||||||
American International Group, Inc. | 2,491 | 139,521 | ||||||
Assurant, Inc. | 2,034 | 139,187 | ||||||
Genworth Financial Inc.–Class A(b) | 17,006 | 144,551 | ||||||
Hartford Financial Services Group, Inc. (The) | 3,334 | 138,994 | ||||||
Loews Corp. | 3,414 | 143,456 | ||||||
705,709 | ||||||||
Multi-Sector Holdings–0.39% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 918 | 137,838 | ||||||
Leucadia National Corp. | 6,168 | 138,286 | ||||||
276,124 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Multi-Utilities–2.78% | ||||||||
Ameren Corp. | 3,137 | $ | 144,710 | |||||
CenterPoint Energy, Inc. | 6,111 | 143,181 | ||||||
CMS Energy Corp. | 4,014 | 139,487 | ||||||
Consolidated Edison, Inc. | 2,100 | 138,621 | ||||||
Dominion Resources, Inc. | 1,851 | 142,342 | ||||||
DTE Energy Co. | 1,644 | 141,992 | ||||||
Integrys Energy Group, Inc. | 1,813 | 141,142 | ||||||
NiSource Inc. | 3,369 | 142,913 | ||||||
PG&E Corp. | 2,585 | 137,625 | ||||||
Public Service Enterprise Group Inc. | 3,305 | 136,860 | ||||||
SCANA Corp. | 2,373 | 143,329 | ||||||
Sempra Energy | 1,245 | 138,643 | ||||||
TECO Energy, Inc. | 7,000 | 143,430 | ||||||
Wisconsin Energy Corp. | 2,673 | 140,974 | ||||||
1,975,249 | ||||||||
Office REIT’s–0.19% | ||||||||
Boston Properties, Inc. | 1,030 | 132,551 | ||||||
Office Services & Supplies–0.19% | ||||||||
Pitney Bowes Inc. | 5,575 | 135,863 | ||||||
Oil & Gas Drilling–1.30% | ||||||||
Diamond Offshore Drilling, Inc. | 4,032 | 148,015 | ||||||
Ensco PLC–Class A | 4,980 | 149,151 | ||||||
Helmerich & Payne, Inc. | 2,231 | 150,414 | ||||||
Nabors Industries Ltd. | 13,469 | 174,828 | ||||||
Noble Corp. PLC | 9,276 | 153,703 | ||||||
Transocean Ltd. | 8,177 | 149,884 | ||||||
925,995 | ||||||||
Oil & Gas Equipment & Services–1.21% | ||||||||
Baker Hughes Inc. | 2,448 | 137,259 | ||||||
Cameron International Corp.(b) | 2,952 | 147,452 | ||||||
FMC Technologies, Inc.(b) | 3,132 | 146,703 | ||||||
Halliburton Co. | 3,550 | 139,622 | ||||||
National Oilwell Varco Inc. | 2,187 | 143,314 | ||||||
Schlumberger Ltd. | 1,683 | 143,745 | ||||||
858,095 | ||||||||
Oil & Gas Exploration & Production–3.70% | ||||||||
Anadarko Petroleum Corp. | 1,836 | 151,470 | ||||||
Apache Corp. | 2,385 | 149,468 | ||||||
Cabot Oil & Gas Corp. | 4,475 | 132,507 | ||||||
Chesapeake Energy Corp. | 7,812 | 152,881 | ||||||
Cimarex Energy Co. | 1,367 | 144,902 | ||||||
ConocoPhillips | 2,156 | 148,894 | ||||||
Denbury Resources Inc. | 21,045 | 171,096 | ||||||
Devon Energy Corp. | 2,539 | 155,412 | ||||||
EOG Resources, Inc. | 1,559 | 143,537 | ||||||
EQT Corp. | 1,703 | 128,917 | ||||||
Marathon Oil Corp. | 5,270 | 149,088 | ||||||
Murphy Oil Corp. | 2,998 | 151,459 | ||||||
Newfield Exploration Co.(b) | 5,563 | 150,869 |
Shares | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Noble Energy, Inc. | 3,070 | $ | 145,610 | |||||
Pioneer Natural Resources Co. | 1,025 | 152,571 | ||||||
QEP Resources Inc. | 6,953 | 140,590 | ||||||
Range Resources Corp. | 2,485 | 132,823 | ||||||
Southwestern Energy Co.(b) | 4,690 | 127,990 | ||||||
2,630,084 | ||||||||
Oil & Gas Refining & Marketing–0.80% | ||||||||
Marathon Petroleum Corp. | 1,618 | 146,041 | ||||||
Phillips 66 | 2,050 | 146,985 | ||||||
Tesoro Corp. | 1,809 | 134,499 | ||||||
Valero Energy Corp. | 2,910 | 144,045 | ||||||
571,570 | ||||||||
Oil & Gas Storage & Transportation–0.82% | ||||||||
Kinder Morgan Inc. | 3,438 | 145,462 | ||||||
ONEOK, Inc. | 3,002 | 149,470 | ||||||
Spectra Energy Corp. | 4,001 | 145,236 | ||||||
Williams Cos., Inc. (The) | 3,149 | 141,516 | ||||||
581,684 | ||||||||
Packaged Foods & Meats–2.49% | ||||||||
Campbell Soup Co. | 3,078 | 135,432 | ||||||
ConAgra Foods, Inc. | 3,666 | 133,002 | ||||||
General Mills, Inc. | 2,584 | 137,805 | ||||||
Hershey Co. (The) | 1,367 | 142,072 | ||||||
Hormel Foods Corp. | 2,643 | 137,700 | ||||||
JM Smucker Co. (The) | 1,358 | 137,131 | ||||||
Kellogg Co. | 2,051 | 134,217 | ||||||
Keurig Green Mountain Inc. | 987 | 130,674 | ||||||
Kraft Foods Group, Inc. | 2,273 | 142,426 | ||||||
McCormick & Co., Inc. | 1,857 | 137,975 | ||||||
Mead Johnson Nutrition Co. | 1,377 | 138,444 | ||||||
Mondelez International Inc.–Class A | 3,617 | 131,388 | ||||||
Tyson Foods, Inc.–Class A | 3,300 | 132,297 | ||||||
1,770,563 | ||||||||
Paper Packaging–0.59% | ||||||||
Avery Dennison Corp. | 2,686 | 139,350 | ||||||
MeadWestvaco Corp. | 3,089 | 137,121 | ||||||
Sealed Air Corp. | 3,291 | 139,637 | ||||||
416,108 | ||||||||
Paper Products–0.19% | ||||||||
International Paper Co. | 2,533 | 135,718 | ||||||
Personal Products–0.38% | ||||||||
Avon Products, Inc. | 14,044 | 131,873 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,843 | 140,437 | ||||||
272,310 | ||||||||
Pharmaceuticals–2.51% | ||||||||
AbbVie Inc. | 2,063 | 135,003 | ||||||
Actavis PLC(b) | 519 | 133,596 | ||||||
Allergan, Inc. | 645 | 137,120 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Bristol-Myers Squibb Co. | 2,291 | $ | 135,238 | |||||
Eli Lilly and Co. | 1,936 | 133,565 | ||||||
Hospira, Inc.(b) | 2,231 | 136,649 | ||||||
Johnson & Johnson | 1,288 | 134,686 | ||||||
Mallinckrodt PLC(b) | 1,421 | 140,721 | ||||||
Merck & Co., Inc. | 2,332 | 132,434 | ||||||
Mylan Inc.(b) | 2,525 | 142,334 | ||||||
Perrigo Co. PLC | 877 | 146,599 | ||||||
Pfizer Inc. | 4,351 | 135,534 | ||||||
Zoetis Inc. | 3,224 | 138,729 | ||||||
1,782,208 | ||||||||
Property & Casualty Insurance–1.35% | ||||||||
ACE Ltd. | 1,187 | 136,363 | ||||||
Allstate Corp. (The) | 1,997 | 140,289 | ||||||
Chubb Corp. (The) | 1,322 | 136,787 | ||||||
Cincinnati Financial Corp. | 2,646 | 137,142 | ||||||
Progressive Corp. (The) | 5,078 | 137,055 | ||||||
Travelers Cos., Inc. (The) | 1,305 | 138,134 | ||||||
XL Group PLC | 3,877 | 133,253 | ||||||
959,023 | ||||||||
Publishing–0.40% | ||||||||
Gannett Co., Inc. | 4,407 | 140,716 | ||||||
News Corp.–Class A(b) | 8,948 | 140,394 | ||||||
281,110 | ||||||||
Railroads–0.81% | ||||||||
CSX Corp. | 3,865 | 140,029 | ||||||
Kansas City Southern | 1,227 | 149,731 | ||||||
Norfolk Southern Corp. | 1,326 | 145,343 | ||||||
Union Pacific Corp. | 1,195 | 142,360 | ||||||
577,463 | ||||||||
Real Estate Services–0.20% | ||||||||
CBRE Group, Inc.–Class A(b) | 4,107 | 140,665 | ||||||
Regional Banks–1.78% | ||||||||
BB&T Corp. | 3,595 | 139,810 | ||||||
Fifth Third Bancorp | 6,823 | 139,019 | ||||||
Huntington Bancshares Inc. | 13,388 | 140,842 | ||||||
KeyCorp | 10,126 | 140,751 | ||||||
M&T Bank Corp. | 1,104 | 138,684 | ||||||
PNC Financial Services Group, Inc. (The) | 1,534 | 139,947 | ||||||
Regions Financial Corp. | 13,455 | 142,085 | ||||||
SunTrust Banks, Inc. | 3,347 | 140,239 | ||||||
Zions Bancorp. | 4,965 | 141,552 | ||||||
1,262,929 | ||||||||
Research & Consulting Services–0.59% | ||||||||
Dun & Bradstreet Corp. (The) | 1,182 | 142,975 | ||||||
Equifax Inc. | 1,691 | 136,751 | ||||||
Nielsen N.V. | 3,106 | 138,931 | ||||||
418,657 |
Shares | Value | |||||||
Residential REIT’s–0.77% | ||||||||
Apartment Investment & Management Co.–Class A | 3,688 | $ | 137,009 | |||||
AvalonBay Communities, Inc. | 825 | 134,797 | ||||||
Equity Residential | 1,894 | 136,065 | ||||||
Essex Property Trust, Inc. | 660 | 136,356 | ||||||
544,227 | ||||||||
Restaurants–0.96% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 204 | 139,640 | ||||||
Darden Restaurants, Inc. | 2,346 | 137,546 | ||||||
McDonald’s Corp. | 1,486 | 139,238 | ||||||
Starbucks Corp. | 1,617 | 132,675 | ||||||
Yum! Brands, Inc. | 1,848 | 134,627 | ||||||
683,726 | ||||||||
Retail REIT’s–0.77% | ||||||||
General Growth Properties, Inc. | 4,934 | 138,793 | ||||||
Kimco Realty Corp. | 5,301 | 133,267 | ||||||
Macerich Co. (The) | 1,677 | 139,879 | ||||||
Simon Property Group, Inc. | 745 | 135,672 | ||||||
547,611 | ||||||||
Security & Alarm Services–0.42% | ||||||||
ADT Corp. (The) | 4,414 | 159,919 | ||||||
Tyco International PLC | 3,241 | 142,167 | ||||||
302,086 | ||||||||
Semiconductor Equipment–0.58% | ||||||||
Applied Materials, Inc. | 5,676 | 141,446 | ||||||
KLA-Tencor Corp. | 1,962 | 137,968 | ||||||
Lam Research Corp. | 1,718 | 136,306 | ||||||
415,720 | ||||||||
Semiconductors–2.30% | ||||||||
Altera Corp. | 3,636 | 134,314 | ||||||
Analog Devices, Inc. | 2,408 | 133,692 | ||||||
Avago Technologies Ltd. (Singapore) | 1,357 | 136,501 | ||||||
Broadcom Corp.–Class A | 3,234 | 140,129 | ||||||
First Solar, Inc.(b) | 3,197 | 142,570 | ||||||
Intel Corp.(d) | 3,717 | 134,890 | ||||||
Linear Technology Corp. | 2,965 | 135,204 | ||||||
Microchip Technology Inc.(b) | 3,081 | 138,984 | ||||||
Micron Technology, Inc.(b) | 3,961 | 138,674 | ||||||
NVIDIA Corp. | 6,861 | 137,563 | ||||||
Texas Instruments Inc. | 2,535 | 135,534 | ||||||
Xilinx, Inc. | 2,982 | 129,091 | ||||||
1,637,146 | ||||||||
Soft Drinks–0.97% | ||||||||
Coca-Cola Co. (The) | 3,291 | 138,946 | ||||||
Coca-Cola Enterprises, Inc. | 3,119 | 137,922 | ||||||
Dr Pepper Snapple Group, Inc. | 1,917 | 137,410 | ||||||
Monster Beverage Corp.(b) | 1,280 | 138,688 | ||||||
PepsiCo, Inc. | 1,421 | 134,370 | ||||||
687,336 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Shares | Value | |||||||
Specialized Consumer Services–0.20% | ||||||||
H&R Block, Inc. | 4,214 | $ | 141,928 | |||||
Specialized Finance–0.96% | ||||||||
CME Group Inc.–Class A | 1,546 | 137,053 | ||||||
Intercontinental Exchange, Inc. | 614 | 134,644 | ||||||
McGraw Hill Financial, Inc. | 1,521 | 135,339 | ||||||
Moody’s Corp. | 1,440 | 137,966 | ||||||
NASDAQ OMX Group, Inc. (The) | 2,920 | 140,043 | ||||||
685,045 | ||||||||
Specialized REIT’s–1.17% | ||||||||
American Tower Corp. | 1,366 | 135,029 | ||||||
Crown Castle International Corp. | 1,775 | 139,692 | ||||||
Iron Mountain Inc. | 3,695 | 142,849 | ||||||
Plum Creek Timber Co., Inc. | 3,264 | 139,667 | ||||||
Public Storage | 738 | 136,419 | ||||||
Weyerhaeuser Co. | 3,758 | 134,875 | ||||||
828,531 | ||||||||
Specialty Chemicals–0.98% | ||||||||
Ecolab Inc. | 1,316 | 137,548 | ||||||
International Flavors & Fragrances Inc. | 1,345 | 136,329 | ||||||
PPG Industries, Inc. | 612 | 141,464 | ||||||
Sherwin-Williams Co. (The) | 544 | 143,094 | ||||||
Sigma-Aldrich Corp. | 989 | 135,760 | ||||||
694,195 | ||||||||
Specialty Stores–0.79% | ||||||||
PetSmart, Inc. | 1,733 | 140,884 | ||||||
Staples, Inc. | 8,177 | 148,168 | ||||||
Tiffany & Co. | 1,293 | 138,170 | ||||||
Tractor Supply Co. | 1,732 | 136,516 | ||||||
563,738 | ||||||||
Steel–0.39% | ||||||||
Allegheny Technologies, Inc. | 4,411 | 153,370 | ||||||
Nucor Corp. | 2,596 | 127,334 | ||||||
280,704 | ||||||||
Systems Software–1.01% | ||||||||
CA, Inc. | 4,510 | 137,329 | ||||||
Microsoft Corp. | 2,868 | 133,219 | ||||||
Oracle Corp. | 3,370 | 151,549 | ||||||
Red Hat, Inc.(b) | 2,326 | 160,820 | ||||||
Symantec Corp. | 5,310 | 136,228 | ||||||
719,145 |
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–1.36% | ||||||||
Apple Inc. | 1,226 | $ | 135,326 | |||||
EMC Corp. | 4,752 | 141,324 | ||||||
Hewlett-Packard Co. | 3,542 | 142,140 | ||||||
NetApp, Inc. | 3,309 | 137,158 | ||||||
SanDisk Corp. | 1,363 | 133,547 | ||||||
Seagate Technology PLC | 2,102 | 139,783 | ||||||
Western Digital Corp. | 1,274 | 141,032 | ||||||
970,310 | ||||||||
Thrifts & Mortgage Finance–0.40% | ||||||||
Hudson City Bancorp, Inc. | 14,073 | 142,419 | ||||||
People’s United Financial Inc. | 9,244 | 140,324 | ||||||
282,743 | ||||||||
Tires & Rubber–0.20% | ||||||||
Goodyear Tire & Rubber Co. (The) | 5,060 | 144,564 | ||||||
Tobacco–0.75% | ||||||||
Altria Group, Inc. | 2,712 | 133,620 | ||||||
Lorillard, Inc. | 2,152 | 135,447 | ||||||
Philip Morris International Inc. | 1,595 | 129,913 | ||||||
Reynolds American Inc. | 2,095 | 134,646 | ||||||
533,626 | ||||||||
Trading Companies & Distributors–0.59% | ||||||||
Fastenal Co. | 2,956 | 140,587 | ||||||
United Rentals, Inc.(b) | 1,351 | 137,816 | ||||||
W.W. Grainger, Inc. | 547 | 139,425 | ||||||
417,828 | ||||||||
Trucking–0.20% | ||||||||
Ryder System, Inc. | 1,535 | 142,525 | ||||||
Total Common Stocks & Other Equity Interests |
| 69,783,405 | ||||||
Money Market Funds–1.89% | ||||||||
Liquid Assets Portfolio–Institutional Class(e) | 669,650 | 669,650 | ||||||
Premier Portfolio–Institutional Class(e) | 669,651 | 669,651 | ||||||
Total Money Market Funds | 1,339,301 | |||||||
TOTAL INVESTMENTS–100.06% |
| 71,122,706 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.06)% |
| (39,975 | ) | |||||
NET ASSETS–100.00% |
| $ | 71,082,731 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. See Note 4. |
(d) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1I and Note 5. |
(e) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $26,312,233) | $ | 69,645,401 | ||
Investments in affiliates, at value (Cost $1,394,363) | 1,477,305 | |||
Total investments, at value (Cost $27,706,596) | 71,122,706 | |||
Receivable for: | ||||
Fund shares sold | 13,959 | |||
Dividends | 92,374 | |||
Investment for trustee deferred compensation and retirement plans | 27,684 | |||
Other assets | 1,284 | |||
Total assets | 71,258,007 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 34,698 | |||
Variation margin — futures | 15,795 | |||
Accrued fees to affiliates | 58,087 | |||
Accrued trustees’ and officers’ fees and benefits | 593 | |||
Accrued other operating expenses | 36,815 | |||
Trustee deferred compensation and retirement plans | 29,288 | |||
Total liabilities | 175,276 | |||
Net assets applicable to shares outstanding | $ | 71,082,731 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 16,396,338 | ||
Undistributed net investment income | 826,603 | |||
Undistributed net realized gain | 10,455,961 | |||
Net unrealized appreciation | 43,403,829 | |||
$ | 71,082,731 | |||
Net Assets: |
| |||
Series I | $ | 33,877,587 | ||
Series II | $ | 37,205,144 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 1,695,465 | |||
Series II | 1,898,277 | |||
Series I: | ||||
Net asset value per share | $ | 19.98 | ||
Series II: | ||||
Net asset value per share | $ | 19.60 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $871) | $ | 1,404,429 | ||
Dividends from affiliates | 3,946 | |||
Total investment income | 1,408,375 | |||
Expenses: | ||||
Advisory fees | 87,756 | |||
Administrative services fees | 193,461 | |||
Custodian fees | 48,284 | |||
Distribution fees — Series II | 93,532 | |||
Transfer agent fees | 2,870 | |||
Trustees’ and officers’ fees and benefits | 23,406 | |||
Professional services fees | 42,845 | |||
Other | 31,660 | |||
Total expenses | 523,814 | |||
Less: Fees waived | (666 | ) | ||
Net expenses | 523,148 | |||
Net investment income | 885,227 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain from: | ||||
Investment securities | 11,690,925 | |||
Futures contracts | 70,981 | |||
11,761,906 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (3,330,370 | ) | ||
Futures contracts | (20,745 | ) | ||
(3,351,115 | ) | |||
Net realized and unrealized gain | 8,410,791 | |||
Net increase in net assets resulting from operations | $ | 9,296,018 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equally-Weighted S&P 500 Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 885,227 | $ | 784,423 | ||||
Net realized gain | 11,761,906 | 11,722,514 | ||||||
Change in net unrealized appreciation (depreciation) | (3,351,115 | ) | 10,263,102 | |||||
Net increase in net assets resulting from operations | 9,296,018 | 22,770,039 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (495,550 | ) | (621,458 | ) | ||||
Series ll | (445,613 | ) | (536,809 | ) | ||||
Total distributions from net investment income | (941,163 | ) | (1,158,267 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (5,378,347 | ) | (4,709,760 | ) | ||||
Series ll | (5,883,707 | ) | (4,814,561 | ) | ||||
Total distributions from net realized gains | (11,262,054 | ) | (9,524,321 | ) | ||||
Share transactions–net: | ||||||||
Series l | (2,983,654 | ) | (2,701,510 | ) | ||||
Series ll | (29,503 | ) | (3,659,148 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (3,013,157 | ) | (6,360,658 | ) | ||||
Net increase (decrease) in net assets | (5,920,356 | ) | 5,726,793 | |||||
Net assets: | ||||||||
Beginning of year | 77,003,087 | 71,276,294 | ||||||
End of year (includes undistributed net investment income of $826,603 and $857,484, respectively) | $ | 71,082,731 | $ | 77,003,087 |
Notes to Financial Statements
December 31, 2014
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”).
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
Invesco V.I. Equally-Weighted S&P 500 Fund
Debt obligations (including convertible 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 ask 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 net investment 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. Equally-Weighted S&P 500 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. | 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 (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.12%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $666.
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. Equally-Weighted S&P 500 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 year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $143,461 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 | $ | 71,122,706 | $ | — | $ | — | $ | 71,122,706 | ||||||||
Futures* | (12,281 | ) | — | — | (12,281 | ) | ||||||||||
Total Investments | $ | 71,110,425 | $ | — | $ | — | $ | 71,110,425 |
* | Unrealized appreciation (depreciation). |
NOTE 4—Investments in Affiliates
The Fund’s Adviser is a subsidiary of Invesco Ltd. and therefore, Invesco Ltd. is considered to be affiliated with the Fund. The following is a summary of the transactions in, and earnings from, investments in Invesco Ltd. for the year ended December 31, 2014.
Value 12/31/13 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation (Depreciation) | Realized Gain | Value 12/31/14 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 153,863 | $ | 16,225 | $ | (44,204 | ) | $ | (3,673 | ) | $ | 15,793 | $ | 138,004 | $ | 3,759 |
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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk: | ||||||||
Futures contracts(a) | $ | — | $ | (12,281 | ) |
(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. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Effect of Derivative Investments for the year ended December 31, 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 | $ | 70,981 | ||
Change in Unrealized Appreciation (Depreciation): | ||||
Equity risk | (20,745 | ) | ||
Total | $ | 50,236 |
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures Contracts | ||||
Average notional value | $ | 593,598 |
Open Futures Contracts — Equity Risk | ||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||
E-Mini S&P 500 Index | Long | 13 | March-2015 | $ | 1,334,060 | $ | (12,281 | ) |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 1,974,729 | $ | 2,112,938 | ||||
Long-term capital gain | 10,228,488 | 8,569,650 | ||||||
Total distributions | $ | 12,203,217 | $ | 10,682,588 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 1,406,391 | ||
Undistributed long-term gain | 10,930,074 | |||
Net unrealized appreciation — investments | 42,376,332 | |||
Temporary book/tax differences | (26,404 | ) | ||
Shares of beneficial interest | 16,396,338 | |||
Total net assets | $ | 71,082,731 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010
Invesco V.I. Equally-Weighted S&P 500 Fund
can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $13,319,981 and $28,086,719, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 42,927,471 | ||
Aggregate unrealized (depreciation) of investment securities | (551,139 | ) | ||
Net unrealized appreciation of investment securities | $ | 42,376,332 |
Cost of investments for tax purposes is $28,746,374.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trust distributions, on December 31, 2014, undistributed net investment income was increased by $25,055 and undistributed net realized gain was decreased by $25,055. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 34,739 | $ | 771,203 | 86,261 | $ | 1,732,320 | ||||||||||
Series II | 94,541 | 1,914,075 | 94,261 | 1,879,565 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 311,944 | 5,873,897 | 273,536 | 5,331,218 | ||||||||||||
Series II | 342,496 | 6,329,320 | 278,863 | 5,351,370 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (452,140 | ) | (9,628,754 | ) | (473,906 | ) | (9,765,048 | ) | ||||||||
Series II | (403,403 | ) | (8,272,898 | ) | (531,180 | ) | (10,890,083 | ) | ||||||||
Net increase (decrease) in share activity | (71,823 | ) | $ | (3,013,157 | ) | (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 96% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Equally-Weighted S&P 500 Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 21.18 | $ | 0.29 | $ | 2.41 | $ | 2.70 | $ | (0.33 | ) | $ | (3.57 | ) | $ | (3.90 | ) | $ | 19.98 | 13.88 | % | $ | 33,878 | 0.59 | %(d) | 0.59 | %(d) | 1.34 | %(d) | 18 | % | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 20.84 | 0.23 | 2.37 | 2.60 | (0.27 | ) | (3.57 | ) | (3.84 | ) | 19.60 | 13.61 | 37,205 | 0.84 | (d) | 0.84 | (d) | 1.09 | (d) | 18 | ||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $35,717 and $37,413 for Series I and Series II shares, respectively. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Equally-Weighted S&P 500 Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Equally-Weighted S&P 500 Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Equally-Weighted S&P 500 Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,051.00 | $ | 2.95 | $ | 1,022.33 | $ | 2.91 | 0.57 | % | ||||||||||||
Series II | 1,000.00 | 1,050.00 | 4.24 | 1,021.07 | 4.18 | 0.82 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year-end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 10,228,488 | ||
Corporate Dividends Received Deduction* | 64.10 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Equally-Weighted S&P 500 Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Equally-Weighted S&P 500 Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Equity and Income Fund under-performed the Russell 1000 Value Index but outperformed the Barclays U.S. Government/Credit Index. Stock selection was the primary driver of Fund performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 9.03 | % | |||
Series II Shares | 8.77 | ||||
Barclays U.S. Government/Credit Index‚ (Style-Specific Index) | 6.01 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 13.45 |
Source(s): ‚FactSet Research Systems Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended
period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, most US equity market indexes delivered strong gains. Sector performance within the Russell 1000 Value Index was mixed for the reporting period, with some sectors, like information technology, utilities and health care returning over 20%, while other sectors, like materials and telecommunication services posted low single-digit returns. Energy was the only sector to post a negative return.
The Fund’s underweight exposure to energy stocks versus the Russell 1000 Value Index, and stock selection within the energy sector, contributed to relative Fund performance. Energy stocks sold off beginning in mid-September due to a sharp decline in the price of oil. Having underweight exposure to Exxon Mobil and not owning Chevron were the largest relative contributors to Fund performance, as both of these stocks posted negative returns and were relatively large holdings within the Russell 1000 Value Index.
We used currency forward contracts
during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the portfolio. Derivatives were used for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period. This was mainly due to the strength of the US dollar compared to the foreign currencies in which the Fund’s non-US holdings were denominated.
Underweight exposure to, and stock selection within, the industrials sector also helped relative Fund performance for the year, as the industrials sector posted only a mid-single digit return. General Dynamics, an aerospace company, helped the Fund’s relative performance. The company beat profit forecasts and provided positive guidance based on strong demand for its Gulfstream jets. The Fund’s underweight position in General Electric compared to the Russell 1000 Value Index also contributed to relative performance.
On the negative side, stock selection within, and underweight exposure to, the consumer staples sector was a large detractor from the Fund’s relative performance. Notably, Avon Products, a household and personal products company, was a large detractor, posting a double-digit loss for the reporting period. Despite improving earnings, the stock performed poorly after the company settled bribery charges with the Justice Department toward the end of the reporting period. We sold our position in Avon Products before the close of the reporting period.
Stock selection in, and underweight exposure to, the financials sector dampened Fund performance as well. Not having any exposure to real estate investment trusts was the largest detractor within the
Portfolio Composition | |||||
By security type
| |||||
Common Stocks & Other Equity Interests | 63.7 | % | |||
Bonds and Notes | 19.7 | ||||
U.S. Treasury Securities | 7.4 | ||||
Sectors Each Less Than 1% of Portfolio | 1.4 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 7.8 |
Top 10 Equity Holdings*
| |||||
1. Citigroup Inc. | 3.0 | % | |||
2. JPMorgan Chase & Co. | 2.9 | ||||
3. General Electric Co. | 1.9 | ||||
4. Morgan Stanley | 1.7 | ||||
5. Royal Dutch Shell PLC-Class A | 1.6 | ||||
6. Bank of America Corp. | 1.5 | ||||
7. Target Corp. | 1.2 | ||||
8. Applied Materials, Inc. | 1.2 | ||||
9. PNC Financial Services Group, Inc. (The) | 1.2 | ||||
10. Comcast Corp.-Class A | 1.1 |
Top Five Industries*
| |||||
1. Diversified Banks | 9.6 | % | |||
2. Pharmaceuticals | 7.1 | ||||
3. Investment Banking & Brokerage | 4.7 | ||||
4. Integrated Oil & Gas | 3.9 | ||||
5. Regional Banks | 3.3 |
Total Net Assets | $1.4 billion | |||||||||
Total Number of Holdings* | 442 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Equity and Income Fund
sector. As value managers, we seek companies that are undervalued compared to the company’s historical price, the broad equity market and relative peers. Real estate posted outsized returns during the year due to investor demand for yield, which drove valuations to unattractive levels.
Weak stock selection in the consumer discretionary sector also hurt Fund performance relative to the Russell 1000 Value Index. Fund holdings such as media giant Viacom, retailer Abercrombie & Fitch and automobile manufacturer General Motors posted negative returns. Investor confidence in General Motors eroded somewhat after the firm announced a recall of faulty ignition switches after a 10-year delay. We sold our position in Abercrombie & Fitch before the close of the reporting period.
The Fund’s convertible and high-grade bond holdings posted positive returns; however, they detracted from relative Fund performance, as bonds generally underperformed equities. The Fund’s cash holdings also detracted from relative performance in a strong market for equities. The Fund is a balanced or moderate allocation fund; therefore, our allocations to cash and/or fixed income securities typically detract from performance during periods of strong stock market performance. We use cash to purchase holdings when we discover promising investment opportunities, and our fixed-income allocation is intended to provide income and capital preservation during equity market downturns.
Equity markets, although providing investors strong absolute returns, experienced continued volatility during the reporting period. Reasons for volatility included political unrest in Eastern Europe, a sluggish Chinese economy and the effects on the global economy of falling oil prices. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
Thank you for your investment in Invesco V.I. Equity and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Thomas Bastian Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Equity and Income | ||
Fund. He joined Invesco in 2010. Mr. Bastian earned a BA in accounting from St. John’s University and an MBA in finance from University of Michigan.
| ||
Chuck Burge Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. He joined Invesco in 2002. | ||
Mr. Burge earned a BS in economics from Texas A&M University and an MBA in finance and accounting from Rice University.
| ||
Mary Jayne Maly Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. She | ||
joined Invesco in 2010. Ms. Maly earned a BA from the University of Pittsburgh and an MBA from the Thunderbird School of Global Management.
| ||
Sergio Marcheli Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. He joined Invesco in 2010. | ||
Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas.
| ||
James Roeder Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Equity and Income Fund. He | ||
joined Invesco in 2010. Mr. Roeder earned a BS in accounting from Clemson University and an MBA in economics and finance from the University of Chicago Booth School of Business. |
Invesco V.I. Equity and Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
10 Years | 7.25 | % | |||
5 Years | 11.21 | ||||
1 Year | 9.03 | ||||
Series II Shares | |||||
Inception (4/30/03) | 8.57 | % | |||
10 Years | 7.16 | ||||
5 Years | 11.04 | ||||
1 Year | 8.77 |
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
Invesco V.I. Equity and Income Fund’s investment objectives are both capital appreciation and current income.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Call risk. If interest rates fall, it is possible that issuers of debt securities with high interest rates will prepay or call their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the
amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Income risk. The income you receive from the Fund is based primarily on prevailing interest rates, which can vary widely over the short- and long-term. If interest rates drop, your income from the Fund may drop as well.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of
time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
Invesco V.I. Equity and Income Fund
About indexes used in this report
The Barclays U.S. Government/Credit Index includes Treasuries and agencies that represent the government portion of the index, and includes publically issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
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 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Equity and Income Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–63.66% |
| |||||||
Aerospace & Defense–0.67% | ||||||||
General Dynamics Corp. | 66,434 | $ | 9,142,647 | |||||
Agricultural Products–0.78% | ||||||||
Archer-Daniels-Midland Co. | 204,607 | 10,639,564 | ||||||
Application Software–1.21% | ||||||||
Adobe Systems Inc.(b) | 132,933 | 9,664,229 | ||||||
Citrix Systems, Inc.(b) | 107,693 | 6,870,813 | ||||||
16,535,042 | ||||||||
Asset Management & Custody Banks–1.64% | ||||||||
Northern Trust Corp. | 131,647 | 8,873,008 | ||||||
State Street Corp. | 172,501 | 13,541,328 | ||||||
22,414,336 | ||||||||
Automobile Manufacturers–0.76% | ||||||||
General Motors Co. | 297,188 | 10,374,833 | ||||||
Biotechnology–0.90% | ||||||||
Amgen Inc. | 77,154 | 12,289,861 | ||||||
Cable & Satellite–1.84% | ||||||||
Comcast Corp.–Class A | 256,945 | 14,905,380 | ||||||
Time Warner Cable Inc. | 66,539 | 10,117,920 | ||||||
25,023,300 | ||||||||
Communications Equipment–0.92% | ||||||||
Cisco Systems, Inc. | 450,043 | 12,517,946 | ||||||
Construction Machinery & Heavy Trucks–0.78% | ||||||||
Caterpillar Inc. | 116,271 | 10,642,285 | ||||||
Consumer Finance–0.35% | ||||||||
Synchrony Financial(b) | 162,517 | 4,834,881 | ||||||
Diversified Banks–8.09% | ||||||||
Bank of America Corp. | 1,157,054 | 20,699,696 | ||||||
Citigroup Inc. | 764,015 | 41,340,852 | ||||||
Comerica Inc. | 190,636 | 8,929,390 | ||||||
JPMorgan Chase & Co. | 627,476 | 39,267,448 | ||||||
110,237,386 | ||||||||
Diversified Chemicals–0.32% | ||||||||
Dow Chemical Co. (The) | 96,490 | 4,400,909 | ||||||
Diversified Metals & Mining–0.39% | ||||||||
Freeport-McMoRan Inc. | 225,607 | 5,270,180 | ||||||
Electric Utilities–0.44% | ||||||||
FirstEnergy Corp. | 153,319 | 5,977,908 | ||||||
Electronic Components–0.85% | ||||||||
Corning Inc. | 505,565 | 11,592,605 | ||||||
General Merchandise Stores–1.18% | ||||||||
Target Corp. | 212,651 | 16,142,337 |
Shares | Value | |||||||
Health Care Equipment–0.59% | ||||||||
Medtronic, Inc. | 110,956 | $ | 8,011,023 | |||||
Health Care Services–0.27% | ||||||||
Express Scripts Holding Co.(b) | 42,973 | 3,638,524 | ||||||
Hotels, Resorts & Cruise Lines–1.04% | ||||||||
Carnival Corp. | 314,085 | 14,237,473 | ||||||
Household Products–0.84% | ||||||||
Procter & Gamble Co. (The) | 125,456 | 11,427,787 | ||||||
Hypermarkets & Super Centers–0.20% | ||||||||
Wal-Mart Stores, Inc. | 32,437 | 2,785,690 | ||||||
Industrial Conglomerates–1.90% | ||||||||
General Electric Co. | 1,024,626 | 25,892,299 | ||||||
Industrial Machinery–0.79% | ||||||||
Ingersoll-Rand PLC | 169,539 | 10,747,077 | ||||||
Insurance Brokers–2.16% | ||||||||
Aon PLC | 97,586 | 9,254,080 | ||||||
Marsh & McLennan Cos., Inc. | 219,171 | 12,545,348 | ||||||
Willis Group Holdings PLC | 171,990 | 7,706,872 | ||||||
29,506,300 | ||||||||
Integrated Oil & Gas–3.65% | ||||||||
Exxon Mobil Corp. | 95,451 | 8,824,445 | ||||||
Occidental Petroleum Corp. | 98,487 | 7,939,037 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 665,936 | 22,074,846 | ||||||
Total S.A. (France) | 211,361 | 10,898,058 | ||||||
49,736,386 | ||||||||
Integrated Telecommunication Services–1.07% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 632,862 | 1,995,358 | ||||||
Orange S.A. (France) | 141,471 | 2,405,994 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 1,321,668 | 1,401,713 | ||||||
Telefonica S.A. (Spain) | 95,750 | 1,369,661 | ||||||
Verizon Communications Inc. | 157,149 | 7,351,430 | ||||||
14,524,156 | ||||||||
Internet Software & Services–1.04% | ||||||||
eBay Inc.(b) | 253,122 | 14,205,207 | ||||||
Investment Banking & Brokerage–3.22% | ||||||||
Charles Schwab Corp. (The) | 382,272 | 11,540,792 | ||||||
Goldman Sachs Group, Inc. (The) | 50,827 | 9,851,797 | ||||||
Morgan Stanley | 581,820 | 22,574,616 | ||||||
43,967,205 | ||||||||
IT Consulting & Other Services–0.61% | ||||||||
Amdocs Ltd. | 177,115 | 8,263,300 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Shares | Value | |||||||
Managed Health Care–1.46% | ||||||||
Anthem, Inc. | 75,348 | $ | 9,468,983 | |||||
UnitedHealth Group Inc. | 103,459 | 10,458,670 | ||||||
19,927,653 | ||||||||
Movies & Entertainment–1.46% | ||||||||
Time Warner Inc. | 69,854 | 5,966,929 | ||||||
Viacom Inc.–Class B | 185,958 | 13,993,339 | ||||||
19,960,268 | ||||||||
Multi-Utilities–0.50% | ||||||||
PG&E Corp. | 127,926 | 6,810,780 | ||||||
Oil & Gas Drilling–0.40% | ||||||||
Ensco PLC–Class A | 183,687 | 5,501,426 | ||||||
Oil & Gas Equipment & Services–0.73% | ||||||||
Baker Hughes Inc. | 176,560 | 9,899,719 | ||||||
Oil & Gas Exploration & Production–1.87% | ||||||||
Anadarko Petroleum Corp. | 86,215 | 7,112,737 | ||||||
Apache Corp. | 157,937 | 9,897,912 | ||||||
Canadian Natural Resources Ltd. (Canada) | 272,677 | 8,430,503 | ||||||
25,441,152 | ||||||||
Other Diversified Financial Services–0.84% | ||||||||
Voya Financial, Inc. | 270,015 | 11,443,236 | ||||||
Packaged Foods & Meats–1.28% | ||||||||
Mondelez International Inc.–Class A | 289,015 | 10,498,470 | ||||||
Unilever N.V.–New York Shares (United Kingdom) | 178,839 | 6,981,874 | ||||||
17,480,344 | ||||||||
Pharmaceuticals–5.09% | ||||||||
Eli Lilly and Co. | 175,027 | 12,075,113 | ||||||
Hospira, Inc.(b) | 73,717 | 4,515,166 | ||||||
Merck & Co., Inc. | 233,368 | 13,252,969 | ||||||
Novartis AG (Switzerland) | 127,409 | 11,718,664 | ||||||
Novartis AG–ADR (Switzerland) | 9,755 | 903,898 | ||||||
Pfizer Inc. | 214,758 | 6,689,712 | ||||||
Sanofi (France) | 89,624 | 8,168,302 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 210,596 | 12,111,376 | ||||||
69,435,200 | ||||||||
Publishing–0.56% | ||||||||
Thomson Reuters Corp. | 190,291 | 7,676,828 | ||||||
Railroads–0.53% | ||||||||
CSX Corp. | 198,064 | 7,175,859 | ||||||
Regional Banks–2.92% | ||||||||
BB&T Corp. | 197,192 | 7,668,797 | ||||||
Citizens Financial Group Inc. | 260,709 | 6,481,226 | ||||||
Fifth Third Bancorp | 393,700 | 8,021,637 | ||||||
First Horizon National Corp. | 136,265 | 1,850,479 |
Shares | Value | |||||||
Regional Banks–(continued) | ||||||||
PNC Financial Services Group, Inc. (The) | 172,824 | $ | 15,766,733 | |||||
39,788,872 | ||||||||
Security & Alarm Services–0.71% | ||||||||
Tyco International PLC | 220,257 | 9,661,573 | ||||||
Semiconductor Equipment–1.18% | ||||||||
Applied Materials, Inc. | 644,939 | 16,071,880 | ||||||
Semiconductors–1.55% | ||||||||
Broadcom Corp.–Class A | 204,395 | 8,856,436 | ||||||
Intel Corp. | 336,456 | 12,209,988 | ||||||
21,066,424 | ||||||||
Specialized Finance–0.52% | ||||||||
CME Group Inc.–Class A | 80,204 | 7,110,085 | ||||||
Systems Software–1.67% | ||||||||
Microsoft Corp. | 230,317 | 10,698,225 | ||||||
Symantec Corp. | 470,209 | 12,063,212 | ||||||
22,761,437 | ||||||||
Technology Hardware, Storage & Peripherals–0.58% | ||||||||
NetApp, Inc. | 190,819 | 7,909,448 | ||||||
Tobacco–0.67% | ||||||||
Philip Morris International Inc. | 112,833 | 9,190,248 | ||||||
Wireless Telecommunication Services–0.64% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 253,621 | 8,666,230 | ||||||
Total Common Stocks & Other Equity Interests |
| 867,957,109 | ||||||
Principal Amount | ||||||||
Bonds and Notes–19.67% |
| |||||||
Advertising–0.03% | ||||||||
Interpublic Group of Cos., Inc. (The), Sr. Unsec. Global Notes, 2.25%, 11/15/17 | $ | 370,000 | 371,216 | |||||
Aerospace & Defense–0.06% | ||||||||
L-3 Communications Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 05/28/24 | 435,000 | 439,577 | ||||||
Precision Castparts Corp., Sr. Unsec. Global Notes, 2.50%, 01/15/23 | 365,000 | 352,694 | ||||||
792,271 | ||||||||
Agricultural & Farm Machinery–0.09% | ||||||||
Deere & Co., Sr. Unsec. Notes, 2.60%, 06/08/22 | 1,275,000 | 1,257,556 | ||||||
Agricultural Products–0.20% | ||||||||
Bunge Ltd Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.10%, 07/15/15 | 2,360,000 | 2,411,328 | ||||||
Ingredion Inc., Sr. Unsec. Notes, 6.63%, 04/15/37 | 255,000 | 323,518 | ||||||
2,734,846 |
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 | |||||||
Air Freight & Logistics–0.34% | ||||||||
FedEx Corp., | ||||||||
Sr. Unsec. Gtd. Bonds, | ||||||||
4.90%, 01/15/34 | $ | 440,000 | $ | 490,471 | ||||
Sr. Unsec. Gtd. Notes, | ||||||||
5.10%, 01/15/44 | 910,000 | 1,053,246 | ||||||
United Parcel Service Inc., Sr. Unsec. Global Notes, 2.45%, 10/01/22 | 295,000 | 291,191 | ||||||
UTi Worldwide Inc., Sr. Unsec. Conv. Notes, 4.50%, 03/01/19(c) | 2,471,000 | 2,741,266 | ||||||
4,576,174 | ||||||||
Airlines–0.19% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. Pass Through Ctfs., 3.70%, 10/01/26 | 450,000 | 455,344 | ||||||
Continental Airlines Pass Through Trust, | ||||||||
Series 2010-1, Class A, Sr. Sec. Pass Through Ctfs., 4.75%, 01/12/21 | 261,380 | 279,350 | ||||||
Series 2012-1, Class A, Sr. Sec.Pass Through Ctfs., 4.15%, 04/11/24 | 472,348 | 487,109 | ||||||
Delta Air Lines Pass Through Trust, Series 2010-1, Class A, Sr. Sec. Pass Through Ctfs., 6.20%, 07/02/18 | 166,098 | 183,434 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. Pass Through Ctfs., 3.75%, 09/03/26 | 545,000 | 552,834 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 10/23/23(c) | 622,035 | 638,363 | ||||||
2,596,434 | ||||||||
Airport Services–0.04% | ||||||||
Heathrow Funding Ltd. (United Kingdom), Sr. Sec. Notes, 2.50%, 06/25/15(c) | 535,000 | 524,092 | ||||||
Apparel Retail–0.03% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/24 | 358,000 | 358,863 | ||||||
Application Software–0.37% | ||||||||
Adobe Systems, Inc., Sr. Unsec. Global Notes, 4.75%, 02/01/20 | 185,000 | 203,257 | ||||||
Citrix Systems Inc., Sr. Unsec. Conv. Notes, 0.50%, 04/15/19(c) | 4,600,000 | 4,850,125 | ||||||
5,053,382 | ||||||||
Asset Management & Custody Banks–0.05% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(c) | 425,000 | 454,917 |
Principal Amount | Value | |||||||
Asset Management & Custody Banks–(continued) | ||||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(c) | $ | 220,000 | $ | 239,408 | ||||
694,325 | ||||||||
Automobile Manufacturers–0.26% | ||||||||
Daimler Finance North America LLC (Germany), Sr. Unsec. Gtd. Notes, 1.88%, 01/11/18(c) | 555,000 | 557,795 | ||||||
Ford Motor Co., Sr. Unsec. Global Notes, 4.75%, 01/15/43 | 1,000,000 | 1,054,055 | ||||||
Ford Motor Credit Co. LLC, | ||||||||
Sr. Unsec. Global Notes, 2.50%, 01/15/16 | 450,000 | 456,371 | ||||||
Sr. Unsec. Notes, 2.75%, 05/15/15 | 1,500,000 | 1,510,535 | ||||||
3,578,756 | ||||||||
Automotive Retail–0.09% | ||||||||
Advance Auto Parts, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
4.50%, 12/01/23 | 660,000 | 706,166 | ||||||
5.75%, 05/01/20 | 399,000 | 447,431 | ||||||
1,153,597 | ||||||||
Biotechnology–0.39% | ||||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/20 | 2,182,000 | 2,685,224 | ||||||
Celgene Corp., Sr. Unsec. Global Notes, | ||||||||
4.00%, 08/15/23 | 485,000 | 510,795 | ||||||
4.63%, 05/15/44 | 1,390,000 | 1,448,065 | ||||||
Gilead Sciences, Inc., Sr. Unsec. Global Bonds, 2.05%, 04/01/19 | 645,000 | 646,139 | ||||||
5,290,223 | ||||||||
Brewers–0.08% | ||||||||
Anheuser-Busch InBev Worldwide, Inc. (Belgium), Sr. Unsec. Gtd. Global Notes, | ||||||||
0.80%, 07/15/15 | 325,000 | 325,543 | ||||||
3.63%, 04/15/15 | 395,000 | 398,538 | ||||||
FBG Finance Pty Ltd. (Australia), Sr. Unsec. Gtd. Notes, 5.13%, 06/15/15(c) | 325,000 | 330,473 | ||||||
1,054,554 | ||||||||
Broadcasting–0.59% | ||||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 3.70%, 06/01/15 | 1,590,000 | 1,608,392 | ||||||
Grupo Televisa S.A.B. (Mexico), Sr. Unsec. Global Notes, 5.00%, 05/13/45 | 350,000 | 359,633 | ||||||
Liberty Media Corp., Sr. Unsec. Conv. Bonds, 1.38%, 10/15/23 | 6,063,000 | 6,009,949 | ||||||
7,977,974 |
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 | |||||||
Cable & Satellite–0.25% | ||||||||
Comcast Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.25%, 01/15/33 | $ | 755,000 | $ | 803,030 | ||||
5.70%, 05/15/18 | 445,000 | 501,673 | ||||||
Sr. Unsec. Gtd. Notes, 6.45%, 03/15/37 | 305,000 | 406,034 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, | ||||||||
4.70%, 12/15/42(c) | 440,000 | 441,984 | ||||||
8.38%, 03/01/39(c) | 80,000 | 114,547 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.15%, 03/15/42 | 90,000 | 93,206 | ||||||
NBCUniversal Media LLC, Sr. Unsec. Gtd. Global Notes, | ||||||||
5.15%, 04/30/20 | 175,000 | 198,825 | ||||||
5.95%, 04/01/41 | 215,000 | 276,872 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Deb., 5.88%, 11/15/40 | 470,000 | 560,791 | ||||||
3,396,962 | ||||||||
Catalog Retail–0.22% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Bonds, 0.75%, 03/30/23(d) | 1,526,000 | 2,176,458 | ||||||
QVC, Inc., Sr. Sec. Gtd. Global Notes, 5.45%, 08/15/34 | 880,000 | 860,185 | ||||||
3,036,643 | ||||||||
Coal & Consumable Fuels–0.08% | ||||||||
Peabody Energy Corp., Jr. Unsec. Sub. Conv. Deb., 4.75%, 12/15/41 | 2,167,000 | 1,148,510 | ||||||
Commodity Chemicals–0.07% | ||||||||
Montell Finance Co. B.V. (Netherlands), Sr. Unsec. Gtd. Deb., 8.10%, 03/15/27(c) | 745,000 | 991,335 | ||||||
Communications Equipment–0.38% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(c) | 1,610,000 | 2,003,444 | ||||||
JDS Uniphase Corp., Sr. Unsec. Conv. Bonds, 0.63%, 08/15/18(d) | 2,722,000 | 2,888,722 | ||||||
Juniper Networks Inc., Sr. Unsec. Global Notes, 4.50%, 03/15/24 | 345,000 | 348,990 | ||||||
5,241,156 | ||||||||
Consumer Finance–0.15% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/24 | 336,000 | 340,181 | ||||||
American Express Credit Corp., Sr. Unsec. Medium-Term Notes, 2.75%, 09/15/15 | 1,695,000 | 1,721,508 | ||||||
2,061,689 | ||||||||
Data Processing & Outsourced Services–0.04% | ||||||||
Computer Sciences Corp., Sr. Unsec. Global Notes, 4.45%, 09/15/22 | 490,000 | 502,318 |
Principal Amount | Value | |||||||
Data Processing & Outsourced Services–(continued) | ||||||||
Xerox Corp., Sr. Unsec. Notes, 4.25%, 02/15/15 | $ | 40,000 | $ | 40,160 | ||||
542,478 | ||||||||
Distillers & Vintners–0.02% | ||||||||
Brown-Forman Corp., Sr. Unsec. Notes, 2.25%, 01/15/23 | 310,000 | 295,336 | ||||||
Diversified Banks–1.55% | ||||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(c) | 480,000 | 477,383 | ||||||
Bank of America Corp., | ||||||||
Sr. Unsec. Global Notes, 5.75%, 12/01/17 | 975,000 | 1,078,832 | ||||||
Sr. Unsec. Medium-Term Notes, 1.25%, 01/11/16 | 600,000 | 600,682 | ||||||
Series L, Sr. Unsec. Medium-Term Global Notes, 5.65%, 05/01/18 | 350,000 | 389,057 | ||||||
Barclays Bank PLC (United Kingdom), Sr. Unsec. Global Notes, 6.75%, 05/22/19 | 510,000 | 601,514 | ||||||
BBVA Bancomer S.A. (Mexico), Sr. Unsec. Notes, 4.38%, 04/10/24(c) | 700,000 | 709,532 | ||||||
Bear Stearns Cos., LLC (The), Sr. Unsec. Global Notes, 7.25%, 02/01/18 | 340,000 | 392,517 | ||||||
BNP Paribas S.A. (France), Unsec. Sub. Notes, 4.25%, 10/15/24 | 530,000 | 538,660 | ||||||
Citigroup Inc., | ||||||||
Sr. Unsec. Global Notes, 2.65%, 03/02/15 | 585,000 | 586,518 | ||||||
6.01%, 01/15/15 | 65,000 | 65,089 | ||||||
Unsec. Sub. Global Notes, 3.50%, 05/15/23 | 775,000 | 754,917 | ||||||
5.30%, 05/06/44 | 250,000 | 271,544 | ||||||
6.68%, 09/13/43 | 815,000 | 1,061,351 | ||||||
Credit Suisse AG (Switzerland), Unsec. Sub. Notes, 6.50%, 08/08/23(c) | 686,000 | 747,836 | ||||||
Danske Bank A/S (Denmark), Sr. Unsec. Notes, 3.88%, 04/14/16(c) | 565,000 | 584,474 | ||||||
HBOS PLC (United Kingdom), Unsec. Sub. Medium-Term Global Notes, 6.75%, 05/21/18(c) | 325,000 | 362,654 | ||||||
HSBC Holdings PLC (United Kingdom), Unsec. Sub. Global Notes, 4.25%, 03/14/24 | 235,000 | 244,882 | ||||||
ING Bank N.V. (Netherlands), Sr. Unsec. Notes, 3.75%, 03/07/17(c) | 755,000 | 789,621 | ||||||
JPMorgan Chase & Co., | ||||||||
Sr. Unsec. Global Notes, 4.50%, 01/24/22 | 80,000 | 87,332 | ||||||
Unsec. Sub. Global Notes, 3.88%, 09/10/24 | 825,000 | 827,593 | ||||||
Series S, Jr. Unsec. Sub. Notes, 6.75%(e) | 195,000 | 204,506 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 640,000 | 628,800 | ||||||
Series X, Jr. Unsec. Sub. Global Notes, 6.10%(e) | 1,080,000 | 1,085,400 |
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) | ||||||||
Korea Development Bank (The) (South Korea), Sr. Unsec. Global Notes, 4.38%, 08/10/15 | $ | 200,000 | $ | 204,128 | ||||
Lloyds Bank PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.30%, 11/27/18 | 550,000 | 554,989 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, 4.60%, 03/27/24(c) | 490,000 | 514,388 | ||||||
National Australia Bank Ltd. (Australia), Sr. Unsec. Bonds, 3.75%, 03/02/15(c) | 190,000 | 191,022 | ||||||
Santander Holdings USA Inc., Sr. Unsec. Global Notes, 3.00%, 09/24/15 | 1,410,000 | 1,425,982 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(c) | 1,300,000 | 1,303,124 | ||||||
Societe Generale S.A. (France), Unsec. Sub. Notes, 5.00%, 01/17/24(c) | 735,000 | 740,550 | ||||||
Standard Chartered PLC (United Kingdom), | ||||||||
Sr. Unsec. Notes, 3.85%, 04/27/15(c) | 255,000 | 257,503 | ||||||
Unsec. Sub. Notes, 5.70%, 03/26/44(c) | 420,000 | 443,110 | ||||||
U.S. Bank N.A., Unsec. Sub. Notes, 3.78%, 04/29/20 | 450,000 | 453,715 | ||||||
Wells Fargo & Co., | ||||||||
Sr. Unsec. Global Notes, 1.50%, 01/16/18 | 180,000 | 178,979 | ||||||
3.63%, 04/15/15 | 50,000 | 50,438 | ||||||
Unsec. Sub. Medium-Term Notes, 4.10%, 06/03/26 | 450,000 | 459,657 | ||||||
4.65%, 11/04/44 | 1,200,000 | 1,248,125 | ||||||
21,116,404 | ||||||||
Diversified Capital Markets–0.03% | ||||||||
Credit Suisse (Switzerland), Sr. Unsec. Medium-Term Notes, 3.63%, 09/09/24 | 345,000 | 351,192 | ||||||
UBS AG (Switzerland), Sr. Unsec. Medium-Term Global Bank Notes, 5.75%, 04/25/18 | 103,000 | 115,658 | ||||||
466,850 | ||||||||
Diversified Chemicals–0.06% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/20 | 795,000 | 798,832 | ||||||
Diversified Metals & Mining–0.21% | ||||||||
Glencore Finance Canada Ltd. (Switzerland), Sr. Unsec. Gtd. Notes, | ||||||||
2.05%, 10/23/15(c) | 420,000 | 423,127 | ||||||
2.70%, 10/25/17(c) | 420,000 | 424,420 | ||||||
Glencore Funding LLC (Switzerland), Sr. Unsec. Gtd. Notes, 3.13%, 04/29/19(c) | 1,055,000 | 1,065,496 |
Principal Amount | Value | |||||||
Diversified Metals & Mining–(continued) | ||||||||
Rio Tinto Finance USA Ltd. (United Kingdom), Sr. Unsec. Gtd. Global Notes, | ||||||||
7.13%, 07/15/28 | $ | 200,000 | $ | 263,923 | ||||
9.00%, 05/01/19 | 295,000 | 373,271 | ||||||
Southern Copper Corp., Sr. Unsec. Global Notes, | ||||||||
5.25%, 11/08/42 | 349,000 | 313,304 | ||||||
6.75%, 04/16/40 | 10,000 | 10,153 | ||||||
2,873,694 | ||||||||
Diversified Support Services–0.03% | ||||||||
Cintas Corp. No. 2, Sr. Unsec. Gtd. Notes, 2.85%, 06/01/16 | 380,000 | 389,673 | ||||||
Drug Retail–0.19% | ||||||||
CVS Health Corp., Sr. Unsec. Global Notes, 3.38%, 08/12/24 | 375,000 | 380,215 | ||||||
CVS Pass Through Trust, Sr. Sec. Global Pass Through Ctfs., 6.04%, 12/10/28 | 948,144 | 1,099,598 | ||||||
Walgreens Boots Alliance Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 3.30%, 11/18/21 | 602,000 | 607,325 | ||||||
4.50%, 11/18/34 | 444,000 | 463,593 | ||||||
2,550,731 | ||||||||
Electric Utilities–0.22% | ||||||||
Electricite de France S.A. (France), | ||||||||
Jr. Unsec. Sub. Notes, 5.63%(c)(e) | 965,000 | 1,018,171 | ||||||
Sr. Unsec. Notes, 4.60%, 01/27/20(c) | 150,000 | 164,908 | ||||||
4.88%, 01/22/44(c) | 930,000 | 1,034,585 | ||||||
Louisville Gas & Electric Co., Sr. Sec. First Mortgage Global Bonds, 1.63%, 11/15/15 | 405,000 | 408,175 | ||||||
Ohio Power Co., Series M, Sr. Unsec. Notes, 5.38%, 10/01/21 | 200,000 | 232,269 | ||||||
PPL Electric Utilities Corp., Sr. Sec. First Mortgage Bonds, 6.25%, 05/15/39 | 50,000 | 69,032 | ||||||
Virginia Electric & Power Co., Sr. Unsec. Notes, 5.00%, 06/30/19 | 15,000 | 16,819 | ||||||
2,943,959 | ||||||||
Electrical Components & Equipment–0.05% | ||||||||
Eaton Corp., Sr. Unsec. Gtd. Global Notes, 0.95%, 11/02/15 | 740,000 | 740,548 | ||||||
Fertilizers & Agricultural Chemicals–0.06% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, | ||||||||
2.13%, 07/15/19 | 305,000 | 303,811 | ||||||
3.38%, 07/15/24 | 210,000 | 214,116 | ||||||
3.60%, 07/15/42 | 365,000 | 334,443 | ||||||
852,370 | ||||||||
Food Distributors–0.07% | ||||||||
Sysco Corp., Sr. Unsec. Gtd. Notes, 3.50%, 10/02/24 | 849,000 | 876,227 |
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 | |||||||
Food Retail–0.10% | ||||||||
Kroger Co. (The), Sr. Unsec. Global Notes, 3.30%, 01/15/21 | $ | 1,295,000 | $ | 1,317,313 | ||||
General Merchandise Stores–0.08% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/23 | 365,000 | 332,914 | ||||||
Target Corp., Sr. Unsec. Global Notes, 2.90%, 01/15/22 | 760,000 | 770,868 | ||||||
1,103,782 | ||||||||
Gold–0.11% | ||||||||
Barrick North America Finance LLC (Canada), Sr. Unsec. Gtd. Global Notes, 5.70%, 05/30/41 | 500,000 | 490,871 | ||||||
Gold Fields Orogen Holdings BVI Ltd. (South Africa), Sr. Unsec. Gtd. Notes, 4.88%, 10/07/20(c) | 465,000 | 381,300 | ||||||
Newmont Mining Corp., Sr. Unsec. Gtd. Global Notes, 3.50%, 03/15/22 | 620,000 | 582,408 | ||||||
1,454,579 | ||||||||
Health Care Distributors–0.15% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Bonds, 3.40%, 05/15/24 | 940,000 | 943,324 | ||||||
McKesson Corp., Sr. Unsec. Global Notes, 2.28%, 03/15/19 | 1,095,000 | 1,090,987 | ||||||
2,034,311 | ||||||||
Health Care Equipment–0.48% | ||||||||
Becton, Dickinson and Co., Sr. Unsec. Notes, 2.68%, 12/15/19 | 314,000 | 316,887 | ||||||
CareFusion Corp., Sr. Unsec. Global Notes, | ||||||||
3.88%, 05/15/24 | 685,000 | 705,586 | ||||||
4.88%, 05/15/44 | 750,000 | 797,982 | ||||||
Edwards Lifesciences Corp., Sr. Unsec. Global Notes, 2.88%, 10/15/18 | 731,000 | 741,170 | ||||||
Medtronic Inc., | ||||||||
Sr. Unsec. Global Notes, 4.00%, 04/01/43 | 525,000 | 503,025 | ||||||
4.63%, 03/15/44 | 525,000 | 567,336 | ||||||
Sr. Unsec. Notes, 3.15%, 03/15/22(c) | 1,076,000 | 1,090,894 | ||||||
4.38%, 03/15/35(c) | 382,000 | 403,043 | ||||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 1,104,000 | 1,408,980 | ||||||
6,534,903 | ||||||||
Health Care Facilities–0.51% | ||||||||
Brookdale Senior Living Inc., Sr. Unsec. Conv. Notes, 2.75%, 06/15/18 | 2,241,000 | 3,060,365 | ||||||
HealthSouth Corp., Sr. Unsec. Sub. Conv. Notes, 2.00%, 12/01/20(d) | 3,465,000 | 3,869,972 | ||||||
6,930,337 |
Principal Amount | Value | |||||||
Health Care REIT’s–0.18% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, | ||||||||
3.88%, 08/15/24 | $ | 505,000 | $ | 514,728 | ||||
4.20%, 03/01/24 | 480,000 | 499,027 | ||||||
Senior Housing Properties Trust, Sr. Unsec. Notes, 4.30%, 01/15/16 | 495,000 | 505,210 | ||||||
Ventas Realty L.P., Sr. Unsec. Gtd. Notes, 5.70%, 09/30/43 | 215,000 | 258,691 | ||||||
Ventas Realty L.P./Ventas Capital Corp., Sr. Unsec. Gtd. Notes, | ||||||||
2.70%, 04/01/20 | 430,000 | 427,578 | ||||||
4.25%, 03/01/22 | 200,000 | 210,248 | ||||||
2,415,482 | ||||||||
Health Care Services–0.41% | ||||||||
Express Scripts Holding Co., | ||||||||
Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/19 | 940,000 | 931,111 | ||||||
Sr. Unsec. Gtd. Notes, 3.13%, 05/15/16 | 300,000 | 308,053 | ||||||
Medco Health Solutions Inc., Sr. Unsec. Gtd. Notes, 2.75%, 09/15/15 | 220,000 | 222,875 | ||||||
Omnicare, Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Conv. Notes, 3.50%, 02/15/44 | 1,903,000 | 2,283,600 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Notes, 3.25%, 01/15/21(d) | 1,625,000 | 1,888,047 | ||||||
5,633,686 | ||||||||
Homebuilding–0.06% | ||||||||
MDC Holdings, Inc., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/43 | 1,050,000 | 875,029 | ||||||
Hotels, Resorts & Cruise Lines–0.07% | ||||||||
Wyndham Worldwide Corp., Sr. Unsec. Notes, | ||||||||
2.95%, 03/01/17 | 335,000 | 342,520 | ||||||
5.63%, 03/01/21 | 580,000 | 649,527 | ||||||
992,047 | ||||||||
Housewares & Specialties–0.09% | ||||||||
Tupperware Brands Corp., Sr. Unsec. Gtd. Global Notes, 4.75%, 06/01/21 | 1,160,000 | 1,244,881 | ||||||
Hypermarkets & Super Centers–0.03% | ||||||||
Wal-Mart Stores, Inc., | ||||||||
Sr. Unsec. Global Bonds, 3.30%, 04/22/24 | 360,000 | 371,342 | ||||||
Sr. Unsec. Global Notes, 6.50%, 08/15/37 | 50,000 | 68,614 | ||||||
439,956 |
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 | |||||||
Industrial Conglomerates–0.09% | ||||||||
General Electric Capital Corp., | ||||||||
Sr. Unsec. Medium-Term Global Notes, 6.00%, 08/07/19 | $ | 300,000 | $ | 349,211 | ||||
Series C, Jr. Unsec. Sub. Global Bonds, 5.25%(e) | 900,000 | 904,950 | ||||||
1,254,161 | ||||||||
Industrial Machinery–0.14% | ||||||||
Pentair Finance S.A., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/15/21 | 690,000 | 768,229 | ||||||
Valmont Industries, Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.00%, 10/01/44 | 250,000 | 253,841 | ||||||
5.25%, 10/01/54 | 910,000 | 922,024 | ||||||
1,944,094 | ||||||||
Industrial REIT’s–0.06% | ||||||||
Dexus Diversified Trust/Dexus Office Trust (Australia), Sr. Unsec. Gtd. Notes, 5.60%, 03/15/21(c) | 735,000 | 835,222 | ||||||
Insurance Brokers–0.03% | ||||||||
Marsh & McLennan Cos., Inc., Sr. Unsec. Global Notes, 4.05%, 10/15/23 | 410,000 | 433,397 | ||||||
Integrated Oil & Gas–0.20% | ||||||||
BP Capital Markets PLC (United Kingdom), Sr. Unsec. Gtd. Global Notes, 2.24%, 05/10/19 | 985,000 | 982,520 | ||||||
Chevron Corp., Sr. Unsec. Global Notes, 1.72%, 06/24/18 | 520,000 | 522,393 | ||||||
Husky Energy Inc. (Canada), Sr. Unsec. Global Notes, 3.95%, 04/15/22 | 300,000 | 302,668 | ||||||
Petrobras Global Finance B.V. (Brazil), Sr. Unsec. Gtd. Global Notes, 5.63%, 05/20/43 | 645,000 | 528,887 | ||||||
Shell International Finance B.V. (Netherlands), Sr. Unsec. Gtd. Global Notes, 3.10%, 06/28/15 | 115,000 | 116,554 | ||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/24 | 334,000 | 330,277 | ||||||
2,783,299 | ||||||||
Integrated Telecommunication Services–0.41% | ||||||||
AT&T Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 11/15/31 | 4,000 | 5,916 | ||||||
AT&T Inc., Sr. Unsec. Global Notes, | ||||||||
5.35%, 09/01/40 | 101,000 | 109,913 | ||||||
6.15%, 09/15/34 | 140,000 | 167,475 | ||||||
British Telecommunications PLC (United Kingdom), Sr. Unsec. Global Notes, 1.25%, 02/14/17 | 550,000 | 546,901 | ||||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/36 | 360,000 | 481,553 |
Principal Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Verizon Communications, Inc., | ||||||||
Sr. Unsec. Global Notes, 4.40%, 11/01/34 | $ | 325,000 | $ | 327,092 | ||||
5.15%, 09/15/23 | 450,000 | 499,322 | ||||||
6.40%, 09/15/33 | 1,910,000 | 2,376,157 | ||||||
6.40%, 02/15/38 | 300,000 | 372,344 | ||||||
Sr. Unsec. Notes, 5.01%, 08/21/54(c) | 694,000 | 721,103 | ||||||
5,607,776 | ||||||||
Internet Retail–0.07% | ||||||||
Amazon.com, Inc., Sr. Unsec. Global Notes, 4.80%, 12/05/34 | 894,000 | 936,582 | ||||||
Internet Software & Services–0.09% | ||||||||
Baidu Inc. (China), Sr. Unsec. Global Notes, 3.25%, 08/06/18 | 685,000 | 703,031 | ||||||
Tencent Holdings Ltd. (China), Sr. Unsec. Notes, 3.38%, 05/02/19(c) | 520,000 | 528,205 | ||||||
1,231,236 | ||||||||
Investment Banking & Brokerage–1.43% | ||||||||
Charles Schwab Corp. (The), Sr. Unsec. Notes, 4.45%, 07/22/20 | 510,000 | 561,662 | ||||||
Goldman Sachs Group, Inc. (The), | ||||||||
Sr. Unsec. Global Notes, 2.63%, 01/31/19 | 535,000 | 538,812 | ||||||
5.25%, 07/27/21 | 400,000 | 450,795 | ||||||
6.15%, 04/01/18 | 550,000 | 618,344 | ||||||
Sr. Unsec. Medium-Term Global Notes, 3.70%, 08/01/15 | 65,000 | 66,049 | ||||||
Unsec. Sub. Global Notes, | ||||||||
6.75%, 10/01/37 | 385,000 | 485,252 | ||||||
Series 0000, Sr. Unsec. Exchangeable Basket-Linked Conv. Medium-Term Notes, | ||||||||
1.00%, 03/15/17(c)(f) | 3,328,000 | 4,610,012 | ||||||
1.00%, 09/28/20(c)(g) | 6,230,000 | 7,014,170 | ||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/17(d) | 2,434,000 | 2,523,754 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(c) | 300,000 | 336,863 | ||||||
Morgan Stanley, | ||||||||
6.38%, 07/24/42 | 705,000 | 937,483 | ||||||
Sr. Unsec. Medium-Term Global Notes, 4.00%, 07/24/15 | 610,000 | 621,431 | ||||||
Sr. Unsec. Notes, 3.45%, 11/02/15 | 715,000 | 729,617 | ||||||
19,494,244 | ||||||||
Life & Health Insurance–0.14% | ||||||||
Aegon N.V. (Netherlands), Sr. Unsec. Global Bonds, 4.63%, 12/01/15 | 275,000 | 284,321 | ||||||
Lincoln National Corp., Sr. Unsec. Global Notes, 4.00%, 09/01/23 | 460,000 | 479,636 | ||||||
Pacific LifeCorp., Sr. Unsec. Notes, 6.00%, 02/10/20(c) | 215,000 | 245,825 |
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 | |||||||
Life & Health Insurance–(continued) | ||||||||
Prudential Financial, Inc., | ||||||||
Sr. Unsec. Medium-Term Notes, 5.10%, 08/15/43 | $ | 410,000 | $ | 465,443 | ||||
Series D, Sr. Unsec. Medium-Term Notes, 4.75%, 09/17/15 | 255,000 | 261,810 | ||||||
Sr. Unsec. Medium-Term Notes, 3.88%, 01/14/15 | 50,000 | 50,039 | ||||||
6.63%, 12/01/37 | 110,000 | 144,976 | ||||||
1,932,050 | ||||||||
Managed Health Care–0.73% | ||||||||
Aetna, Inc., Sr. Unsec. Global Notes, 3.95%, 09/01/20 | 605,000 | 640,543 | ||||||
Anthem, Inc., | ||||||||
Sr. Unsec. Global Notes, 1.25%, 09/10/15 | 1,645,000 | 1,651,583 | ||||||
Sr. Unsec. Conv. Bonds, 2.75%, 10/15/42 | 4,455,000 | 7,690,444 | ||||||
9,982,570 | ||||||||
Movies & Entertainment–0.11% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Notes, 2.50%, 05/15/19(c) | 890,000 | 942,288 | ||||||
Time Warner, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 11/15/16 | 130,000 | 141,090 | ||||||
Viacom Inc., Sr. Unsec. Global Notes, 4.85%, 12/15/34 | 347,000 | 356,363 | ||||||
1,439,741 | ||||||||
Multi-Line Insurance–0.22% | ||||||||
American International Group, Inc., Sr. Unsec. Global Notes, 2.30%, 07/16/19 | 385,000 | 385,528 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/54(c) | 930,000 | 967,566 | ||||||
Hartford Financial Services Group Inc. (The), Sr. Unsec. Notes, 4.00%, 03/30/15 | 715,000 | 720,677 | ||||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, | 910,000 | 961,421 | ||||||
3,035,192 | ||||||||
Multi-Utilities–0.05% | ||||||||
Dominion Resources, Inc., Jr. Unsec. Sub. Notes, 5.75%, 10/01/54 | 288,000 | 301,182 | ||||||
Enable Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 2.40%, 05/15/19(c) | 440,000 | 427,913 | ||||||
729,095 | ||||||||
Office REIT’s–0.07% | ||||||||
Digital Realty Trust L.P., Sr. Unsec. Gtd. Global Notes, 4.50%, 07/15/15 | 335,000 | 338,399 | ||||||
Piedmont Operating Partnership L.P., Sr. Unsec. Gtd. Global Notes, 4.45%, 03/15/24 | 605,000 | 624,547 | ||||||
962,946 |
Principal Amount | Value | |||||||
Office Services & Supplies–0.04% | ||||||||
Pitney Bowes Inc., Sr. Unsec. Global Notes, 4.63%, 03/15/24 | $ | 500,000 | $ | 517,763 | ||||
Oil & Gas Drilling–0.09% | ||||||||
Noble Holding International Ltd. (Switzerland), Sr. Unsec. Gtd. Global Notes, 2.50%, 03/15/17 | 150,000 | 143,378 | ||||||
Rowan Cos. Inc., Sr. Unsec. Gtd. Notes, 5.85%, 01/15/44 | 1,165,000 | 1,049,827 | ||||||
1,193,205 | ||||||||
Oil & Gas Equipment & Services–0.09% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(d) | 1,126,000 | 1,254,786 | ||||||
Oil & Gas Exploration & Production–0.76% | ||||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/19 | 1,902,000 | 1,150,710 | ||||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | ||||||||
2.88%, 11/15/21 | 859,000 | 867,896 | ||||||
4.15%, 11/15/34 | 921,000 | 948,613 | ||||||
Devon Energy Corp., Sr. Unsec. Global Notes, | ||||||||
2.25%, 12/15/18 | 430,000 | 428,934 | ||||||
3.25%, 05/15/22 | 410,000 | 402,990 | ||||||
Marathon Oil Corp., Sr. Unsec. Notes, 0.90%, 11/01/15 | 1,770,000 | 1,765,545 | ||||||
Noble Energy, Inc., Sr. Unsec. Global Notes, 5.25%, 11/15/43 | 830,000 | 844,763 | ||||||
Petroleos Mexicanos (Mexico), Sr. Unsec. Gtd. Global Notes, 4.88%, 01/24/22 | 570,000 | 599,992 | ||||||
Southwestern Energy Co., Sr. Unsec. Global Notes, 4.10%, 03/15/22 | 675,000 | 663,604 | ||||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17 | 3,053,000 | 2,669,467 | ||||||
10,342,514 | ||||||||
Oil & Gas Refining & Marketing–0.03% | ||||||||
Phillips 66, Sr. Unsec. Gtd. Global Notes, 1.95%, 03/05/15 | 385,000 | 385,996 | ||||||
Oil & Gas Storage & Transportation–0.45% | ||||||||
Enterprise Products Operating LLC, | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.25%, 01/31/20 | 155,000 | 171,523 | ||||||
Sr. Unsec. Gtd. Notes, 2.55%, 10/15/19 | 370,000 | 366,604 | ||||||
6.45%, 09/01/40 | 25,000 | 31,172 | ||||||
Series N, Sr. Unsec. Gtd. Notes, | ||||||||
6.50%, 01/31/19 | 245,000 | 281,050 | ||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/34 | 533,000 | 543,381 | ||||||
Plains All American Pipeline L.P./ PAA Finance Corp., Sr. Unsec. Global Notes, 3.65%, 06/01/22 | 355,000 | 357,623 |
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 Storage & Transportation–(continued) | ||||||||
Spectra Energy Capital LLC, Sr. Unsec. Gtd. Notes, 7.50%, 09/15/38 | $ | 120,000 | $ | 145,162 | ||||
Sunoco Logistics Partners Operations L.P., Sr. Unsec. Gtd. Notes, 5.30%, 04/01/44 | 645,000 | 652,566 | ||||||
5.50%, 02/15/20 | 535,000 | 586,050 | ||||||
Texas Eastern Transmission L.P., Sr. Unsec. Notes, 7.00%, 07/15/32 | 185,000 | 249,024 | ||||||
Western Gas Partners L.P., Sr. Unsec. Notes, 5.45%, 04/01/44 | 600,000 | 635,279 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, | ||||||||
3.80%, 02/15/15 | 1,270,000 | 1,274,413 | ||||||
5.40%, 03/04/44 | 890,000 | 880,650 | ||||||
6,174,497 | ||||||||
Other Diversified Financial Services–0.07% | ||||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/19(c) | 935,000 | 928,795 | ||||||
Packaged Foods & Meats–0.19% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/19 | 850,000 | 845,158 | ||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, 3.88%, 06/27/24(c) | 765,000 | 767,119 | ||||||
Mondelez International Inc., Sr. Unsec. Global Notes, 6.50%, 02/09/40 | 174,000 | 233,031 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, | 237,000 | 245,920 | ||||||
4.88%, 08/15/34 | 214,000 | 235,556 | ||||||
5.15%, 08/15/44 | 220,000 | 248,705 | ||||||
2,575,489 | ||||||||
Paper Packaging–0.09% | ||||||||
Packaging Corp. of America, Sr. Unsec. Global Notes, 4.50%, 11/01/23 | 1,215,000 | 1,281,406 | ||||||
Paper Products–0.02% | ||||||||
International Paper Co., Sr. Unsec. Global Notes, 6.00%, 11/15/41 | 245,000 | 291,152 | ||||||
Personal Products–0.01% | ||||||||
Avon Products Inc., Sr. Unsec. Global Notes, 2.38%, 03/15/16 | 68,000 | 67,370 | ||||||
Pharmaceuticals–0.78% | ||||||||
AbbVie Inc., Sr. Unsec. Global Notes, 1.20%, 11/06/15 | 1,620,000 | 1,624,490 | ||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, 4.85%, 06/15/44 | 950,000 | 965,567 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/21(c) | 590,000 | 593,959 |
Principal Amount | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
GlaxoSmithKline Capital Inc. (United Kingdom), Sr. Unsec. Gtd. Global Bonds, | $ | 75,000 | $ | 84,529 | ||||
6.38%, 05/15/38 | 70,000 | 93,199 | ||||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Notes, 1.88%, 08/15/21(c) | 1,455,000 | 1,653,244 | ||||||
Merck Sharp & Dohme Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 06/30/19 | 280,000 | 315,260 | ||||||
Perrigo Co. PLC, Sr. Unsec. Global Notes, 2.30%, 11/08/18 | 405,000 | 404,681 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19 | 2,467,000 | 4,509,984 | ||||||
Zoetis Inc., Sr. Unsec. Global Notes, 4.70%, 02/01/43 | 365,000 | 372,990 | ||||||
10,617,903 | ||||||||
Property & Casualty Insurance–0.28% | ||||||||
CNA Financial Corp., | ||||||||
Sr. Unsec. Global Bonds, 5.88%, 08/15/20 | 325,000 | 371,757 | ||||||
Sr. Unsec. Notes, 7.35%, 11/15/19 | 25,000 | 29,921 | ||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/44(c) | 730,000 | 749,653 | ||||||
Markel Corp., Sr. Unsec. Notes, 5.00%, 03/30/43 | 385,000 | 412,312 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/18 | 855,000 | 995,006 | ||||||
Travelers Cos., Inc. (The), Sr. Unsec. Global Notes, 4.60%, 08/01/43 | 665,000 | 747,724 | ||||||
WR Berkley Corp., Sr. Unsec. Global Notes, 4.63%, 03/15/22 | 420,000 | 452,833 | ||||||
3,759,206 | ||||||||
Railroads–0.30% | ||||||||
Burlington Northern Santa Fe, LLC, Sr. Unsec. Bonds, 5.15%, 09/01/43 | 1,990,000 | 2,302,926 | ||||||
CSX Corp., Sr. Unsec. Notes, 5.50%, 04/15/41 | 380,000 | 458,765 | ||||||
Union Pacific Corp., | ||||||||
Sr. Unsec. Global Notes, 3.65%, 02/15/24 | 101,000 | 107,113 | ||||||
Sr. Unsec. Notes, 3.25%, 01/15/25 | 155,000 | 159,754 | ||||||
4.15%, 01/15/45 | 440,000 | 460,898 | ||||||
4.85%, 06/15/44 | 570,000 | 654,369 | ||||||
4,143,825 | ||||||||
Regional Banks–0.12% | ||||||||
Nationwide Building Society (United Kingdom), Sr. Unsec. Notes, 6.25%, 02/25/20(c) | 200,000 | 234,624 | ||||||
PNC Funding Corp., Sr. Unsec. Gtd. Global Notes, 5.13%, 02/08/20 | 360,000 | 405,200 |
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 | |||||||
Regional Banks–(continued) | ||||||||
Regions Financial Corp., Sr. Unsec. Notes, 5.75%, 06/15/15 | $ | 1,000,000 | $ | 1,020,348 | ||||
1,660,172 | ||||||||
Reinsurance–0.06% | ||||||||
Reinsurance Group of America, Inc., Sr. Unsec. Medium-Term Notes, 4.70%, 09/15/23 | 780,000 | 842,892 | ||||||
Renewable Electricity–0.05% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 581,000 | 614,933 | ||||||
Semiconductor Equipment–0.32% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | 3,026,000 | 4,293,137 | ||||||
Semiconductors–0.68% | ||||||||
Micron Technology, Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/28(d) | 3,239,000 | 4,277,504 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Bonds, 1.00%, 12/01/18 | 4,339,000 | 5,008,833 | ||||||
9,286,337 | ||||||||
Soft Drinks–0.09% | ||||||||
PepsiCo, Inc., Sr. Unsec. Global Notes, 3.60%, 03/01/24 | 1,175,000 | 1,227,645 | ||||||
Sovereign Debt–0.01% | ||||||||
Brazilian Government International Bond (Brazil), Sr. Unsec. Global Bonds, 6.00%, 01/17/17 | 100,000 | 108,750 | ||||||
Specialized Finance–0.09% | ||||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.50%, 09/01/22 | 935,000 | 1,007,328 | ||||||
National Rural Utilities Cooperative Finance Corp., Sr. Sec. Collateral Trust Bonds, 3.05%, 02/15/22 | 195,000 | 197,047 | ||||||
1,204,375 | ||||||||
Specialized REIT’s–0.07% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, | ||||||||
3.40%, 02/15/19 | 740,000 | 753,758 | ||||||
4.63%, 04/01/15 | 170,000 | 171,548 | ||||||
925,306 | ||||||||
Steel–0.16% | ||||||||
ArcelorMittal (Luxembourg), | ||||||||
Sr. Unsec. Global Bonds, 10.35%, 06/01/19 | 446,000 | 538,545 | ||||||
Sr. Unsec. Global Notes, | ||||||||
4.25%, 08/05/15 | 585,000 | 593,044 | ||||||
6.13%, 06/01/18 | 15,000 | 15,937 | ||||||
7.25%, 03/01/41 | 115,000 | 116,150 | ||||||
Vale Overseas Ltd. (Brazil), Sr. Unsec. Gtd. Global Notes, 5.63%, 09/15/19 | 660,000 | 703,795 |
Principal Amount | Value | |||||||
Steel–(continued) | ||||||||
Vale S.A. (Brazil), Sr. Unsec. Global Notes, 5.63%, 09/11/42 | $ | 185,000 | $ | 172,005 | ||||
2,139,476 | ||||||||
Systems Software–0.24% | ||||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, |
| |||||||
0.25%, 06/01/18 | 2,326,000 | 2,616,750 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, | ||||||||
4.30%, 07/08/34 | 600,000 | 645,298 | ||||||
3,262,048 | ||||||||
Technology Hardware, Storage & Peripherals–0.59% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Bonds, 0.50%, 10/15/20 | 5,776,000 | 6,967,300 | ||||||
Seagate HDD Cayman, | ||||||||
Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(c) | 325,000 | 335,969 | ||||||
Sr. Unsec. Gtd. Notes, 5.75%, 12/01/34(c) | 702,000 | 743,242 | ||||||
8,046,511 | ||||||||
Thrifts & Mortgage Finance–0.89% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
2.00%, 04/01/20 | 710,000 | 1,042,369 | ||||||
5.00%, 05/01/17 | 6,201,000 | 6,995,503 | ||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
2.25%, 03/01/19 | 412,000 | 664,608 | ||||||
3.00%, 11/15/17 | 2,275,000 | 3,487,859 | ||||||
12,190,339 | ||||||||
Tobacco–0.20% | ||||||||
Altria Group, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 470,000 | 481,024 | ||||||
Philip Morris International Inc., | ||||||||
Sr. Unsec. Global Notes, 3.25%, 11/10/24 | 531,000 | 533,423 | ||||||
3.60%, 11/15/23 | 405,000 | 423,599 | ||||||
4.88%, 11/15/43 | 1,210,000 | 1,345,638 | ||||||
2,783,684 | ||||||||
Trading Companies & Distributors–0.03% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, 4.25%, 09/15/24 | 430,000 | 435,912 | ||||||
Trucking–0.07% | ||||||||
Penske Truck Leasing Co., L.P./PTL Finance Corp., Sr. Unsec. Notes, 2.50%, 03/15/16(c) | 670,000 | 679,491 | ||||||
Ryder System, Inc., Sr. Unsec. Medium-Term Notes, 3.15%, 03/02/15 | 280,000 | 281,158 | ||||||
960,649 |
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 | |||||||
Wireless Telecommunication Services–0.20% | ||||||||
America Movil S.A.B. de C.V. (Mexico), | ||||||||
Sr. Unsec. Global Notes, 4.38%, 07/16/42 | $ | 600,000 | $ | 570,575 | ||||
Sr. Unsec. Gtd. Global Notes, | 255,000 | 259,997 | ||||||
Crown Castle Towers LLC, | ||||||||
Sr. Sec. Gtd. Notes, 3.21%, 08/15/15(c) | 370,000 | 374,545 | ||||||
6.11%, 01/15/20(c) | 770,000 | 883,575 | ||||||
Rogers Communications Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 4.50%, 03/15/43 | 585,000 | 594,750 | ||||||
2,683,442 | ||||||||
Total Bonds and Notes |
| 268,115,086 | ||||||
U.S. Treasury Securities–7.41% |
| |||||||
U.S. Treasury Bills–0.01% | ||||||||
0.08%, 08/20/15(h)(i) | 130,000 | 129,875 | ||||||
U.S. Treasury Notes–7.09% | ||||||||
2.25%, 01/31/15 | 6,000,000 | 6,009,400 | ||||||
2.50%, 03/31/15 | 275,000 | 276,593 | ||||||
2.13%, 05/31/15 | 680,000 | 685,645 | ||||||
2.25%, 03/31/16 | 2,000,000 | 2,046,376 | ||||||
0.63%, 12/31/16 | 18,393,000 | 18,377,120 | ||||||
0.63%, 05/31/17 | 380,000 | 377,896 | ||||||
0.75%, 06/30/17 | 9,000,000 | 8,964,266 | ||||||
1.00%, 12/15/17 | 22,045,000 | 21,999,169 | ||||||
0.75%, 02/28/18 | 6,200,000 | 6,114,494 | ||||||
1.25%, 01/31/19 | 8,000,000 | 7,923,284 | ||||||
3.63%, 08/15/19 | 1,525,000 | 1,663,143 | ||||||
3.38%, 11/15/19 | 300,000 | 324,974 | ||||||
1.63%, 12/31/19 | 7,773,700 | 7,761,266 | ||||||
3.63%, 02/15/20 | 46,000 | 50,426 | ||||||
2.63%, 11/15/20 | 600,000 | 625,960 | ||||||
2.25%, 11/15/24 | 13,381,100 | 13,478,156 | ||||||
96,678,168 | ||||||||
U.S. Treasury Bonds–0.31% | ||||||||
5.38%, 02/15/31 | 1,720,000 | 2,399,751 | ||||||
4.50%, 08/15/39 | 40,000 | 53,348 | ||||||
4.38%, 05/15/40 | 80,000 | 105,260 | ||||||
3.13%, 08/15/44 | 1,485,600 | 1,599,270 | ||||||
4,157,629 | ||||||||
Total U.S. Treasury Securities |
| 100,965,672 | ||||||
Shares | ||||||||
Preferred Stocks–1.04% |
| |||||||
Asset Management & Custody Banks–0.24% | ||||||||
AMG Capital Trust II, $2.58 Jr. Gtd. Sub. Conv. Pfd. | 43,000 | 2,666,000 | ||||||
State Street Corp., Series D, 5.90% Pfd. | 24,470 | 632,794 | ||||||
3,298,794 |
Shares | Value | |||||||
Diversified Banks–0.08% | ||||||||
Wells Fargo & Co., 5.85% Pfd. | 45,000 | $ | 1,154,250 | |||||
Oil & Gas Storage & Transportation–0.43% | ||||||||
El Paso Energy Capital Trust I, $2.38 Jr. Unsec. Gtd. Sub. Conv. Pfd. | 95,499 | 5,791,060 | ||||||
Regional Banks–0.29% | ||||||||
KeyCorp, Series A, $7.75 Conv. Pfd. | 30,290 | 3,953,451 | ||||||
Total Preferred Stocks |
| 14,197,555 | ||||||
Principal Amount | ||||||||
U.S. Government Sponsored Agency Securities–0.42% |
| |||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.29% | ||||||||
Unsec. Global Notes, | ||||||||
5.00%, 04/18/17 | $ | 1,500,000 | 1,641,493 | |||||
5.50%, 08/23/17 | 140,000 | 156,410 | ||||||
4.88%, 06/13/18 | 1,000,000 | 1,120,022 | ||||||
6.75%, 03/15/31 | 750,000 | 1,126,657 | ||||||
4,044,582 | ||||||||
Federal National Mortgage Association (FNMA)–0.13% | ||||||||
Unsec. Global Notes, 4.38%, 10/15/15 | 1,700,000 | 1,754,807 | ||||||
Total U.S. Government Sponsored Agency Securities (Cost $5,443,807) |
| 5,799,389 | ||||||
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 | 2,367 | 2,690 | ||||||
5.50%, 02/01/37 | 111 | 124 | ||||||
2,814 | ||||||||
Federal National Mortgage Association (FNMA)–0.00% | ||||||||
Pass Through Ctfs., | ||||||||
6.00%, 01/01/17 | 313 | 323 | ||||||
5.50%, 03/01/21 | 202 | 221 | ||||||
8.00%, 08/01/21 | 2,021 | 2,160 | ||||||
9.50%, 04/01/30 | 5,408 | 6,426 | ||||||
9,130 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities (Cost $11,108) |
| 11,944 | ||||||
Shares | ||||||||
Money Market Funds–7.61% |
| |||||||
Liquid Assets Portfolio–Institutional Class(j) | 51,866,003 | 51,866,003 | ||||||
Premier Portfolio–Institutional Class(j) | 51,866,003 | 51,866,003 | ||||||
Total Money Market Funds |
| 103,732,006 | ||||||
TOTAL INVESTMENTS–99.81% |
| 1,360,778,761 | ||||||
OTHER ASSETS LESS LIABILITIES–0.19% |
| 2,532,341 | ||||||
NET ASSETS–100.00% |
| $ | 1,363,311,102 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Equity and Income Fund
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Conv. | – Convertible | |
Ctfs. | – Certificates | |
Deb. | – Debentures | |
Gtd. | – Guaranteed | |
Jr. | – Junior | |
Pfd. | – Preferred | |
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 December 31, 2014 was $52,549,694, which represented 3.85% 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 shown represents the discount rate at the time of purchase by the Fund. |
(i) | All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1K and Note 4. |
(j) | The money market fund and the Fund are affiliated by having the same investment adviser. |
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
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $1,015,089,167) | $ | 1,257,046,755 | ||
Investments in affiliated money market funds, at value and cost | 103,732,006 | |||
Total investments, at value (Cost $1,118,821,173) | 1,360,778,761 | |||
Cash | 51,049 | |||
Foreign currencies, at value (Cost $511,966) | 506,652 | |||
Receivable for: | ||||
Investments sold | 3,174,041 | |||
Fund shares sold | 182,014 | |||
Dividends and interest | 3,854,813 | |||
Investment for trustee deferred compensation and retirement plans | 146,112 | |||
Unrealized appreciation on forward foreign currency contracts | 1,501,190 | |||
Total assets | 1,370,194,632 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 4,736,548 | |||
Fund shares reacquired | 293,865 | |||
Variation margin — futures | 19,406 | |||
Accrued fees to affiliates | 1,603,964 | |||
Accrued trustees’ and officers’ fees and benefits | 565 | |||
Accrued other operating expenses | 64,677 | |||
Trustee deferred compensation and retirement plans | 164,505 | |||
Total liabilities | 6,883,530 | |||
Net assets applicable to shares outstanding | $ | 1,363,311,102 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 987,094,029 | ||
Undistributed net investment income | 23,975,461 | |||
Undistributed net realized gain | 108,915,332 | |||
Net unrealized appreciation | 243,326,280 | |||
$ | 1,363,311,102 | |||
Net Assets: |
| |||
Series I | $ | 72,391,299 | ||
Series II | $ | 1,290,919,803 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,823,300 | |||
Series II | 68,448,074 | |||
Series I: | ||||
Net asset value per share | $ | 18.93 | ||
Series II: | ||||
Net asset value per share | $ | 18.86 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $492,111) | $ | 25,444,485 | ||
Dividends from affiliated money market funds | 38,033 | |||
Interest | 8,850,774 | |||
Total investment income | 34,333,292 | |||
Expenses: | ||||
Advisory fees | 5,031,178 | |||
Administrative services fees | 3,488,269 | |||
Custodian fees | 79,790 | |||
Distribution fees — Series II | 3,168,949 | |||
Transfer agent fees | 33,909 | |||
Trustees’ and officers’ fees and benefits | 42,669 | |||
Other | 178,064 | |||
Total expenses | 12,022,828 | |||
Less: Fees waived | (134,862 | ) | ||
Net expenses | 11,887,966 | |||
Net investment income | 22,445,326 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 116,442,552 | |||
Foreign currencies | (13,301 | ) | ||
Forward foreign currency contracts | 5,305,325 | |||
Futures contracts | (605,046 | ) | ||
121,129,530 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (34,702,440 | ) | ||
Foreign currencies | (21,810 | ) | ||
Forward foreign currency contracts | 2,108,107 | |||
Futures contracts | (318,273 | ) | ||
(32,934,416 | ) | |||
Net realized and unrealized gain | 88,195,114 | |||
Net increase in net assets resulting from operations | $ | 110,640,440 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 22,445,326 | $ | 16,018,000 | ||||
Net realized gain | 121,129,530 | 91,385,848 | ||||||
Change in net unrealized appreciation (depreciation) | (32,934,416 | ) | 149,760,286 | |||||
Net increase in net assets resulting from operations | 110,640,440 | 257,164,134 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,165,658 | ) | (922,674 | ) | ||||
Series ll | (19,943,171 | ) | (17,292,155 | ) | ||||
Total distributions from net investment income | (21,108,829 | ) | (18,214,829 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (3,150,794 | ) | — | |||||
Series ll | (61,507,641 | ) | — | |||||
Total distributions from net realized gains | (64,658,435 | ) | — | |||||
Share transactions–net: | ||||||||
Series l | 11,041,950 | (5,778,611 | ) | |||||
Series ll | 23,062,524 | 54,234,443 | ||||||
Net increase in net assets resulting from share transactions | 34,104,474 | 48,455,832 | ||||||
Net increase in net assets | 58,977,650 | 287,405,137 | ||||||
Net assets: | ||||||||
Beginning of year | 1,304,333,452 | 1,016,928,315 | ||||||
End of year (includes undistributed net investment income of $23,975,461 and $15,472,282, respectively) | $ | 1,363,311,102 | $ | 1,304,333,452 |
Notes to Financial Statements
December 31, 2014
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
Invesco V.I. Equity and Income 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.
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 ask 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 net investment 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. Equity and Income 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 |
Invesco V.I. Equity and Income Fund
Counterparty to all exchange-traded futures, guarantees the futures against default. Risks may exceed amounts recognized in the Statement of Assets and Liabilities. |
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. |
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. |
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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.38%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $134,862.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $310,977 for accounting and fund administrative services and reimbursed $3,177,292 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $7,787 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. Equity and Income Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 923,188,073 | $ | 62,698,597 | $ | — | $ | 985,886,670 | ||||||||
U.S. Treasury Securities | — | 100,965,672 | — | 100,965,672 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 5,811,333 | — | 5,811,333 | ||||||||||||
Corporate Debt Securities | — | 268,006,336 | — | 268,006,336 | ||||||||||||
Foreign Sovereign Debt Securities | — | 108,750 | — | 108,750 | ||||||||||||
923,188,073 | 437,590,688 | — | 1,360,778,761 | |||||||||||||
Forward Foreign Currency Contracts* | — | 1,501,190 | — | 1,501,190 | ||||||||||||
Futures Contracts* | (115,652 | ) | — | — | (115,652 | ) | ||||||||||
Total Investments | $ | 923,072,421 | $ | 439,091,878 | $ | — | $ | 1,362,164,299 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 1,556,447 | $ | (55,257 | ) | |||
Interest rate risk: | ||||||||
Futures contracts(b) | 2,475 | (118,127 | ) | |||||
Total | $ | 1,558,922 | $ | (173,384 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts outstanding. |
(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. |
Invesco V.I. Equity and Income Fund
Effect of Derivative Investments for the year ended December 31, 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 | Options Purchased(a) | ||||||||||
Realized Gain (Loss): | ||||||||||||
Currency risk | $ | — | $ | 5,305,325 | $ | — | ||||||
Equity risk | — | — | (60,551 | ) | ||||||||
Interest rate risk | (605,046 | ) | — | — | ||||||||
Change in Unrealized Appreciation (Depreciation): | ||||||||||||
Currency risk | $ | — | $ | 2,108,107 | — | |||||||
Interest rate risk | (318,273 | ) | — | — | ||||||||
Total | $ | (923,319 | ) | $ | 7,413,432 | $ | (60,551 | ) |
(a) | Options purchased are included in net realized gains from investment securities. |
The table below summarizes the twelve month average notional value of futures contracts and forward foreign currency contracts and the five month average notional value of options purchased.
Futures Contracts | Forward Foreign Currency Contracts | Options Purchased | ||||||||||
Average notional value | $ | 12,474,365 | $ | 72,709,356 | 1,923,480 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CAD | 7,179,105 | USD | 6,302,381 | $ | 6,178,155 | $ | 124,226 | |||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CAD | 7,199,230 | USD | 6,320,048 | 6,195,473 | 124,575 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CHF | 4,840,149 | USD | 5,024,759 | 4,869,609 | 155,150 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CHF | 4,850,269 | USD | 5,034,167 | 4,879,790 | 154,377 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | EUR | 10,755,296 | USD | 13,420,028 | 13,016,100 | 403,928 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | EUR | 10,770,141 | USD | 13,438,713 | 13,034,066 | 404,647 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | GBP | 7,009,369 | USD | 11,018,097 | 10,924,822 | 93,275 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | GBP | 7,012,995 | USD | 11,026,742 | 10,930,473 | 96,269 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | ILS | 17,680,150 | USD | 4,508,862 | 4,534,830 | (25,968 | ) | ||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | ILS | 17,742,374 | USD | 4,521,502 | 4,550,791 | (29,289 | ) | ||||||||||||||||||
Total Forward Foreign Currency Contracts — Currency Risk | $ | 1,501,190 |
Currency Abbreviations:
CAD | – Canadian Dollar | |
GBP | – British Pound Sterling | |
CHF | – Swiss Franc |
ILS | – Israeli Shekel | |
EUR | – Euro | |
USD | – U.S. Dollar |
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
U.S. Treasury 5 Year Notes | Short | 41 | March-2015 | $ | (4,876,117 | ) | $ | 2,475 | ||||||||||||
U.S. Treasury 10 Year Notes | Short | 26 | March-2015 | (3,296,719 | ) | (15,696 | ) | |||||||||||||
U.S. Treasury Long Bond | Short | 26 | March-2015 | (3,758,625 | ) | (102,431 | ) | |||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | (115,652 | ) |
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. Equity and Income Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | 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 New York Mellon (The) | $ | 776,579 | $ | (25,968 | ) | $ | 750,611 | $ | — | $ | — | $ | 750,611 | |||||||||||
State Street Bank and Trust Co. | 779,868 | (29,289 | ) | 750,579 | — | — | 750,579 | |||||||||||||||||
Total | $ | 1,556,447 | $ | (55,257 | ) | $ | 1,501,190 | $ | — | $ | — | $ | 1,501,190 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts of Recognized Liabilities | 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 New York Mellon (The) | $ | 25,968 | $ | (25,968 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
State Street Bank and Trust Co. | 29,289 | (29,289 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 55,257 | $ | (55,257 | ) | $ | — | $ | — | $ | — | $ | — |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 21,108,829 | $ | 18,214,829 | ||||
Long-term capital gain | 64,658,435 | — | ||||||
Total distributions | $ | 85,767,264 | $ | 18,214,829 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 35,467,095 | ||
Undistributed long-term gain | 106,539,705 | |||
Net unrealized appreciation — investments | 238,093,371 | |||
Net unrealized appreciation (depreciation) — other investments | (16,846 | ) | ||
Temporary book/tax differences | (514,452 | ) | ||
Capital loss carryforward | (3,351,800 | ) | ||
Shares of beneficial interest | 987,094,029 | |||
Total net assets | $ | 1,363,311,102 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales, book to tax accretion and amortization differences and contingent payment debt instruments.
Invesco V.I. Equity and Income Fund
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $1,413,888 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 2,827,777 | $ | — | $ | 2,827,777 | ||||||
December 31, 2017 | 524,023 | — | 524,023 | |||||||||
$ | 3,351,800 | $ | — | $ | 3,351,800 |
* | Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code 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 year ended December 31, 2014 was $443,167,882 and $447,762,560, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $603,462,571 and $617,350,794, 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 | $ | 256,759,758 | ||
Aggregate unrealized (depreciation) of investment securities | (18,666,387 | ) | ||
Net unrealized appreciation of investment securities | $ | 238,093,371 |
Cost of investments for tax purposes is $1,122,685,390.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of bond premiums and contingent payment debt instruments, on December 31, 2014, undistributed net investment income was increased by $7,166,682 and undistributed net realized gain was decreased by $7,166,682. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,020,293 | $ | 19,539,518 | 337,298 | $ | 5,758,048 | ||||||||||
Series II | 5,344,545 | 100,231,484 | 7,056,697 | 120,193,527 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 232,944 | 4,316,452 | 52,544 | 922,674 | ||||||||||||
Series II | 4,409,898 | 81,450,812 | 987,559 | 17,292,155 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (673,937 | ) | (12,814,020 | ) | (726,382 | ) | (12,459,333 | ) | ||||||||
Series II | (8,476,370 | ) | (158,619,772 | ) | (4,866,125 | ) | (83,251,239 | ) | ||||||||
Net increase in share activity | 1,857,373 | $ | 34,104,474 | 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 77% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Equity and Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 18.58 | $ | 0.37 | (g) | $ | 1.28 | $ | 1.65 | $ | (0.35 | ) | $ | (0.95 | ) | $ | (1.30 | ) | $ | 18.93 | 9.03 | % | $ | 72,391 | 0.66 | %(d) | 0.67 | %(d) | 1.92 | %(d)(g) | 85 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 15.08 | 0.27 | 3.51 | 3.78 | (0.28 | ) | — | (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 | ) | — | (0.27 | ) | 15.08 | 12.49 | 53,990 | 0.66 | 0.67 | 1.85 | 31 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.06 | 0.25 | (0.41 | ) | (0.16 | ) | (0.25 | ) | — | (0.25 | ) | 13.65 | (1.19 | ) | 56,053 | 0.66 | 0.67 | 1.83 | 28 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10(e) | 12.27 | 0.13 | 1.66 | 1.79 | — | — | — | 14.06 | 14.59 | 46 | 0.69 | (f) | 0.70 | (f) | 1.73 | (f) | 34 | |||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 18.52 | 0.32 | (g) | 1.28 | 1.60 | (0.31 | ) | (0.95 | ) | (1.26 | ) | 18.86 | 8.77 | 1,290,920 | 0.91 | (d) | 0.92 | (d) | 1.67 | (d)(g) | 85 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 15.05 | 0.23 | 3.50 | 3.73 | (0.26 | ) | — | (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 | ) | — | (0.27 | ) | 15.05 | 12.39 | 962,938 | 0.81 | 0.92 | 1.70 | 31 | ||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/11 | 14.05 | 0.25 | (0.42 | ) | (0.17 | ) | (0.25 | ) | — | (0.25 | ) | 13.63 | (1.30 | ) | 864,716 | 0.71 | 0.92 | 1.78 | 28 | |||||||||||||||||||||||||||||||||||||
Year ended 12/31/10 | 12.80 | 0.22 | 1.29 | 1.51 | (0.26 | ) | — | (0.26 | ) | 14.05 | 12.03 | 800,414 | 0.74 | 0.98 | 1.68 | 34 |
(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 $84,964,454 and sold of $24,142,395 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Basic Balanced Fund, Invesco V.I. Income Builder Fund and Invesco V.I. Select Dimensions Balanced Fund into the Fund. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $62,757 and $1,267,579 for Series I and Series II shares, respectively. |
(e) | Commencement date of June 1, 2010. |
(f) | Annualized. |
(g) | Net investment income per share and the ratio of net investment income 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 $0.27 and 1.41%, $0.22 and 1.16% for Series I and Series II, respectively. |
Invesco V.I. Equity and Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. Equity and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Equity and Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,027.30 | $ | 3.37 | $ | 1,021.88 | $ | 3.36 | 0.66 | % | ||||||||||||
Series II | 1,000.00 | 1,026.70 | 4.65 | 1,020.62 | 4.63 | 0.91 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Equity and Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 64,658,435 | ||
Corporate Dividends Received Deduction* | 70.25 | % | ||
U.S. Treasury Obligations* | 5.53 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Equity and Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Equity and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Equity and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Equity and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Equity and Income Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Global Core Equity Fund underperformed its broad market/style-specific benchmark, the MSCI World Index. Stock selection during the volatile year was a hindrance to the Fund’s performance. Stock selection within the financials and telecommunication services sectors generally contributed to Fund performance, while holdings in the consumer discretionary, industrials, information technology (IT) and materials sectors generally detracted from Fund performance during the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 0.69 | % | |||
Series II Shares | 0.48 | ||||
MSCI World Index‚ (Broad Market/Style-Specific Index) | 4.94 |
Source(s): ‚FactSet Research Systems Inc.
The Lipper VUF Global Core Funds Index (shown in last year’s annual report) is no longer in existence.
Market conditions and your Fund
Following a robust 2013, global equity markets began 2014 in a relatively quiet fashion. But then volatility returned as investors began to worry that stocks may have risen too far, too fast in 2013. The US stock market rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China. Also, equity markets in Europe showed momentum, supported by the continent’s economic rebound. European Central Bank President Mario Draghi became the first major central banker to cut a key interest rate below zero and signaled a willingness to employ quantitative easing programs to prevent deflation. Investors interpreted these measures as an indication that global interest rates would likely remain low longer than expected. As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with
global equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, global equity markets stabilized and recovered, ending the year in positive territory.
For the reporting period, the MSCI World Index delivered a positive return, with seven of the index’s 10 sectors posting positive returns. The energy, materials and telecommunication services sectors generated negative returns for the year. The health care sector had the highest return followed closely by the IT and utilities sectors.
The Fund stayed true to its process and benefited in certain sectors from its quality orientation in stock selection. During 2014, select holdings in the financials and telecommunication services sectors contributed to Fund performance.
Hospital operator HCA Holdings was a top contributor for the reporting period. HCA owns and operates approximately 165 hospitals and approximately 115 freestanding surgery centers in the US
and the UK. Citing higher patient admissions and benefits from the Affordable Care Act, HCA reported better-than-expected earnings and raised its earnings outlook during the year.
Also contributing to Fund results for the reporting period was Celgene, a biopharmaceutical company engaged in the research, development and commercialization of therapies designed to treat cancer and immune-inflammatory-related diseases. Celgene performed strongly during the reporting period due to general strength in the biotechnology group, a positive earnings report and growing evidence that patent issues affecting a key drug would be settled.
Berkshire Hathaway, Teva Pharmaceuticals and Kroger were other top performers for the Fund during the year.
From a geographic perspective, Fund returns were aided by holdings in Germany, the Netherlands and the UK. During the reporting period, stock selection in Australia, Canada, Sweden and the US failed to keep pace with the MSCI World Index.
The largest detractors from Fund performance came from the consumer discretionary, industrials, IT and materials sectors.
One of the biggest individual detractors from Fund performance during the reporting period was Coach. Sales and pricing power at the luxury goods company remained weak, and we liquidated the Fund’s position during the reporting period.
Another notable detractor was Halli-burton, which was significantly affected by the sharp decline in oil prices, as the energy sector was one of the worst-performing sectors for the reporting period on an absolute basis.
Portfolio Composition | |||||
By country | |||||
United States | 51.4 | % | |||
United Kingdom | 12.5 | ||||
Japan | 8.4 | ||||
France | 7.1 | ||||
Switzerland | 5.3 | ||||
Netherlands | 3.8 | ||||
Canada | 2.2 | ||||
Countries Each Less than 2.0% of Portfolio | 8.5 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.8 |
Top 10 Equity Holdings* | |||||
1. American Express Co. | 3.0 | ||||
2. Berkshire Hathaway Inc.- Class A | 2.8 | ||||
3. International Business Machines Corp. | 2.4 | ||||
4. QUALCOMM, Inc. | 2.2 | ||||
5. ABB Ltd. | 2.1 | ||||
6. ResMed Inc. | 2.0 | ||||
7. Danone | 2.0 | ||||
8. Progressive Corp. (The) | 1.9 | ||||
9. Rio Tinto PLC | 1.8 | ||||
10. Northern Trust Corp. | 1.8 |
Top Five Industries* | |||||
1. Pharmaceuticals | 5.8 | % | |||
2. Oil & Gas Exploration & Production | 4.9 | ||||
3. Property & Casualty Insurance | 3.7 | ||||
4. Industrial Machinery | 3.1 | ||||
5. Communications Equipment | 3.1 |
Total Net Assets | $89.8 million | ||||
Total Number of Holdings* | 89 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Global Core Equity Fund
Shifts in sector and country weights are driven by our bottom-up stock selection approach. At the end of the reporting period, sectors in which the Fund had its greatest overweight exposure (relative to its style-specific index) included consumer discretionary, consumer staples and health care. Sectors in which the Fund was most underweight included energy, materials, telecommunication services and utilities.
During the year, the Fund decreased its exposure to Japan and had moderately underweight exposure to the US. The Fund’s largest overweight exposure compared to the MSCI World Index was in France and the UK.
We remain focused on companies that provide an attractive return on their invested capital, maintain a long-term perspective and trade at attractive valuations. Though markets are likely to remain volatile, such companies may be better positioned to weather market volatility.
We welcome new investors who joined the Fund during the year, and we thank all our shareholders for your continued investment in Invesco V.I. Global Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Erik Essenlink Portfolio Manager is manager of Invesco V.I. Global Core Equity Fund. He joined Invesco in 2007. | ||
Mr. Esselink earned a Bachelor of Science degree from the Rotterdam School of Economics, where he studied commercial economics. | ||
Brian Nelson Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Core Equity Fund. | ||
He joined Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara.
Assisted by Invesco’s Global Core Equity Team |
Invesco V.I. Global Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
The Lipper VUF Global Core Funds Index (shown in last year’s annual report) is no longer in existence.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (1/2/97) | 4.88 | % | |||
10 Years | 2.80 | ||||
5 Years | 6.77 | ||||
1 Year | 0.69 | ||||
Series II Shares | �� | ||||
10 Years | 2.54 | % | |||
5 Years | 6.51 | ||||
1 Year | 0.48 |
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
Invesco V.I. Global Core Equity Fund’s investment objective is long-term capital appreciation by investing primarily in equity securities of issuers throughout the world, including US issuers.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Geographic focus risk. From time to time the Fund may invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. If the Fund focuses its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging markets countries.
Investing in the European Union risk. Many countries in the European Union (EU) are susceptible to high economic risks associated with high levels of debt, notably due to investments in sovereign debts of European countries such as Greece, Italy and Spain. One or more member states might exit the EU, placing its currency and banking system in jeopardy. The EU faces major issues involving its membership, structure, procedures and policies, including the adoption, abandonment or adjustment of the new constitutional treaty, the EU’s enlargement to the south and east, and resolution of the EU’s problematic fiscal and democratic accountability. Efforts of the member states to further unify their economic
and monetary policies may increase the potential for the downward movement of one member state’s market to cause a similar effect on other member states’ markets. European countries that are part of the European Economic and Monetary Union may be significantly affected by the tight fiscal and monetary controls that the EU seeks to impose on its members.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
About indexes used in this report
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 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.
Invesco V.I. Global Core Equity Fund
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Global Core Equity Fund
Schedule of Investments
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.22% |
| |||||||
Canada–2.22% | ||||||||
Canadian Natural Resources Ltd. | 27,454 | $ | 848,810 | |||||
Suncor Energy, Inc. | 12,234 | 388,565 | ||||||
Toronto-Dominion Bank (The) | 15,764 | 753,193 | ||||||
1,990,568 | ||||||||
Finland–1.37% | ||||||||
Sampo Oyj–Class A | 26,256 | 1,231,184 | ||||||
France–7.12% | ||||||||
Casino Guichard-Perrachon S.A. | 6,388 | 587,874 | ||||||
Danone | 26,880 | 1,768,414 | ||||||
Hermes International | 370 | 131,993 | ||||||
LVMH Moet Hennessy Louis Vuitton S.A. | 7,586 | 1,199,654 | ||||||
Publicis Groupe S.A. | 21,061 | 1,508,518 | ||||||
Rexel S.A. | 31,630 | 564,835 | ||||||
Sanofi | 6,949 | 633,330 | ||||||
6,394,618 | ||||||||
Ireland–1.04% | ||||||||
Shire PLC–ADR | 4,408 | 936,876 | ||||||
Israel–1.31% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 20,514 | 1,179,760 | ||||||
Italy–0.70% | ||||||||
Prada S.p.A. | 111,100 | 629,671 | ||||||
Japan–8.36% | ||||||||
Asahi Group Holdings, Ltd. | 24,500 | 756,348 | ||||||
FANUC Corp. | 2,600 | 429,172 | ||||||
Isuzu Motors Ltd. | 91,000 | 1,110,443 | ||||||
KDDI Corp. | 12,000 | 750,968 | ||||||
Komatsu Ltd. | 54,000 | 1,197,355 | ||||||
Mitsubishi Corp. | 56,300 | 1,032,707 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 174,900 | 958,812 | ||||||
Sumitomo Corp. | 52,300 | 537,263 | ||||||
Tokio Marine Holdings, Inc. | 22,600 | 734,052 | ||||||
7,507,120 | ||||||||
Netherlands–3.78% | ||||||||
Arcadis N.V. | 19,046 | 569,577 | ||||||
Heineken N.V. | 8,590 | 610,252 | ||||||
Koninklijke Philips N.V. | 41,531 | 1,205,909 | ||||||
Randstad Holding N.V. | 21,060 | 1,012,850 | ||||||
3,398,588 | ||||||||
Spain–0.98% | ||||||||
Repsol S.A. | 45,802 | 851,410 | ||||||
Repsol S.A. Rts.(a) | 45,802 | 25,329 | ||||||
876,739 |
Shares | Value | |||||||
Sweden–1.86% | ||||||||
Sandvik AB | 40,053 | $ | 389,991 | |||||
SKF AB–Class B | 60,930 | 1,281,807 | ||||||
1,671,798 | ||||||||
Switzerland–5.26% | ||||||||
ABB Ltd. | 91,101 | 1,927,134 | ||||||
Roche Holding AG | 5,922 | 1,605,263 | ||||||
TE Connectivity Ltd. | 12,362 | 781,897 | ||||||
UBS Group AG | 23,996 | 412,526 | ||||||
4,726,820 | ||||||||
Taiwan–1.33% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 271,000 | 1,193,810 | ||||||
United Kingdom–12.49% | ||||||||
British American Tobacco PLC | 13,305 | 722,958 | ||||||
Diageo PLC | 30,215 | 866,656 | ||||||
Fiat Chrysler Automobiles N.V.(a) | 66,367 | 770,983 | ||||||
GlaxoSmithKline PLC–ADR | 20,912 | 893,779 | ||||||
Imperial Tobacco Group PLC | 14,511 | 635,523 | ||||||
Kingfisher PLC | 295,092 | 1,555,119 | ||||||
Liberty Global PLC–Series A(a) | 14,901 | 748,105 | ||||||
Liberty Global PLC–Series C(a) | 14,362 | 693,828 | ||||||
Rio Tinto PLC | 35,629 | 1,641,623 | ||||||
Sky PLC | 65,460 | 911,145 | ||||||
Standard Chartered PLC | 44,948 | 674,682 | ||||||
Vodafone Group PLC–ADR | 32,398 | 1,107,039 | ||||||
11,221,440 | ||||||||
United States–51.40% | ||||||||
Abercrombie & Fitch Co.–Class A | 18,104 | 518,499 | ||||||
ACE Ltd. | 7,297 | 838,279 | ||||||
Amazon.com, Inc.(a) | 3,716 | 1,153,261 | ||||||
American Express Co. | 28,695 | 2,669,783 | ||||||
Amphenol Corp.–Class A | 13,981 | 752,318 | ||||||
Archer-Daniels-Midland Co. | 16,816 | 874,432 | ||||||
Berkshire Hathaway Inc.–Class A(a) | 11 | 2,486,000 | ||||||
Cabot Oil & Gas Corp. | 32,256 | 955,100 | ||||||
Cameron International Corp.(a) | 9,551 | 477,072 | ||||||
Celgene Corp.(a) | 12,739 | 1,424,985 | ||||||
Cisco Systems, Inc. | 28,254 | 785,885 | ||||||
Concho Resources Inc.(a) | 12,000 | 1,197,000 | ||||||
Dick’s Sporting Goods, Inc. | 16,185 | 803,585 | ||||||
Eaton Corp. PLC(a) | 12,494 | 849,092 | ||||||
EMC Corp. | 51,496 | 1,531,491 | ||||||
EOG Resources, Inc. | 15,381 | 1,416,129 | ||||||
Express Scripts Holding Co.(a) | 12,152 | 1,028,910 | ||||||
First Republic Bank | 31,341 | 1,633,493 | ||||||
GameStop Corp.–Class A | 26,192 | 885,290 | ||||||
Gilead Sciences, Inc.(a) | 4,184 | 394,384 | ||||||
Google Inc.–Class C(a) | 851 | 447,966 |
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) | ||||||||
Halliburton Co. | 34,132 | $ | 1,342,412 | |||||
HCA Holdings, Inc.(a) | 20,032 | 1,470,149 | ||||||
International Business Machines Corp. | 13,180 | 2,114,599 | ||||||
Johnson Controls, Inc. | 14,440 | 698,030 | ||||||
Kroger Co. (The) | 13,971 | 897,078 | ||||||
Las Vegas Sands Corp. | 8,828 | 513,436 | ||||||
Linear Technology Corp. | 15,385 | 701,556 | ||||||
Macy’s, Inc. | 14,191 | 933,058 | ||||||
Marsh & McLennan Cos., Inc. | 21,567 | 1,234,495 | ||||||
Microsoft Corp. | 15,914 | 739,205 | ||||||
Moody’s Corp. | 15,283 | 1,464,264 | ||||||
Northern Trust Corp. | 24,243 | 1,633,978 | ||||||
Parker Hannifin Corp. | 5,664 | 730,373 | ||||||
Philip Morris International Inc. | 8,436 | 687,112 | ||||||
Progressive Corp. (The) | 64,140 | 1,731,139 | ||||||
QUALCOMM, Inc. | 26,937 | 2,002,227 |
Shares | Value | |||||||
United States–(continued) | ||||||||
ResMed Inc. | 31,993 | $ | 1,793,528 | |||||
Rite Aid Corp.(a) | 113,162 | 850,978 | ||||||
Tenet Healthcare Corp.(a) | 20,272 | 1,027,182 | ||||||
Yum! Brands, Inc. | 6,637 | 483,505 | ||||||
46,171,258 | ||||||||
Total Common Stocks & Other Equity Interests |
| 89,130,250 | ||||||
Money Market Funds–0.74% | ||||||||
Liquid Assets Portfolio–Institutional Class(b) | 331,429 | 331,429 | ||||||
Premier Portfolio–Institutional Class(b) | 331,430 | 331,430 | ||||||
Total Money Market Funds |
| 662,859 | ||||||
TOTAL INVESTMENTS–99.96% | 89,793,109 | |||||||
OTHER ASSETS LESS LIABILITIES–0.04% |
| 32,877 | ||||||
NET ASSETS–100.00% |
| $ | 89,825,986 |
Investment Abbreviations:
ADR | – American Depositary Receipt | |
Rts. | – Rights |
Notes to Schedule of Investments:
(a) | Non-income producing security. |
(b) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $86,814,089) | $ | 89,130,250 | ||
Investments in affiliated money market funds, at value and cost | 662,859 | |||
Total investments, at value (Cost $87,476,948) | 89,793,109 | |||
Foreign currencies, at value (Cost $141,140) | 141,418 | |||
Receivable for: | ||||
Investments sold | 536,790 | |||
Fund shares sold | 3,129 | |||
Dividends | 152,687 | |||
Investment for trustee deferred compensation and retirement plans | 33,099 | |||
Total assets | 90,660,232 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 454,644 | |||
Fund shares reacquired | 252,978 | |||
Accrued fees to affiliates | 57,112 | |||
Accrued trustees’ and officers’ fees and benefits | 323 | |||
Accrued other operating expenses | 34,066 | |||
Trustee deferred compensation and retirement plans | 35,123 | |||
Total liabilities | 834,246 | |||
Net assets applicable to shares outstanding | $ | 89,825,986 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 90,386,655 | ||
Undistributed net investment income | 978,644 | |||
Undistributed net realized gain (loss) | (3,850,617 | ) | ||
Net unrealized appreciation | 2,311,304 | |||
$ | 89,825,986 | |||
Net Assets: |
| |||
Series I | $ | 73,815,750 | ||
Series II | $ | 16,010,236 | ||
Shares outstanding, $0.001 par value per share, with an unlimited number of shares authorized: | ||||
Series I | 8,254,852 | |||
Series II | 1,792,872 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 8.94 | ||
Series II: | ||||
Net asset value per share | $ | 8.93 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $154,546) | $ | 2,220,637 | ||
Dividends from affiliated money market funds (includes securities lending income of $57,245) | 57,680 | |||
Total investment income | 2,278,317 | |||
Expenses: | ||||
Advisory fees | 656,383 | |||
Administrative services fees | 246,577 | |||
Custodian fees | 38,386 | |||
Distribution fees — Series II | 45,799 | |||
Transfer agent fees | 10,860 | |||
Trustees’ and officers’ fees and benefits | 23,538 | |||
Other | 66,198 | |||
Total expenses | 1,087,741 | |||
Less: Fees waived | (1,634 | ) | ||
Net expenses | 1,086,107 | |||
Net investment income | 1,192,210 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 16,932,297 | |||
Foreign currencies | (34,794 | ) | ||
16,897,503 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of change in estimated tax of foreign investments held of $1,700) | (17,264,045 | ) | ||
Foreign currencies | (8,362 | ) | ||
(17,272,407 | ) | |||
Net realized and unrealized gain (loss) | (374,904 | ) | ||
Net increase in net assets resulting from operations | $ | 817,306 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 1,192,210 | $ | 1,735,967 | ||||
Net realized gain | 16,897,503 | 7,659,768 | ||||||
Change in net unrealized appreciation (depreciation) | (17,272,407 | ) | 10,623,406 | |||||
Net increase in net assets resulting from operations | 817,306 | 20,019,141 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,568,741 | ) | (1,522,471 | ) | ||||
Series ll | (282,838 | ) | (347,778 | ) | ||||
Total distributions from net investment income | (1,851,579 | ) | (1,870,249 | ) | ||||
Share transactions–net: | ||||||||
Series l | (9,243,389 | ) | (4,829,903 | ) | ||||
Series ll | (5,156,863 | ) | (3,576,358 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (14,400,252 | ) | (8,406,261 | ) | ||||
Net increase (decrease) in net assets | (15,434,525 | ) | 9,742,631 | |||||
Net assets: | ||||||||
Beginning of year | 105,260,511 | 95,517,880 | ||||||
End of year (includes undistributed net investment income of $978,644 and $1,673,718, respectively) | $ | 89,825,986 | $ | 105,260,511 |
Notes to Financial Statements
December 31, 2014
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 trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Global 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 ask 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 net investment 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. Global Core Equity Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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. Global Core Equity Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $1 billion | 0 | .67% | ||||
Next $500 million | 0 | .645% | ||||
Next $1 billion | 0 | .62% | ||||
Next $1 billion | 0 | .595% | ||||
Next $1 billion | 0 | .57% | ||||
Over $4.5 billion | 0 | .545% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.67%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $1,634.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $196,577 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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. Global Core Equity Fund
The following is a summary of the tiered valuation input levels, as of December 31, 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 | |||||||||||||
Canada | $ | 1,990,568 | $ | — | $ | — | $ | 1,990,568 | ||||||||
Finland | — | 1,231,184 | — | 1,231,184 | ||||||||||||
France | 131,993 | 6,262,625 | — | 6,394,618 | ||||||||||||
Ireland | 936,876 | — | — | 936,876 | ||||||||||||
Israel | 1,179,760 | — | — | 1,179,760 | ||||||||||||
Italy | 629,671 | — | — | 629,671 | ||||||||||||
Japan | — | 7,507,120 | — | 7,507,120 | ||||||||||||
Netherlands | — | 3,398,588 | — | 3,398,588 | ||||||||||||
Spain | 25,329 | 851,410 | — | 876,739 | ||||||||||||
Sweden | — | 1,671,798 | — | 1,671,798 | ||||||||||||
Switzerland | 1,194,423 | 3,532,397 | — | 4,726,820 | ||||||||||||
Taiwan | — | 1,193,810 | — | 1,193,810 | ||||||||||||
United Kingdom | 4,888,416 | 6,333,024 | — | 11,221,440 | ||||||||||||
United States | 46,834,117 | — | — | 46,834,117 | ||||||||||||
Total Investments | $ | 57,811,153 | $ | 31,981,956 | $ | — | $ | 89,793,109 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 1,851,579 | $ | 1,870,249 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 1,010,314 | ||
Undistributed long-term gain | 2,964,466 | |||
Net unrealized appreciation — investments | 2,270,125 | |||
Net unrealized appreciation (depreciation) — other investments | (4,857 | ) | ||
Temporary book/tax differences | (31,670 | ) | ||
Capital loss carryforward | (6,769,047 | ) | ||
Shares of beneficial interest | 90,386,655 | |||
Total net assets | $ | 89,825,986 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
Invesco V.I. Global Core Equity Fund
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $13,866,218 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 6,769,047 | $ | — | $ | 6,769,047 |
* | 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 year ended December 31, 2014 was $118,946,039 and $131,850,572, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 7,601,554 | ||
Aggregate unrealized (depreciation) of investment securities | (5,331,429 | ) | ||
Net unrealized appreciation of investment securities | $ | 2,270,125 |
Cost of investments for tax purposes is $87,522,984.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and capital loss carryforward adjustments, on December 31, 2014, undistributed net investment income was decreased by $35,705, undistributed net realized gain (loss) was increased by $466,723 and shares of beneficial interest was decreased by $431,018. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 549,322 | $ | 5,025,349 | 988,327 | $ | 8,287,585 | ||||||||||
Series II | 18,390 | 164,182 | 17,976 | 148,266 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 172,959 | 1,568,741 | 179,325 | 1,522,471 | ||||||||||||
Series II | 31,158 | 282,599 | 40,986 | 347,557 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,740,296 | ) | (15,837,479 | ) | (1,779,138 | ) | (14,639,959 | ) | ||||||||
Series II | (610,889 | ) | (5,603,644 | ) | (496,082 | ) | (4,072,181 | ) | ||||||||
Net increase (decrease) in share activity | (1,579,356 | ) | $ | (14,400,252 | ) | (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 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 9.06 | $ | 0.12 | $ | (0.05 | ) | $ | 0.07 | $ | (0.19 | ) | $ | 8.94 | 0.69 | % | $ | 73,816 | 1.06 | %(d) | 1.06 | %(d) | 1.26 | %(d) | 123 | % | ||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.04 | 0.10 | (0.05 | ) | 0.05 | (0.16 | ) | 8.93 | 0.48 | 16,010 | 1.31 | (d) | 1.31 | (d) | 1.01 | (d) | 123 | |||||||||||||||||||||||||||||||
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(e) | 6.52 | 0.07 | 1.27 | 1.34 | — | 7.86 | 20.55 | 12 | 1.40 | (f) | 1.45 | (f) | 1.76 | (f) | 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 based on average daily net assets (000’s omitted) of $79,648 and $18,320 for Series I and Series II, respectively. |
(e) | Commencement date of June 1, 2010. |
(f) | Annualized. |
Invesco V.I. Global Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. Global Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Core Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Global Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 960.30 | $ | 5.29 | $ | 1,019.81 | $ | 5.45 | 1.07 | % | ||||||||||||
Series II | 1,000.00 | 960.20 | 6.52 | 1,018.55 | 6.72 | 1.32 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 56.84 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Global Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Global Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Global Core Equity Fund
| ||||
Annual Report to Shareholders
| December 31, 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 Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VIGHC-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Global Health Care Fund’s investment results compared favorably to the MSCI World Index and the MSCI World Health Care Index, the Fund’s broad market and style-specific benchmarks, respectively. Relative to the style-specific index, the Fund’s results were largely attributable to an overweight position in the health care facilities and biotechnology industries. The Fund’s use of currency hedging and its pharmaceutical holdings also contributed to relative results. Stock selection in the health care services, life sciences tools and services, and managed health care industries also detracted from results relative to the style-specific index. The Fund’s cash position also tempered relative results during the year.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 19.67 | % | |||
Series II Shares | 19.38 | ||||
MSCI World Index‚ (Broad Market Index) | 4.94 | ||||
MSCI World Health Care Index‚ (Style-Specific Index) | 18.10 | ||||
Lipper VUF Health/Biotechnology Funds Classification Averagen (Peer Group) | 28.04 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued a long, slow-growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
Though most of the major US equity market indexes delivered gains, global indexes were mixed, as developed market equities outperformed emerging market equities. Seven of the 10 sectors of the MSCI World Index had positive returns, and the health care sector had the highest return among the group, while energy had a double-digit loss for the reporting period.
HCA Holdings, a hospital operator, was the largest individual contributor for
the reporting period. The company reported better-than-expected revenues and earnings, citing better economic conditions and higher patient admissions resulting from the Affordable Care Act. Based on these developments, HCA also upwardly revised its earnings outlook for the full year.
The biotechnology industry was the largest contributor to the Fund’s absolute return, and a number of holdings within the industry were among the Fund’s top individual contributors, including Gilead Sciences and Alexion Pharmaceuticals. The largest contributor was Gilead Sciences, a biopharmaceutical company that specializes in therapeutics for the treatment of HIV and hepatitis-C. During the year, the company reported strong revenues attributable to the launch of its new hepatitis-C drug, Sovaldi, which in turn, increased investors’ enthusiasm for the company’s overall hepatitis-C virus franchise.
Alexion Pharmaceuticals, a bio-pharmaceutical company that specializes in drugs for extremely rare, or “orphan,” diseases was another key contributor to the Fund’s results. Robust sales of Soliris, its drug for the treatment of rare genetic blood disorders, contributed to strong earnings, which pushed shares of the stock higher.
Though pharmaceuticals made a positive impact on overall Fund performance, the industry contained some of the Fund’s largest detractors, as pricing pressures from pharmacy benefit managers and health insurers weighed on the industry. Amid these headwinds,
GlaxoSmithKline was the largest detractor during the year. The UK-based pharmaceutical company reported disappointing earnings, largely due to a decline in sales of its asthma drug Advair, as the drug is expensive and was removed from
Portfolio Composition | |||||
By country | |||||
United States | 66.1 | % | |||
Switzerland | 7.3 | ||||
United Kingdom | 4.5 | ||||
France | 3.1 | ||||
Japan | 2.4 | ||||
Germany | 2.2 | ||||
Countries each less than 2.0% of portfolio | 3.6 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 10.8 |
Top 10 Equity Holdings* | ||||||||
1. | Novartis AG-ADR | 3.9 | % | |||||
2. | GlaxoSmithKline PLC-ADR | 3.6 | ||||||
3. | Roche Holding AG | 3.4 | ||||||
4. | Celgene Corp. | 2.9 | ||||||
5. | Biogen Idec Inc. | 2.7 | ||||||
6. | Bristol-Myers Squibb Co. | 2.6 | ||||||
7. | Pfizer Inc. | 2.5 | ||||||
8. | ResMed Inc. | 2.5 | ||||||
9. | Alexion Pharmaceuticals, Inc. | 2.5 | ||||||
10. | AbbVie Inc. | 2.5 |
Top Five Industries* | ||||||||
1. | Pharmaceuticals | 37.6 | % | |||||
2. | Biotechnology | 23.6 | ||||||
3. | Health Care Equipment | 6.9 | ||||||
4. | Health Care Facilities | 6.0 | ||||||
5. | Managed Health Care | 3.5 |
Total Net Assets | $ | 298.6 million | ||||||||
Total Number of Holdings* | 62 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Global Health Care Fund
the approved list of many prescription drug plans.
Sanofi also detracted from the Fund’s performance. Citing competitive pressures, the company reported weakening US sales of Lantus, an insulin drug for the treatment of diabetes. Additionally, in late October, the company ousted its chief executive officer in a move that surprised many investors and precipitated a sharp sell-off.
Another detractor was Intercept Pharmaceuticals. Shares of the company dropped nearly 30% after clinical trials for its primary liver drug candidate showed a higher-than-anticipated level of adverse side effects.
We used currency forward contracts during the year for hedging currency exposure of non-US-based companies held in the Fund. Derivatives were used for hedging and not for speculative purposes or leverage. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to the style-specific benchmark for 2014. This was mainly due to the strength of the US dollar versus many major foreign currencies.
During the year, we reduced our exposure to the health care distributors, health care facilities, and health care services industries, and we increased exposure to the biotechnology and health care equipment industries. During 2014, we maintained an underweight position in large-cap pharmaceuticals relative to the style-specific benchmark; however, it was the Fund’s largest absolute industry exposure over the course of the year. The Fund’s largest overweight position relative to the style-specific benchmark was in the biotechnology industry.
We continue to emphasize specialty pharmaceuticals and biotechnology stocks based on their generally robust inline portfolios, compelling pipelines and our view that many of these companies could be targets of ongoing consolidation. We are primarily focused on companies with new product cycles, less reimbursement risk and less competition.
At the end of 2014, the Fund was primarily invested in US stocks, and the Fund’s non-US allocation was focused mainly on European large-cap pharmaceuticals, which had fewer patent expiration concerns than their US counterparts did.
As always, thank you for your continued investment in Invesco V.I. Global Health Care Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Derek Taner Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Health Care Fund. He | ||
joined Invesco in 2005. Mr. Taner earned a BS in business administration with an emphasis in accounting and finance and an MBA from the University of California, Berkeley Haas School of Business. |
Invesco V.I. Global Health Care Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/21/97) | 9.64 | % | |||
10 Years | 9.95 | ||||
5 Years | 17.35 | ||||
1 Year | 19.67 | ||||
Series II Shares | |||||
Inception (4/30/04) | 9.41 | % | |||
10 Years | 9.68 | ||||
5 Years | 17.06 | ||||
1 Year | 19.38 |
The performance of the Fund’s Series I and Series II share classes will differ primarily due to different class expenses.
The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial adviser for the most recent month-end variable product performance. Performance
figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares.
The net annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 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
Invesco V.I. Global Health Care Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain
derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Geographic focus risk. From time to time the Fund may invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. If the Fund focuses its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging markets countries.
Health care sector risk. The Fund will concentrate its investments in the securities of domestic and foreign issuers in the health care industry. The Fund’s performance is vulnerable to factors affecting the health care industry, including government regulation, obsolescence caused by scientific advances and technological innovations.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by an underlying fund’s
securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
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 all variable insurance underlying funds in the Lipper Health/ Biotechnology Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of the index(es).
Invesco V.I. Global Health Care Fund
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Global Health Care Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–89.25% |
| |||||||
Biotechnology–23.63% | ||||||||
ACADIA Pharmaceuticals Inc.(b) | 50,257 | $ | 1,595,660 | |||||
Alexion Pharmaceuticals, Inc.(b) | 40,413 | 7,477,617 | ||||||
Amgen Inc. | 17,645 | 2,810,672 | ||||||
Biogen Idec Inc.(b) | 23,529 | 7,986,919 | ||||||
BioMarin Pharmaceutical Inc.(b) | 70,378 | 6,362,171 | ||||||
Bluebird Bio, Inc.(b) | 22,608 | 2,073,606 | ||||||
Celgene Corp.(b) | 76,268 | 8,531,339 | ||||||
Celldex Therapeutics Inc.(b) | 62,415 | 1,139,074 | ||||||
Exact Sciences Corp.(b) | 56,021 | 1,537,216 | ||||||
Gilead Sciences, Inc.(b) | 76,980 | 7,256,135 | ||||||
Incyte Corp.(b) | 74,918 | 5,477,255 | ||||||
Intercept Pharmaceuticals, Inc.(b) | 10,357 | 1,615,692 | ||||||
Juno Therapeutics Inc.(b) | 11,910 | 621,940 | ||||||
Keryx Biopharmaceuticals, Inc.(b) | 99,428 | 1,406,906 | ||||||
Medivation Inc.(b) | 28,251 | 2,814,082 | ||||||
NPS Pharmaceuticals, Inc.(b) | 81,213 | 2,904,989 | ||||||
Puma Biotechnology, Inc.(b) | 6,844 | 1,295,364 | ||||||
Receptos, Inc.(b) | 11,270 | 1,380,688 | ||||||
Vanda Pharmaceuticals Inc.(b) | 116,244 | 1,664,614 | ||||||
Vertex Pharmaceuticals Inc.(b) | 38,878 | 4,618,706 | ||||||
70,570,645 | ||||||||
Drug Retail–2.43% | ||||||||
CVS Health Corp. | 31,331 | 3,017,488 | ||||||
Raia Drogasil S.A. (Brazil) | 148,860 | 1,419,928 | ||||||
Rite Aid Corp.(b) | 373,363 | 2,807,690 | ||||||
7,245,106 | ||||||||
Health Care Distributors–2.87% | ||||||||
Cardinal Health, Inc. | 53,803 | 4,343,516 | ||||||
McKesson Corp. | 20,357 | 4,225,706 | ||||||
8,569,222 | ||||||||
Health Care Equipment–6.86% | ||||||||
Abbott Laboratories | 78,741 | 3,544,920 | ||||||
DBV Technologies S.A.–ADR (France)(b) | 87,863 | 2,382,844 | ||||||
Olympus Corp. (Japan)(b) | 98,500 | 3,471,317 | ||||||
ResMed Inc. | 134,052 | 7,514,955 | ||||||
Wright Medical Group, Inc.(b) | 133,015 | 3,574,113 | ||||||
20,488,149 | ||||||||
Health Care Facilities–6.02% | ||||||||
Community Health Systems Inc.(b) | 84,139 | 4,536,775 | ||||||
HCA Holdings, Inc.(b) | 99,784 | 7,323,148 | ||||||
Tenet Healthcare Corp.(b) | 59,805 | 3,030,319 | ||||||
Universal Health Services, Inc.–Class B | 27,711 | 3,083,126 | ||||||
17,973,368 |
Shares | Value | |||||||
Health Care Services–3.32% | ||||||||
Air Methods Corp.(b) | 46,991 | $ | 2,069,014 | |||||
Express Scripts Holding Co.(b) | 88,191 | 7,467,132 | ||||||
InnovaCare Inc. (Puerto Rico) (Acquired 12/12/12; Cost $323,232)(b)(c) | 122,652 | 367,956 | ||||||
9,904,102 | ||||||||
Health Care Technology–0.99% | ||||||||
Allscripts Healthcare Solutions, Inc.(b) | 231,917 | 2,961,580 | ||||||
Life Sciences Tools & Services–2.01% | ||||||||
Agilent Technologies, Inc. | 46,191 | 1,891,060 | ||||||
Thermo Fisher Scientific, Inc. | 32,846 | 4,115,275 | ||||||
6,006,335 | ||||||||
Managed Health Care–3.48% | ||||||||
Aetna Inc. | 49,605 | 4,406,412 | ||||||
Qualicorp S.A. (Brazil)(b) | 109,000 | 1,127,159 | ||||||
UnitedHealth Group Inc. | 48,107 | 4,863,137 | ||||||
10,396,708 | ||||||||
Pharmaceuticals–37.64% | ||||||||
AbbVie Inc. | 114,258 | 7,477,043 | ||||||
Actavis PLC(b) | 16,130 | 4,152,023 | ||||||
Bayer AG (Germany) | 47,416 | 6,483,725 | ||||||
Bristol-Myers Squibb Co. | 131,854 | 7,783,342 | ||||||
Endo International PLC(b) | 60,096 | 4,334,124 | ||||||
GlaxoSmithKline PLC–ADR (United Kingdom) | 251,828 | 10,763,129 | ||||||
Hikma Pharmaceuticals PLC (United Kingdom) | 90,408 | 2,772,689 | ||||||
Jazz Pharmaceuticals PLC(b) | 18,116 | 2,966,133 | ||||||
Johnson & Johnson | 38,152 | 3,989,555 | ||||||
Mylan Inc.(b) | 80,761 | 4,552,498 | ||||||
Nippon Shinyaku Co., Ltd. (Japan) | 116,000 | 3,747,372 | ||||||
Novartis AG–ADR (Switzerland) | 123,996 | 11,489,469 | ||||||
Perrigo Co. PLC | 27,129 | 4,534,884 | ||||||
Pfizer Inc. | 241,530 | 7,523,659 | ||||||
Roche Holding AG (Switzerland) | 37,848 | 10,259,371 | ||||||
Salix Pharmaceuticals, Ltd.(b) | 41,605 | 4,782,079 | ||||||
Sanofi–ADR (France) | 150,275 | 6,854,043 | ||||||
Shire PLC–ADR (Ireland) | 14,796 | 3,144,742 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 83,442 | 4,798,749 | ||||||
112,408,629 | ||||||||
Total Common Stocks & Other Equity Interests |
| 266,523,844 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Shares | Value | |||||||
Money Market Funds–10.72% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 16,005,202 | $ | 16,005,202 | |||||
Premier Portfolio–Institutional Class(d) | 16,005,203 | 16,005,203 | ||||||
Total Money Market Funds |
| 32,010,405 | ||||||
TOTAL INVESTMENTS–99.97% |
| 298,534,249 | ||||||
OTHER ASSETS LESS LIABILITIES–0.03% |
| 96,505 | ||||||
NET ASSETS–100.00% |
| $ | 298,630,754 |
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 December 31, 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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $169,311,885) | $ | 266,523,844 | ||
Investments in affiliated money market funds, at value and cost | 32,010,405 | |||
Total investments, at value (Cost $201,322,290) | 298,534,249 | |||
Foreign currencies, at value (Cost $71,032) | 68,877 | |||
Receivable for: | ||||
Fund shares sold | 44,900 | |||
Dividends | 377,981 | |||
Investment for trustee deferred compensation and retirement plans | 70,014 | |||
Unrealized appreciation on forward foreign currency contracts | 370,285 | |||
Other assets | 74,784 | |||
Total assets | 299,541,090 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 549,085 | |||
Accrued fees to affiliates | 233,408 | |||
Accrued trustees’ and officers’ fees and benefits | 615 | |||
Accrued other operating expenses | 47,928 | |||
Trustee deferred compensation and retirement plans | 79,300 | |||
Total liabilities | 910,336 | |||
Net assets applicable to shares outstanding | $ | 298,630,754 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 171,775,431 | ||
Undistributed net investment income (loss) | (74,525 | ) | ||
Undistributed net realized gain | 29,360,506 | |||
Net unrealized appreciation | 97,569,342 | |||
$ | 298,630,754 | |||
Net Assets: |
| |||
Series I | $ | 220,561,208 | ||
Series II | $ | 78,069,546 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,528,825 | |||
Series II | 2,380,464 | |||
Series I: | ||||
Net asset value per share | $ | 33.78 | ||
Series II: | ||||
Net asset value per share | $ | 32.80 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $127,991) | $ | 2,795,316 | ||
Dividends from affiliated money market funds | 9,584 | |||
Total investment income | 2,804,900 | |||
Expenses: | ||||
Advisory fees | 1,965,917 | |||
Administrative services fees | 718,791 | |||
Custodian fees | 26,130 | |||
Distribution fees — Series II | 167,114 | |||
Transfer agent fees | 54,539 | |||
Trustees’ and officers’ fees and benefits | 27,441 | |||
Other | 78,994 | |||
Total expenses | 3,038,926 | |||
Less: Fees waived | (34,532 | ) | ||
Net expenses | 3,004,394 | |||
Net investment income (loss) | (199,494 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 28,434,293 | |||
Foreign currencies | (9,401 | ) | ||
Forward foreign currency contracts | 982,035 | |||
29,406,927 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 16,672,019 | |||
Foreign currencies | (18,159 | ) | ||
Forward foreign currency contracts | 518,646 | |||
17,172,506 | ||||
Net realized and unrealized gain | 46,579,433 | |||
Net increase in net assets resulting from operations | $ | 46,379,939 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Health Care Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (199,494 | ) | $ | (50,362 | ) | ||
Net realized gain | 29,406,927 | 11,305,614 | ||||||
Change in net unrealized appreciation | 17,172,506 | 56,251,050 | ||||||
Net increase in net assets resulting from operations | 46,379,939 | 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 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (7,510,881 | ) | — | |||||
Series ll | (2,701,370 | ) | — | |||||
Total distributions from net realized gains | (10,212,251 | ) | — | |||||
Share transactions–net: | ||||||||
Series l | 12,895,089 | 238,003 | ||||||
Series ll | 10,544,688 | 10,929,984 | ||||||
Net increase in net assets resulting from share transactions | 23,439,777 | 11,167,987 | ||||||
Net increase in net assets | 59,607,465 | 77,302,377 | ||||||
Net assets: | ||||||||
Beginning of year | 239,023,289 | 161,720,912 | ||||||
End of year (includes undistributed net investment income (loss) of $(74,525) and $(68,345), respectively) | $ | 298,630,754 | $ | 239,023,289 |
Notes to Financial Statements
December 31, 2014
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
Invesco V.I. Global Health Care 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 ask 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 net investment 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. Global Health Care 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. | 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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.
Invesco V.I. Global Health Care Fund
NOTE 2—Advisory Fees and Other Fees Paid to Affiliates
The Trust has entered into a master investment advisory agreement with Invesco Advisers, Inc. (the “Adviser” or “Invesco”). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Adviser based on the annual rate of the Fund’s average daily net assets as follows:
Average Daily Net Assets | Rate | |||||
First $250 million | 0 | .75% | ||||
Next $250 million | 0 | .74% | ||||
Next $500 million | 0 | .73% | ||||
Next $1.5 billion | 0 | .72% | ||||
Next $2.5 billion | 0 | .71% | ||||
Next $2.5 billion | 0 | .70% | ||||
Next $2.5 billion | 0 | .69% | ||||
Over $10 billion | 0 | .68% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.75%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $34,532.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $65,326 for accounting and fund administrative services and reimbursed $653,465 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 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.
Invesco V.I. Global Health Care Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 277,915,544 | $ | 20,250,749 | $ | 367,956 | $ | 298,534,249 | ||||||||
Forward Foreign Currency Contracts* | — | 370,285 | — | 370,285 | ||||||||||||
Total Investments | $ | 277,915,544 | $ | 20,621,034 | $ | 367,956 | $ | 298,904,534 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 370,285 | $ | — |
(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 year ended December 31, 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 | ||||
Realized Gain: | ||||
Currency risk | $ | 982,035 | ||
Change in Unrealized Appreciation: | ||||
Currency risk | 518,646 | |||
Total | $ | 1,500,681 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 12,344,265 |
Invesco V.I. Global Health Care Fund
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/16/15 | Citigroup Global Markets Inc. | CHF | 7,882,000 | USD | 8,152,669 | $ | 7,930,903 | $ | 221,766 | |||||||||||||||||
01/16/15 | Citigroup Global Markets Inc. | EUR | 4,519,000 | USD | 5,617,795 | 5,469,276 | 148,519 | |||||||||||||||||||
Total open forward foreign currency contracts—Currency Risk |
| $ | 370,285 |
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Citigroup Global Markets Inc. | $ | 370,285 | $ | — | $ | 370,285 | $ | — | $ | — | $ | 370,285 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 989,626 | $ | 1,371,912 | ||||
Long-term capital gain | 9,222,625 | — | ||||||
Total distributions | $ | 10,212,251 | $ | 1,371,912 |
Invesco V.I. Global Health Care Fund
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 485,503 | ||
Undistributed long-term gain | 29,245,288 | |||
Net unrealized appreciation — investments | 97,211,959 | |||
Net unrealized appreciation (depreciation) — other investments | (12,902 | ) | ||
Temporary book/tax differences | (74,525 | ) | ||
Shares of beneficial interest | 171,775,431 | |||
Total net assets | $ | 298,630,754 |
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $76,497,345 and $70,218,081, 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 | $ | 100,512,539 | ||
Aggregate unrealized (depreciation) of investment securities | (3,300,580 | ) | ||
Net unrealized appreciation of investment securities | $ | 97,211,959 |
Cost of investments is the same for tax and financial reporting purposes.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on December 31, 2014, undistributed net investment income (loss) was increased by $193,314 and undistributed net realized gain was decreased by $193,314. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,630,036 | $ | 52,263,554 | 1,793,336 | $ | 44,988,563 | ||||||||||
Series II | 460,983 | 14,311,931 | 585,408 | 14,448,063 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 232,319 | 7,510,881 | 41,129 | 1,103,498 | ||||||||||||
Series II | 86,004 | 2,701,370 | 10,264 | 268,414 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,490,077 | ) | (46,879,346 | ) | (1,814,512 | ) | (45,854,058 | ) | ||||||||
Series II | (213,643 | ) | (6,468,613 | ) | (150,514 | ) | (3,786,493 | ) | ||||||||
Net increase in share activity | 705,622 | $ | 23,439,777 | 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. |
Invesco V.I. Global Health Care Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 29.32 | $ | (0.00 | ) | $ | 5.71 | $ | 5.71 | $ | — | $ | (1.25 | ) | $ | (1.25 | ) | $ | 33.78 | 19.67 | % | $ | 220,561 | 1.08 | %(d) | 1.09 | %(d) | (0.01 | )%(d) | 29 | % | |||||||||||||||||||||||||
Year ended 12/31/13 | 21.00 | 0.01 | 8.49 | 8.50 | (0.18 | ) | — | (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 | ||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 28.57 | (0.08 | ) | 5.56 | 5.48 | — | (1.25 | ) | (1.25 | ) | 32.80 | 19.38 | 78,070 | 1.33 | (d) | 1.34 | (d) | (0.26 | )(d) | 29 | ||||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 20.49 | (0.05 | ) | 8.27 | 8.22 | (0.14 | ) | — | (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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $195,441 and $66,846 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 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 shares, respectively. |
Invesco V.I. Global Health Care Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Global Health Care Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Health Care Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Global Health Care Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense | ||||||||||||||||||||
Ending Account Value | Expenses Paid During | Ending Account Value (12/31/14) | Expenses Paid During | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,096.10 | $ | 5.72 | $ | 1,019.74 | $ | 5.51 | 1.08 | % | ||||||||||||
Series II | 1,000.00 | 1,094.90 | 7.02 | 1,018.50 | 6.77 | 1.33 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Health Care Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 9,222,625 | ||
Corporate Dividends Received Deduction* | 100.00 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Global Health Care Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Global Health Care Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Global Health Care Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Global Real Estate Fund performed in line with its style-specific benchmark, the Custom Global Real Estate Index. For the year, global real estate equities were among the strongest-performing industries, driven by significant outperformance by US real estate investment trusts (REITs).
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 14.62 | % | |||
Series II Shares | 14.34 | ||||
MSCI World Index‚ (Broad Market Index) | 4.94 | ||||
Custom Global Real Estate Indexn (Style-Specific Index)* | 14.70 | ||||
FTSE EPRA/NAREIT Developed Real Estate Index‚ (Former Style-Specific Index)* | 15.02 | ||||
Lipper VUF Real Estate Funds Classification Average¿ (Peer Group) | 29.17 |
Source(s):‚FactSet Research Systems Inc.; nInvesco, FactSet Research Systems Inc.; ¿Lipper Inc.
* | The Fund has elected to use the Custom Global Real Estate Index as its style-specific index, rather than the FTSE EPRA/NAREIT Developed Real Estate Index due to a change in the way the FTSE EPRA/NAREIT Developed Real Estate Index classifies companies as either developed market or emerging market. |
Market conditions and your Fund
Diverging trends in economic growth and monetary policy prospects across the globe became more established in 2014. The US and UK remained on their generally positive trajectory, with further improvements noted in labor markets and domestic demand. Toward the end of the year, US gross domestic product (GDP) growth surpassed expectations, posting the highest level of growth in eight years.1 Conversely, weakness in Continental Europe, the return of recessionary conditions in Japan, moderating growth in Australia and concerns over the growth path for China provided evidence of more challenging conditions. The deflationary impact from lower oil prices provided the scope for US Federal Reserve (Fed) to suggest that the zero rate for Fed funds may continue for a longer period. US bond yields moved lower during the year.
Additionally, more deliberate guidance from the European Central Bank regarding the prospects for quantitative easing in 2015 had the same effect on European bond yields.
In most markets across the globe, the supply of new real estate remained limited and absolute vacancy levels remained well below previous high points. This set the stage for increased rents, particularly in the US and UK. Listed real estate generally outperformed broader equity markets for the year, led by US REITs. Fundamental trends in real estate remained generally positive. Investment demand for commercial real estate was unabatedly strong. In weaker economies, real estate’s long-term income appeared relatively attractive. The increasing availability of debt financing boosted private real estate investment markets. In the listed markets, investment demand was demonstrated in
continued public offerings and mergers and acquisitions activities, which included new listings in the US and China, and further merger activities among German residential companies.
Effective June 30, 2014, the Fund’s style-specific benchmark was changed to the Custom Global Real Estate Index. The previous benchmark, the FTSE EPRA/ NAREIT Developed Real Estate Index, focused on developed market real estate equities only. However, the index provider changed the criteria used to determine whether a holding is from a developed or an emerging market. As a result of this change, we believed this benchmark would become increasingly US-focused and have lower exposure to real estate equities in Asia, a region we believed would be a long-term source of capital growth. As a result of this change, both the Fund and the new style-specific benchmark had approximately 10% exposure to emerging markets at the close of the reporting period. Fund holdings were added in the following countries during the year: the United Arab Emirates (UAE), South Africa, Philippines, Mexico, Brazil, Indonesia, Malaysia, Thailand and Turkey.
Key contributors to relative performance versus the Fund’s style-specific benchmark included positive security selection decisions in China, Germany, the US and South Africa. Underweight exposure to underperforming Brazil also contributed positively to relative performance. Primary detractors from relative performance were overweight exposures in the UAE, Japan and Australia. Security selection in Japan and Australia and a minor allocation to ancillary cash also detracted from relative performance.
As is common in equity markets, some of the top absolute contributors to Fund
Portfolio Composition | |||||
By country | |||||
United States | 46.3 | % | |||
Japan | 10.6 | ||||
Hong Kong | 6.8 | ||||
United Kingdom | 5.5 | ||||
Australia | 5.4 | ||||
China | 3.9 | ||||
France | 3.5 | ||||
Canada | 2.9 | ||||
Singapore | 2.8 | ||||
Germany | 2.5 | ||||
Countries each less than 2.0% of portfolio | 7.7 | ||||
Money Market Funds Plus Other Assets Less | 2.1 |
Top 10 Equity Holdings* | |||||
1. Simon Property Group, Inc. | 5.1 | % | |||
2. AvalonBay Communities, Inc. | 3.7 | ||||
3. Mitsui Fudosan Co., Ltd. | 3.0 | ||||
4. Prologis, Inc. | 2.9 | ||||
5. Unibail-Rodamco S.E. | 2.4 | ||||
6. Boston Properties, Inc. | 2.4 | ||||
7. Sun Hung Kai Properties Ltd. | 2.4 | ||||
8. Land Securities Group PLC | 2.3 | ||||
9. DDR Corp. | 2.1 | ||||
10. Public Storage | 2.1 |
Total Net Assets | $410.1 million |
Total Number of Holdings* | 143 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any dparticular security.
* | Excluding money market fund holdings. |
Invesco V.I. Global Real Estate Fund
performance for the reporting period were also among the top absolute detractors for the previous reporting period, and vice versa. US REIT holdings Avalon-Bay Communities and Health Care REIT were among the top contributors that appreciated in value during the reporting period following share price weaknesses in 2013. AvalonBay owns and manages distinctive apartment homes in key coastal US markets and has above-average earnings growth prospects. Health Care REIT, which focuses on senior housing and medical office buildings, has an above-average dividend yield. During the reporting period, we trimmed our exposure to Health Care REIT in order to fund a position in Ventas, which appeared more compelling in terms of relative valuation, particularly in the context of a comparable growth rate versus health care-focused peers.
Top absolute detractors from Fund performance during the year were overweight positions in large-cap Japanese real estate developer stocks, including Mitsui Fudosan and Sumitomo Realty & Development. Mitsui Fudosan owns and manages office spaces throughout prime areas of central Tokyo. It is a top-tier residential developer with a well-located land bank and a growing retail mall portfolio. Sumitomo Realty is primarily focused on office buildings and housing.
Trends in the global macroeconomic environment continue to be broadly positive. However, the recovery is likely to remain uneven across key economic regions, with the use of historically unconventional means of economic stimulus still necessary in many parts of the world. Economic rebalancing and balance sheet repair remain key themes in many of the world economies and are being reflected in below long-term average GDP growth and modest inflationary pressures.
As developed world economies staged their recovery, growth among the world’s emerging economies weakened. In the short term, many emerging economies may benefit from the recent fall in the cost of energy, but their long-term health remains highly dependent upon overall global trends in trade and consumption and structural population growth and urbanization. As such, many developing nations are expected to continue to offer some attractive opportunities for listed real estate investments over the long term.
While we expect continued reappraisal of risk and return requirements for all investment classes, real estate securities valuations appeared fair by longer-term
standards, given a relatively attractive yield and solid fundamentally driven earnings growth prospects. With generally healthy balance sheets and access to multiple sources of investment capital, most listed real estate companies are focused on generating growth, which can also include the opportunity to undertake modest new developments. We maintained our bias toward companies with higher-quality assets, supply-constrained real estate markets, generally lower-leveraged balance sheets and, in an environment where interest rates may rise over the mid-term, companies with above-average earnings growth prospects.
We thank you for your continued investment in Invesco V.I. Global Real Estate Fund.
1 | Source: Bloomberg LP |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Joe Rodriguez Jr. Portfolio Manager, is lead manager of Invesco V.I. Global Real Estate Fund. He is Head of Global Securities with | ||
Invesco Real Estate, where he oversees all phases of the unit, including securities research and administration. Mr. Rodriguez joined Invesco in 1990. He earned a BBA in economics and finance and an MBA in finance from Baylor University. | ||
Mark Blackburn Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined | ||
Invesco in 1998. Mr. Blackburn earned a BS in accounting from Louisiana State University and an MBA from Southern Methodist University. | ||
James Cowen Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2000. Mr. Cowen | ||
earned a Master of Town and Country Planning degree from the University of Manchester and a Master of Philosophy degree in land economy from Cambridge University. | ||
Paul Curbo Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined | ||
Invesco in 1998. Mr. Curbo earned a BBA in finance from The University of Texas at Austin. | ||
Darin Turner Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. He joined Invesco in 2005. Mr. Turner | ||
earned a BBA in finance from Baylor University, an MS in real estate from The University of Texas at Arlington and an MBA specializing in investments from Southern Methodist University. | ||
Ping Ying Wang Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Global Real Estate Fund. She | ||
joined Invesco in 1998. Ms. Wang earned a BS in international finance from the People’s University of China and a PhD in finance from The University of Texas at Dallas. |
Invesco V.I. Global Real Estate Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
The Fund has elected to use the Custom Global Real Estate Index as its style-specific index, rather than the FTSE
EPRA/NAREIT Developed Real Estate Index due to a change in the way the FTSE EPRA/NAREIT Developed Real Estate Index now classifies companies as either developed market or emerging
market. Because this is the first reporting period since we have adopted the new index, SEC guidelines require that we compare performance to both the old and new indexes.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (3/31/98) | 8.68 | % | |||
10 Years | 6.38 | ||||
5 Years | 10.63 | ||||
1 Year | 14.62 | ||||
Series II Shares | |||||
Inception (4/30/04) | 9.13 | % | |||
10 Years | 6.12 | ||||
5 Years | 10.37 | ||||
1 Year | 14.34 |
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
Invesco V.I. Global Real Estate Fund’s investment objective is total return through growth of capital and current income.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High yield bond (junk bond) risk. High yield bonds (commonly referred to as junk bonds) involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is
the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
REIT risk/real estate risk. The Fund concentrates its investments in the securities of real estate and real estate related companies. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate re-
Invesco V.I. Global Real Estate Fund
lated company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Short sales risk. Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited. In order to establish a short position in a security, the Fund must borrow the security from a broker. The Fund may not always be able to borrow a security the Fund seeks to sell short at a particular time or at an acceptable price. The Fund also may not always be able to close out the short position by replacing the borrowed securities at a particular time or at an acceptable price. The Fund will incur increased transaction costs associated with selling securities short. In addition, taking short positions in securities results in a form of leverage which may cause the Fund to be volatile.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market
interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The MSCI World Index® 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 Global Real Estate Index is composed of the FTSE EPRA/NAREIT Developed Real Estate Index (gross) from fund inception through Feb. 17, 2005; the FTSE EPRA/NAREIT Developed Real Estate Index (net) from Feb. 18, 2005, through June 30, 2014; and the FTSE EPRA/NAREIT Global Real Estate Index (net) from July 1, 2014.
The FTSE EPRA/NAREIT Developed Real Estate Index 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 variable insurance underlying funds in the Lipper Real Estate Funds classification.
The FTSE EPRA/NAREIT Global Real Estate Index is an unmanaged index considered representative of real estate companies and REITs worldwide. The Index is computed using the net return which withholds 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. Global Real Estate Fund
Schedule of Investments
December 31, 2014
Shares | Value | |||||||
Real Estate Investments Trusts, Common Stocks & Other Equity Interests–97.88% |
| |||||||
Australia–5.42% | ||||||||
Dexus Property Group | 396,227 | $ | 2,240,558 | |||||
Federation Centres | 1,035,577 | 2,410,165 | ||||||
Goodman Group | 782,126 | 3,605,577 | ||||||
Scentre Group(a) | 1,915,863 | 5,447,836 | ||||||
Stockland | 1,308,956 | 4,372,652 | ||||||
Westfield Corp. | 569,059 | 4,160,518 | ||||||
22,237,306 | ||||||||
Austria–0.22% | ||||||||
Conwert Immobilien Invest S.E. | 75,201 | 887,985 | ||||||
Brazil–0.60% | ||||||||
Cyrela Brazil Realty S.A. Empreendimentos e Participacoes | 89,200 | 366,343 | ||||||
Even Construtora e Incorporadora S.A. | 129,400 | 262,542 | ||||||
EZ Tec Empreendimentos e Participacoes S.A. | 51,100 | 423,013 | ||||||
Helbor Empreendimentos S.A. | 129,500 | 231,459 | ||||||
Iguatemi Empresa de Shopping Centers S.A. | 39,100 | 361,928 | ||||||
MRV Engenharia e Participacoes S.A. | 71,600 | 202,062 | ||||||
Multiplan Empreendimentos Imobiliarios S.A. | 34,600 | 617,634 | ||||||
2,464,981 | ||||||||
Canada–2.91% | ||||||||
Allied Properties REIT | 120,500 | 3,883,216 | ||||||
Boardwalk REIT | 30,300 | 1,604,977 | ||||||
Canadian REIT | 67,100 | 2,644,611 | ||||||
Chartwell Retirement Residences | 131,180 | 1,344,770 | ||||||
H&R REIT | 132,200 | 2,472,634 | ||||||
11,950,208 | ||||||||
China–3.85% | ||||||||
China Overseas Land & Investment Ltd. | 2,076,000 | 6,126,735 | ||||||
China Resources Land Ltd. | 1,028,000 | 2,698,243 | ||||||
China Vanke Co., Ltd.–Class H(a) | 601,000 | 1,333,784 | ||||||
Dalian Wanda Commercial Properties Co. Ltd.–Class H(a)(b) | 88,300 | 563,646 | ||||||
Franshion Properties China Ltd. | 2,686,000 | 764,826 | ||||||
Guangzhou R&F Properties Co. Ltd.–Class H | 441,600 | 537,184 | ||||||
KWG Property Holding Ltd. | 290,000 | 197,259 | ||||||
Longfor Properties Co. Ltd. | 1,010,000 | 1,296,145 | ||||||
Shenzhen Investment Ltd. | �� | 1,070,000 | 307,172 | |||||
Shimao Property Holdings Ltd. | 651,500 | 1,448,643 | ||||||
Sunac China Holdings Ltd. | 506,000 | 511,066 | ||||||
15,784,703 | ||||||||
Finland–0.29% | ||||||||
Sponda Oyj | 268,758 | 1,177,311 |
Shares | Value | |||||||
France–3.49% | ||||||||
Gecina S.A. | 10,015 | $ | 1,254,332 | |||||
ICADE | 15,518 | 1,242,641 | ||||||
Klepierre | 11,406 | 491,313 | ||||||
Mercialys S.A. | 66,314 | 1,479,346 | ||||||
Unibail-Rodamco S.E. | 38,524 | 9,846,661 | ||||||
14,314,293 | ||||||||
Germany–2.53% | ||||||||
Deutsche Wohnen AG | 183,450 | 4,358,995 | ||||||
GAGFAH S.A.(a) | 129,774 | 2,905,231 | ||||||
LEG Immobilien AG | 41,463 | 3,110,310 | ||||||
10,374,536 | ||||||||
Hong Kong–6.83% | ||||||||
Henderson Land Development Co. Ltd. | 271,990 | 1,888,009 | ||||||
Hongkong Land Holdings Ltd. | 735,000 | 4,947,061 | ||||||
Hysan Development Co. Ltd. | 286,000 | 1,270,816 | ||||||
Kerry Properties Ltd. | 203,500 | 735,217 | ||||||
Link REIT (The) | 1,029,000 | 6,423,378 | ||||||
New World Development Co. Ltd. | 1,626,000 | 1,859,872 | ||||||
Sun Hung Kai Properties Ltd. | 641,000 | 9,692,883 | ||||||
Wharf Holdings Ltd. (The) | 168,000 | 1,206,457 | ||||||
28,023,693 | ||||||||
Indonesia–0.54% | ||||||||
PT Bumi Serpong Damai | 3,471,400 | 501,354 | ||||||
PT Ciputra Development Tbk | 4,006,800 | 399,706 | ||||||
PT Lippo Karawaci Tbk | 5,599,300 | 458,261 | ||||||
PT Summarecon Agung Tbk | 6,957,300 | 845,186 | ||||||
2,204,507 | ||||||||
Japan–10.57% | ||||||||
Activia Properties, Inc. | 237 | 2,061,636 | ||||||
Hulic Reit, Inc. | 491 | 742,540 | ||||||
Japan Hotel REIT Investment Corp. | 2,427 | 1,554,193 | ||||||
Japan Logistics Fund Inc. | 593 | 1,329,328 | ||||||
Japan Prime Realty Investment Corp. | 635 | 2,204,811 | ||||||
Japan Real Estate Investment Corp. | 126 | 606,491 | ||||||
Japan Retail Fund Investment Corp. | 1,003 | 2,115,514 | ||||||
Kenedix Office Investment Corp. | 410 | 2,302,049 | ||||||
Mitsubishi Estate Co. Ltd. | 378,000 | 8,001,461 | ||||||
Mitsui Fudosan Co., Ltd. | 460,000 | 12,374,004 | ||||||
Mori Hills REIT Investment Corp. | 1,132 | 1,620,015 | ||||||
Nippon Prologis REIT Inc. | 888 | 1,925,443 | ||||||
Nomura Real Estate Office Fund, Inc. | 47 | 232,795 | ||||||
Sumitomo Realty & Development Co. Ltd. | 121,000 | 4,122,608 | ||||||
Tokyu Fudosan Holdings, Corp. | 141,700 | 976,527 | ||||||
United Urban Investment Corp. | 759 | 1,192,387 | ||||||
43,361,802 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Shares | Value | |||||||
Malaysia–0.40% | ||||||||
IGB REIT | 1,037,100 | $ | 388,471 | |||||
KLCCP Stapled Group | 235,600 | 453,746 | ||||||
Mah Sing Group Berhad | 670,300 | 433,156 | ||||||
SP Setia Berhad Group | 376,200 | 354,977 | ||||||
1,630,350 | ||||||||
Malta–0.00% | ||||||||
BGP Holdings PLC (Acquired 08/06/09; Cost $0)(a)(b) | 3,053,090 | 0 | ||||||
Mexico–0.62% | ||||||||
Fibra Uno Administracion S.A. de C.V. | 857,300 | 2,527,606 | ||||||
Netherlands–0.44% | ||||||||
Wereldhave N.V. | 26,269 | 1,803,050 | ||||||
Philippines–0.70% | ||||||||
Ayala Land, Inc. | 1,756,700 | 1,316,537 | ||||||
Megaworld Corp. | 4,082,600 | 421,283 | ||||||
Robinsons Land Corp. | 1,008,600 | 596,620 | ||||||
SM Prime Holdings Inc. | 1,377,100 | 522,262 | ||||||
2,856,702 | ||||||||
Singapore–2.81% | ||||||||
Ascendas REIT | 834,000 | 1,497,011 | ||||||
CapitaCommercial Trust | 1,794,000 | 2,376,742 | ||||||
CapitaLand Ltd. | 977,000 | 2,427,355 | ||||||
CapitaMall Trust | 461,000 | 709,330 | ||||||
Global Logistic Properties Ltd. | 1,313,000 | 2,455,493 | ||||||
Keppel Land Ltd. | 369,000 | 948,537 | ||||||
Mapletree Greater China Commercial Trust | 534,000 | 382,450 | ||||||
Suntec REIT | 483,000 | 713,925 | ||||||
11,510,843 | ||||||||
South Africa–1.19% | ||||||||
Capital Property Fund | 554,307 | 636,407 | ||||||
Growthpoint Properties Ltd. | 610,597 | 1,444,222 | ||||||
Hyprop Investments Ltd. | 139,456 | 1,175,516 | ||||||
Redefine Properties Ltd. | 944,030 | 873,286 | ||||||
Resilient Property Income Fund Ltd. | 104,898 | 758,911 | ||||||
4,888,342 | ||||||||
Sweden–0.95% | ||||||||
Castellum AB | 131,314 | 2,048,411 | ||||||
Fabege AB | 61,784 | 792,826 | ||||||
Wihlborgs Fastigheter AB | 57,948 | 1,057,726 | ||||||
3,898,963 | ||||||||
Thailand–0.43% | ||||||||
Central Pattana PCL | 600,800 | 825,541 | ||||||
Land and Houses PCL–NVDR | 1,569,100 | 431,753 | ||||||
Pruksa Real Estate PCL | 169,700 | 147,251 | ||||||
Supalai PCL | 508,200 | 370,046 | ||||||
1,774,591 |
Shares | Value | |||||||
Turkey–0.29% | ||||||||
Emlak Konut Gayrimenkul Yatirim Ortakligi A.S. | 1,027,164 | $ | 1,212,397 | |||||
United Arab Emirates–0.97% | ||||||||
Emaar Malls Group PJSC(a) | 1,028,887 | 750,726 | ||||||
Emaar Properties PJSC | 1,677,458 | 3,218,375 | ||||||
3,969,101 | ||||||||
United Kingdom–5.52% | ||||||||
Big Yellow Group PLC | 119,509 | 1,127,186 | ||||||
Derwent London PLC | 50,489 | 2,358,349 | ||||||
Great Portland Estates PLC | 326,781 | 3,734,930 | ||||||
Hammerson PLC | 396,737 | 3,708,338 | ||||||
Land Securities Group PLC | 521,323 | 9,329,079 | ||||||
Quintain Estates & Development PLC(a) | 513,742 | 762,733 | ||||||
UNITE Group PLC (The) | 222,744 | 1,614,438 | ||||||
22,635,053 | ||||||||
United States–46.31% | ||||||||
AvalonBay Communities, Inc. | 92,521 | 15,117,006 | ||||||
Boston Properties, Inc. | 75,420 | 9,705,800 | ||||||
Brixmor Property Group, Inc. | 115,500 | 2,869,020 | ||||||
Brookdale Senior Living Inc.(a) | 69,058 | 2,532,357 | ||||||
Cousins Properties, Inc. | 356,045 | 4,066,034 | ||||||
CubeSmart | 158,600 | 3,500,302 | ||||||
DDR Corp. | 466,899 | 8,572,266 | ||||||
EastGroup Properties, Inc. | 27,700 | 1,753,964 | ||||||
Empire State Realty Trust Inc.–Class A | 140,300 | 2,466,474 | ||||||
Essex Property Trust, Inc. | 32,745 | 6,765,117 | ||||||
Federal Realty Investment Trust | 48,573 | 6,482,552 | ||||||
General Growth Properties, Inc. | 256,624 | 7,218,833 | ||||||
Health Care REIT, Inc. | 78,295 | 5,924,583 | ||||||
Healthcare Realty Trust, Inc. | 150,735 | 4,118,080 | ||||||
Healthcare Trust of America, Inc.–Class A | 156,528 | 4,216,864 | ||||||
Hilton Worldwide Holdings Inc.(a) | 144,893 | 3,780,258 | ||||||
Host Hotels & Resorts Inc. | 197,418 | 4,692,626 | ||||||
Hudson Pacific Properties Inc. | 130,600 | 3,925,836 | ||||||
Kilroy Realty Corp. | 19,200 | 1,326,144 | ||||||
LaSalle Hotel Properties | 138,870 | 5,620,069 | ||||||
Mid-America Apartment Communities, Inc. | 69,907 | 5,220,655 | ||||||
National Health Investors, Inc. | 37,100 | 2,595,516 | ||||||
National Retail Properties Inc. | 111,583 | 4,393,023 | ||||||
Paramount Group, Inc.(a) | 78,859 | 1,465,989 | ||||||
Piedmont Office Realty Trust Inc.–Class A | 147,500 | 2,778,900 | ||||||
Prologis, Inc. | 279,920 | 12,044,958 | ||||||
Public Storage | 45,800 | 8,466,130 | ||||||
Realty Income Corp. | 82,925 | 3,956,352 | ||||||
Retail Opportunity Investments Corp. | 171,884 | 2,885,932 | ||||||
RLJ Lodging Trust | 166,228 | 5,573,625 | ||||||
Simon Property Group, Inc. | 113,706 | 20,707,000 | ||||||
SL Green Realty Corp. | 53,158 | 6,326,865 | ||||||
UDR, Inc. | 152,955 | 4,714,073 |
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 States–(continued) | ||||||||
Ventas, Inc. | 43,500 | $ | 3,118,950 | |||||
Washington Prime Group Inc. | 61,003 | 1,050,472 | ||||||
189,952,625 | ||||||||
Total Real Estate Investments Trusts, Common Stocks & Other Equity Interests (Cost $325,654,452) |
| 401,440,948 | ||||||
Money Market Funds–1.47% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 3,009,840 | 3,009,840 | ||||||
Premier Portfolio–Institutional Class(c) | 3,009,840 | 3,009,840 | ||||||
Total Money Market Funds |
| 6,019,680 | ||||||
TOTAL INVESTMENTS–99.35% |
| 407,460,628 | ||||||
OTHER ASSETS LESS LIABILITIES–0.65% |
| 2,667,690 | ||||||
NET ASSETS–100.00% |
| $ | 410,128,318 |
Investment Abbreviations:
NVDR | – Non-Voting Depositary Receipt | |
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Non-income producing security. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “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, 2014 was $563,646, which represented less than 1% of the Fund’s Net Assets. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $325,654,452) | $ | 401,440,948 | ||
Investments in affiliated money market funds, at value and cost | 6,019,680 | |||
Total investments, at value (Cost $331,674,132) | 407,460,628 | |||
Foreign currencies, at value (Cost $1,487,833) | 1,466,960 | |||
Receivable for: | ||||
Investments sold | 1,301,620 | |||
Fund shares sold | 204,785 | |||
Dividends | 1,663,403 | |||
Investment for trustee deferred compensation and retirement plans | 62,300 | |||
Other assets | 902 | |||
Total assets | 412,160,598 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 1,333,038 | |||
Fund shares reacquired | 227,128 | |||
Accrued fees to affiliates | 367,579 | |||
Accrued trustees’ and officers’ fees and benefits | 551 | |||
Accrued other operating expenses | 34,325 | |||
Trustee deferred compensation and retirement plans | 69,659 | |||
Total liabilities | 2,032,280 | |||
Net assets applicable to shares outstanding | $ | 410,128,318 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 346,442,272 | ||
Undistributed net investment income | 3,345,301 | |||
Undistributed net realized gain (loss) | (15,412,227 | ) | ||
Net unrealized appreciation | 75,752,972 | |||
$ | 410,128,318 | |||
Net Assets: |
| |||
Series I | $ | 209,829,135 | ||
Series II | $ | 200,299,183 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 12,171,526 | |||
Series II | 11,930,629 | |||
Series I: | ||||
Net asset value per share | $ | 17.24 | ||
Series II: | ||||
Net asset value per share | $ | 16.79 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $582,057) | $ | 11,761,586 | ||
Dividends from affiliated money market funds | 3,029 | |||
Total investment income | 11,764,615 | |||
Expenses: | ||||
Advisory fees | 2,846,283 | |||
Administrative services fees | 1,035,571 | |||
Custodian fees | 166,383 | |||
Distribution fees — Series II | 447,942 | |||
Transfer agent fees | 36,854 | |||
Trustees’ and officers’ fees and benefits | 28,293 | |||
Other | 70,942 | |||
Total expenses | 4,632,268 | |||
Less: Fees waived | (11,247 | ) | ||
Net expenses | 4,621,021 | |||
Net investment income | 7,143,594 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 11,281,074 | |||
Foreign currencies | (36,531 | ) | ||
11,244,543 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 31,626,486 | |||
Foreign currencies | (29,087 | ) | ||
31,597,399 | ||||
Net realized and unrealized gain | 42,841,942 | |||
Net increase in net assets resulting from operations | $ | 49,985,536 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Global Real Estate Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 7,143,594 | $ | 4,488,219 | ||||
Net realized gain | 11,244,543 | 16,689,192 | ||||||
Change in net unrealized appreciation (depreciation) | 31,597,399 | (14,467,845 | ) | |||||
Net increase in net assets resulting from operations | 49,985,536 | 6,709,566 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (3,251,796 | ) | (7,233,276 | ) | ||||
Series ll | (2,549,836 | ) | (6,251,428 | ) | ||||
Total distributions from net investment income | (5,801,632 | ) | (13,484,704 | ) | ||||
Share transactions–net: | ||||||||
Series l | (3,501,175 | ) | 15,656,375 | |||||
Series ll | 9,465,501 | 49,946,312 | ||||||
Net increase in net assets resulting from share transactions | 5,964,326 | 65,602,687 | ||||||
Net increase in net assets | 50,148,230 | 58,827,549 | ||||||
Net assets: | ||||||||
Beginning of year | 359,980,088 | 301,152,539 | ||||||
End of year (includes undistributed net investment income of $3,345,301 and $(1,055,785), respectively) | $ | 410,128,318 | $ | 359,980,088 |
Notes to Financial Statements
December 31, 2014
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 trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Global Real Estate Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security 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 ask 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 net investment 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. Global Real Estate 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.75%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $11,247.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $92,688 for accounting and fund administrative services and reimbursed $942,883 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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.
Invesco V.I. Global Real Estate Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 year ended December 31, 2014, there were transfers from Level 1 to Level 2 of $34,615,764 and from Level 2 to Level 1 of $4,271,095, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 22,237,306 | $ | — | $ | 22,237,306 | ||||||||
Austria | 887,985 | — | — | 887,985 | ||||||||||||
Brazil | 2,464,981 | — | — | 2,464,981 | ||||||||||||
Canada | 11,950,208 | — | — | 11,950,208 | ||||||||||||
China | 563,646 | 15,221,057 | — | 15,784,703 | ||||||||||||
Finland | 1,177,311 | — | — | 1,177,311 | ||||||||||||
France | 2,733,678 | 11,580,615 | — | 14,314,293 | ||||||||||||
Germany | 6,015,541 | 4,358,995 | — | 10,374,536 | ||||||||||||
Hong Kong | — | 28,023,693 | — | 28,023,693 | ||||||||||||
Indonesia | — | 2,204,507 | — | 2,204,507 | ||||||||||||
Japan | — | 43,361,802 | — | 43,361,802 | ||||||||||||
Malaysia | 1,176,604 | 453,746 | — | 1,630,350 | ||||||||||||
Malta | — | — | 0 | 0 | ||||||||||||
Mexico | 2,527,606 | — | — | 2,527,606 | ||||||||||||
Netherlands | — | 1,803,050 | — | 1,803,050 | ||||||||||||
Philippines | — | 2,856,702 | — | 2,856,702 | ||||||||||||
Singapore | 2,376,742 | 9,134,101 | — | 11,510,843 | ||||||||||||
South Africa | 2,685,209 | 2,203,133 | — | 4,888,342 | ||||||||||||
Sweden | — | 3,898,963 | — | 3,898,963 | ||||||||||||
Thailand | 431,753 | 1,342,838 | — | 1,774,591 | ||||||||||||
Turkey | — | 1,212,397 | — | 1,212,397 | ||||||||||||
United Arab Emirates | 750,726 | 3,218,375 | — | 3,969,101 | ||||||||||||
United Kingdom | 2,377,171 | 20,257,882 | — | 22,635,053 | ||||||||||||
United States | 195,972,305 | — | — | 195,972,305 | ||||||||||||
Total Investments | $ | 234,091,466 | $ | 173,369,162 | $ | 0 | $ | 407,460,628 |
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. Global Real Estate Fund
NOTE 5—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 6—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 5,801,632 | $ | 13,484,704 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 12,572,159 | ||
Net unrealized appreciation — investments | 62,251,199 | |||
Net unrealized appreciation (depreciation) — other investments | (33,524 | ) | ||
Temporary book/tax differences | (65,028 | ) | ||
Capital loss carryforward | (11,038,760 | ) | ||
Shares of beneficial interest | 346,442,272 | |||
Total net assets | $ | 410,128,318 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and passive foreign investment companies.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $7,011,623 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2017 | $ | 11,038,760 | $ | — | $ | 11,038,760 |
* | 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 year ended December 31, 2014 was $173,576,853 and $166,266,165, 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 | $ | 68,262,997 | ||
Aggregate unrealized (depreciation) of investment securities | (6,011,798 | ) | ||
Net unrealized appreciation of investment securities | $ | 62,251,199 |
Cost of investments for tax purposes is $345,209,429.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of passive foreign investment companies and foreign currency transactions, on December 31, 2014, undistributed net investment income was increased by $3,059,124 and undistributed net realized gain (loss) was decreased by $3,059,124. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Global Real Estate Fund
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,252,789 | $ | 54,247,717 | 2,782,023 | $ | 44,529,853 | ||||||||||
Series II | 3,484,973 | 56,243,205 | 4,044,745 | 63,141,654 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 200,852 | 3,251,796 | 466,362 | 7,233,276 | ||||||||||||
Series II | 161,586 | 2,549,836 | 413,454 | 6,251,428 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,695,733 | ) | (61,000,688 | ) | (2,268,921 | ) | (36,106,754 | ) | ||||||||
Series II | (3,133,157 | ) | (49,327,540 | ) | (1,261,354 | ) | (19,446,770 | ) | ||||||||
Net increase in share activity | 271,310 | $ | 5,964,326 | 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 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 15.29 | $ | 0.33 | $ | 1.89 | $ | 2.22 | $ | (0.27 | ) | $ | 17.24 | 14.62 | % | $ | 209,829 | 1.10 | %(d) | 1.10 | %(d) | 1.99 | %(d) | 44 | % | |||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 14.90 | 0.28 | 1.84 | 2.12 | (0.23 | ) | 16.79 | 14.34 | 200,299 | 1.35 | (d) | 1.35 | (d) | 1.74 | (d) | 44 | ||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $202,078 and $179,177 for Series I and Series II shares, respectively. |
Invesco V.I. Global Real Estate Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Global Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Global Real Estate Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Global Real Estate Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL expenses) | Annualized | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,025.50 | $ | 5.62 | $ | 1,019.66 | $ | 5.60 | 1.10 | % | ||||||||||||
Series II | 1,000.00 | 1,024.50 | 6.89 | 1,018.40 | 6.87 | 1.35 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Global Real Estate Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0.00 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Global Real Estate Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Global Real Estate Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Global Real Estate Fund
| ||||
Annual Report to Shareholders
| December 31, 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, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Government Securities Fund underperformed its style-specific index, the Barclays U.S Government Index. Duration positioning and security selection each played a role in the Fund’s underperformance for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.14 | % | |||
Series II Shares | 3.88 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 5.97 | ||||
Barclays U.S. Government Index‚ (Style-Specific Index) | 4.92 | ||||
Lipper VUF General U.S. Government Funds Indexn (Peer Group Index) | 4.03 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
The year ended December 31, 2014 turned out to be a surprisingly successful year for many bond market participants, given the predictions for rising rates that dominated the media and investor psyche at the beginning of the year. Falling long-term bond yields were a driving force behind generally positive intermediate- to long-term, higher-quality bond returns during 2014.
The year began on a positive note for bonds, buoyed by a general decline in yields on concerns over US economic growth following unexpectedly disruptive winter weather in the first quarter of 2014. Yields also were pushed lower due to demand driven by rising tensions in eastern Europe and the Middle East as well as global deflationary concerns, which prompted investors to seek safety. The yield on the 10-year US Treasury note fell to 2.5% by the end of June.1
Despite growing geopolitical risk and softer-than-expected global economic growth, investors’ demand for yield also fueled positive results in credit-related
markets, such as emerging market debt and high yield corporate bonds, during the first half of the year. While a favorable supply/demand dynamic and solid credit fundamentals throughout the first part of the year supported an environment in which investors were willing to assume somewhat greater credit risk, these credit sectors experienced notable volatility near the end of the reporting period. A steep drop in oil prices in the second half of 2014 and concerns over the ongoing conflict between Russia and the Ukraine spurred notable sell-offs in both high yield corporate bonds and emerging market debt.
As the reporting period drew to a close, the most credit-sensitive markets made it to the finish line with positive, albeit subdued, returns after a bumpy ride throughout 2014. Meanwhile, long-term Treasury bonds were some of the best-performing bonds in 2014 as yields drifted lower, with the yield on the 30-year U.S. Treasury bond ending the year at 2.75%, down from just under 4.00% at the start of the year.1
In this environment, the most interest rate sensitive or longer duration portions of the bond market performed well, while the credit sectors had mixed results, depending on their underlying sensitivity to falling rates. Given this market backdrop, the Fund’s total returns were positive, but underperformed its style-specific benchmark due to having less duration than the Barclays U.S. Government Index periodically during the year, and also due to security selection.
We were consistently underweight US Treasuries relative to the style-specific benchmark over the reporting period. Our search for relative value in the spread sectors of the government bond market led to overweight positioning in government-related issues and in off-benchmark, government-backed securitized debt instruments such as agency collateralized mortgage obligations (CMO) and agency mortgage-backed securities (MBS). While the agency CMOs provided valuable yield and price stability, their total return fell short of the style-specific benchmark as rates decreased during 2014.
The decision to hold underperforming Treasury inflation-protected securities as part of our US Treasury allocation also detracted from the Fund’s returns versus the style-specific index, as declining energy prices pushed inflation risk premiums lower. Among agency MBS, our emphasis on higher coupon, 30-year, fixed-rate securities was advantageous for the Fund.
The Fund uses duration and yield curve positioning for risk management and for generating returns. Duration measures a portfolio’s price sensitivity to interest rate changes, with a shorter duration tending to be less sensitive to these changes. Yield curve positioning refers to actively emphasizing points (maturities) along
Portfolio Composition
By security type
U.S. Government Sponsored Agency Mortgage-Backed Securities | 57.5 | % | |||
U.S. Treasury Securities | 16.9 | ||||
U.S. Government Sponsored Agency Securities | 12.3 | ||||
Bonds | 10.0 | ||||
Corporate Notes | 2.4 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.9 |
Top 10 Fixed Income Issuers*
1. | Federal National Mortgage Association | 15.6 | % | ||||
2. | Federal Home Loan Mortgage Corp. | 13.6 | |||||
3. | U.S. Treasury Notes | 12.4 | |||||
4. | Freddie Mac REMICs | 9.6 | |||||
5. | Fannie Mae REMICs | 9.4 | |||||
6. | Federal Home Loan Bank | 5.7 | |||||
7. | Government National Mortgage Association | 4.4 | |||||
8. | Ginnie Mae REMICs | 4.2 | |||||
9. | La Hipotecaria Panamanian Mortgage Trust | 2.9 | |||||
10. | Federal Agricultural Mortgage Corp. | 2.8 |
Total Net Assets | $ | 687.3 million | |||
Total Number of Holdings* | 787 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* | Excluding U.S. Treasury bills and money market fund holdings. |
Invesco V.I. Government Securities Fund
the yield curve with favorable risk/return expectations. Duration was managed with cash bonds and futures positions. Buying and selling interest rate futures contracts was an important tool we used to manage interest rate risk.
Please note that our strategy is implemented using derivative instruments, including futures, swaps and options. Therefore, a portion of the performance of the strategy, both positive and negative, can be attributed to these instruments. Derivatives can be a cost-effective way to gain or hedge exposure to certain risks. However, derivatives may amplify traditional investment risks through the creation of leverage and may be less liquid than traditional securities.
We wish to remind you that the Fund is subject to interest rate risk, meaning when interest rates rise, the value of fixed income securities tend to fall. This risk may be greater in the current market environment because interest rates are at or near historic lows. The degree to which the value of fixed income securities may decline due to rising interest rates may vary depending on the speed and magnitude of the increase in interest rates, as well as individual security characteristics such as price, maturity, duration and coupon and market forces such as supply and demand for similar securities. We are monitoring interest rates, and the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the Fed and certain foreign central banks. If interest rates rise, markets may experience increased volatility, which may affect the value and/ or liquidity of certain of the Fund’s investments
We welcome new investors who joined the Fund during the year and thank you for your investment in Invesco V.I. Government Securities Fund.
1 | Source: Board of Governors of the Federal Reserve System (US) |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Clint Dudley Portfolio Manager, is manager of Invesco V.I. Government Securities Fund. He joined Invesco in 1998. | ||
Mr. Dudley earned a BBA and an MBA from Baylor University. |
Brian Schneider Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Government Securities | ||
Fund. He joined Invesco in 1987. Mr. Schneider earned a BA in economics and an MBA from Bellarmine University (formerly Bellarmine College). |
Robert Waldner Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Government Securities | ||
Fund. He joined Invesco in 2013. Mr. Waldner earned a BSE degree in civil engineering from Princeton University. |
Invesco V.I. Government Securities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/5/93) | 4.66 | % | |||
10 Years | 4.04 | ||||
5 Years | 3.40 | ||||
1 Year | 4.14 | ||||
Series II Shares | |||||
Inception (9/19/01) | 3.78 | % | |||
10 Years | 3.77 | ||||
5 Years | 3.14 | ||||
1 Year | 3.88 |
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
Invesco V.I. Government Securities Fund’s investment objective is total return, comprised of current income and capital appreciation.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Collateralized loan obligations risk. In addition to the normal interest rate, default and other risk of fixed income securities, collateralized loan obligations carry additional risks, including the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the Fund may invest in collateralized loan obligations that are subordinate to other classes, values may be volatile, and disputes with the issuer may produce unexpected investment results.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The value of a derivative instrument depends largely on ( and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to
changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include sub-prime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
Reinvestment risk. Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.
TBA transactions risk. TBA transactions involve the risk that the securities received may be less favorable than what was anticipated by the Fund when entering into the TBA transaction. TBA transactions also involve the risk that a counterparty will fail to deliver the securities, exposing the Fund to further losses. Whether or not the Fund takes delivery of the securities at the termination date of a TBA transaction, the Fund will nonetheless be exposed to changes in the value of the underlying investments during the term of the agreement. When the Fund enters into a short sale of a TBA mortgage it does not own, the Fund may have to purchase deliverable mortgages to settle the short sale at a higher price than anticipated, thereby causing a loss. A short position in a TBA mortgage poses more risk than holding the same TBA mortgage long. As there is no limit on how much the price of mortgage securities can increase, the Fund’s exposure is unlimited. The Fund may not always be able to purchase mortgage securities to close out the short position at a particular time or at an acceptable price. A Fund will earmark or segregate liquid assets in an amount at least equal to its exposure for the duration of the contract. The Fund will incur increased transaction costs associated with selling TBA mortgages short. In addition, taking short positions in TBA mortgages results in a form of leverage which could increase the volatility of the Fund’s share price.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
When-issued and delayed delivery risks. When-issued and delayed delivery transactions are subject to market risk as the value or yield of a security at delivery may be more or less than the purchase price or the yield generally available on securities when delivery occurs. In addition, the Fund is subject to counterparty risk because it relies on the buyer or seller,
Invesco V.I. Government Securities Fund
as the case may be, to consummate the transaction, and failure by the other party to complete the transaction may result in the Fund missing the opportunity of obtaining a price or yield considered to be advantageous.
Zero coupon or pay-in-kind securities risk. The value, interest rates, and liquidity of non-cash paying instruments, such as zero coupon and pay-in-kind securities, are subject to greater fluctuation than other types of securities. The higher yields and interest rates on pay-in-kind securities reflect the payment deferral and increased credit risk associated with such instruments and that such investments may represent a higher credit risk than coupon loans. Pay-in-kind securities may have a potential variability in valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral.
About indexes used in this report
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Government 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Government Securities Fund
Schedule of Investments
December 31, 2014
Principal Amount | Value | |||||||
U.S. Government Sponsored Agency Mortgage-Backed Securities–57.47% |
| |||||||
Collateralized Mortgage Obligations–24.99% | ||||||||
Fannie Mae REMICs, | $ | 6,193,043 | $ | 6,537,998 | ||||
5.00%, 08/25/19 to 09/25/37 | 2,666,946 | 2,756,622 | ||||||
4.25%, 12/25/19 to 02/25/37 | 3,483,270 | 3,649,619 | ||||||
4.50%, 10/25/22 to 07/25/27 | 717,245 | 727,752 | ||||||
3.00%, 10/25/25 to 09/25/36 | 4,315,914 | 4,395,145 | ||||||
2.50%, 03/25/26 | 2,113,465 | 2,148,650 | ||||||
7.00%, 09/18/27 | 526,273 | 587,924 | ||||||
6.50%, 03/25/32 | 1,470,908 | 1,656,309 | ||||||
5.75%, 10/25/35 | 897,183 | 997,958 | ||||||
0.47%, 05/25/36(a) | 5,705,596 | 5,716,679 | ||||||
0.67%, 03/25/37 to 05/25/41(a) | 10,648,078 | 10,728,041 | ||||||
0.57%, 06/25/38(a) | 9,045,870 | 9,097,264 | ||||||
6.57%, 06/25/39(a) | 5,721,072 | 6,571,284 | ||||||
0.72%, 02/25/41(a) | 6,318,456 | 6,366,780 | ||||||
0.69%, 11/25/41(a) | 2,483,777 | 2,510,348 | ||||||
Federal Home Loan Bank, | 703,886 | 725,198 | ||||||
5.46%, 11/27/15 | 9,766,645 | 10,153,726 | ||||||
5.77%, 03/23/18 | 1,368,494 | 1,497,080 | ||||||
Freddie Mac REMICs, | 5,760,255 | 6,016,875 | ||||||
5.00%, 02/15/18 to 04/15/19 | 2,084,372 | 2,179,857 | ||||||
4.50%, 07/15/18 | 599,571 | 625,344 | ||||||
3.00%, 10/15/18 to 04/15/26 | 4,836,599 | 4,965,487 | ||||||
3.75%, 10/15/18 | 967,086 | 977,010 | ||||||
4.25%, 01/15/19 | 20,237 | 20,232 | ||||||
3.50%, 12/15/27 | 283,130 | 286,506 | ||||||
0.56%, 04/15/28 to 06/15/37(a) | 7,026,845 | 7,060,743 | ||||||
0.66%, 12/15/35 to 03/15/40(a) | 8,370,980 | 8,449,863 | ||||||
0.46%, 03/15/36(a) | 5,506,932 | 5,536,641 | ||||||
0.51%, 11/15/36(a) | 7,955,031 | 7,974,311 | ||||||
1.02%, 11/15/39(a) | 1,757,206 | 1,792,115 | ||||||
0.61%, 03/15/40 to 02/15/42(a) | 19,723,436 | 19,849,941 | ||||||
Ginnie Mae REMICs, | 908,022 | 1,008,708 | ||||||
4.75%, 09/20/32 | 154,942 | 156,099 | ||||||
4.00%, 04/16/33 to 02/20/38 | 3,137,255 | 3,197,362 | ||||||
4.50%, 10/20/33 to 09/16/34 | 3,446,461 | 3,514,030 | ||||||
5.74%, 08/20/34(a) | 1,996,638 | 2,234,942 | ||||||
5.00%, 08/16/35 | 72,990 | 73,534 | ||||||
5.87%, 01/20/39(a) | 6,811,868 | 7,703,746 | ||||||
0.96%, 09/16/39(a) | 2,489,786 | 2,546,713 | ||||||
4.50%, 07/20/41(a) | 1,729,722 | 1,846,877 | ||||||
1.63%, 09/20/41(a) | 6,512,376 | 6,875,317 | ||||||
171,716,630 |
Principal Amount | Value | |||||||
Federal Deposit Insurance Co. (FDIC)–0.05% | ||||||||
Series 2010-S1, Class 1A, Gtd. | $ | 354,075 | $ | 354,248 | ||||
Federal Home Loan Mortgage Corp. (FHLMC)–12.60% | ||||||||
Pass Through Ctfs., | 7,166,788 | 8,742,642 | ||||||
6.50%, 11/01/15 to 12/01/35 | 5,208,019 | 5,952,913 | ||||||
7.00%, 12/01/15 to 12/01/37 | 6,137,058 | 7,023,581 | ||||||
6.00%, 02/01/16 to 07/01/38 | 2,097,034 | 2,305,197 | ||||||
5.00%, 07/01/18 to 01/01/40 | 2,884,856 | 3,190,357 | ||||||
10.50%, 08/01/19 | 501 | 507 | ||||||
4.50%, 09/01/20 to 08/01/41 | 16,453,287 | 18,026,806 | ||||||
8.50%, 09/01/20 to 08/01/31 | 627,059 | 723,569 | ||||||
10.00%, 03/01/21 | 24,720 | 27,215 | ||||||
9.00%, 06/01/21 to 06/01/22 | 165,608 | 179,284 | ||||||
7.50%, 09/01/22 to 08/01/36 | 1,923,604 | 2,227,386 | ||||||
5.50%, 12/01/22 | 920,882 | 982,658 | ||||||
3.50%, 08/01/26 | 1,450,065 | 1,541,025 | ||||||
3.00%, 05/01/27 | 2,190,375 | 2,294,310 | ||||||
7.05%, 05/20/27 | 186,890 | 214,013 | ||||||
6.03%, 10/20/30 | 1,226,576 | 1,427,492 | ||||||
Pass Through Ctfs., ARM, | 8,742,974 | 9,373,112 | ||||||
2.40%, 07/01/36(a) | 6,775,804 | 7,261,567 | ||||||
2.05%, 10/01/36(a) | 4,016,916 | 4,262,382 | ||||||
2.41%, 10/01/36(a) | 289,130 | 311,285 | ||||||
2.52%, 11/01/37(a) | 3,066,076 | 3,302,487 | ||||||
2.68%, 01/01/38(a) | 149,644 | 161,172 | ||||||
2.52%, 06/01/43(a) | 6,803,631 | 7,072,182 | ||||||
86,603,142 | ||||||||
Federal National Mortgage Association (FNMA)–15.38% | ||||||||
Pass Through Ctfs., | 7,909,581 | 9,290,587 | ||||||
6.50%, 04/01/15 to 11/01/37 | 5,902,024 | 6,653,540 | ||||||
7.00%, 04/01/15 to 06/01/36 | 8,217,733 | 9,133,468 | ||||||
8.00%, 06/01/15 to 11/01/37 | 5,649,901 | 6,657,947 | ||||||
6.00%, 09/01/17 to 10/01/38 | 4,384,669 | 4,958,131 | ||||||
5.00%, 11/01/17 to 12/01/33 | 676,552 | 728,323 | ||||||
8.50%, 11/01/17 to 08/01/37 | 2,462,986 | 2,923,666 | ||||||
4.50%, 04/01/19 to 08/01/41 | 13,298,789 | 14,407,433 | ||||||
5.50%, 03/01/21 to 05/01/35 | 2,806,057 | 3,158,073 | ||||||
6.75%, 07/01/24 | 618,709 | 705,110 | ||||||
6.95%, 10/01/25 | 23,107 | 24,035 | ||||||
3.50%, 03/01/27 to 08/01/27 | 15,406,775 | 16,316,038 | ||||||
3.00%, 05/01/27 to 08/01/27 | 7,361,944 | 7,674,214 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Federal National Mortgage Association (FNMA)–(continued) | ||||||||
Pass Through Ctfs., ARM, | $ | 3,552,269 | $ | 3,819,978 | ||||
2.33%, 05/01/35(a) | 658,918 | 704,276 | ||||||
2.31%, 03/01/38(a) | 159,209 | 170,327 | ||||||
2.83%, 02/01/42(a) | 3,040,139 | 3,167,015 | ||||||
2.30%, 06/01/43(a) | 4,283,530 | 4,318,749 | ||||||
2.26%, 08/01/43(a) | 4,035,987 | 4,123,219 | ||||||
Pass Through Ctfs., BAL, | 6,359,537 | 6,785,656 | ||||||
105,719,785 | ||||||||
Government National Mortgage Association (GNMA)–4.45% | ||||||||
Pass Through Ctfs., | 378 | 380 | ||||||
6.50%, 05/20/16 to 01/15/37 | 5,825,809 | 6,615,962 | ||||||
7.50%, 03/15/17 to 10/15/35 | 3,731,964 | 4,311,815 | ||||||
7.00%, 04/15/17 to 01/15/37 | 1,951,621 | 2,179,944 | ||||||
8.00%, 05/15/17 to 01/15/37 | 1,992,704 | 2,352,006 | ||||||
10.50%, 09/15/17 | 406 | 408 | ||||||
8.50%, 12/15/17 to 01/15/37 | 327,362 | 359,699 | ||||||
10.00%, 06/15/19 | 10,632 | 11,645 | ||||||
6.00%, 09/15/20 to 08/15/33 | 961,177 | 1,077,900 | ||||||
5.00%, 02/15/25 | 272,067 | 299,664 | ||||||
6.95%, 08/20/25 to 08/20/27 | 358,510 | 370,695 | ||||||
6.38%, 10/20/27 to 04/20/28 | 450,008 | 509,235 | ||||||
6.10%, 12/20/33 | 5,609,490 | 6,529,999 | ||||||
3.50%, 10/20/42 | 5,769,790 | 5,980,768 | ||||||
30,600,120 | ||||||||
Total U.S. Government Sponsored Agency Mortgage-Backed Securities |
| 394,993,925 | ||||||
U.S. Treasury Securities–16.87% |
| |||||||
U.S. Treasury Bills–0.23%(c)(d) | ||||||||
0.08%, 08/20/15 | 1,535,000 | 1,533,528 | ||||||
0.12%, 08/20/15 | 80,000 | 79,923 | ||||||
1,613,451 | ||||||||
U.S. Treasury Notes–12.36% | ||||||||
0.50%, 09/30/16 | 4,000,000 | 3,994,721 | ||||||
0.75%, 06/30/17 | 6,250,000 | 6,225,185 | ||||||
0.88%, 07/15/17 | 6,000,000 | 5,992,125 | ||||||
0.63%, 08/31/17 | 8,400,000 | 8,318,132 | ||||||
0.75%, 12/31/17 | 5,000,000 | 4,946,641 | ||||||
1.38%, 12/31/18 | 8,300,000 | 8,265,784 | ||||||
1.50%, 12/31/18 | 5,500,000 | 5,508,266 | ||||||
1.63%, 06/30/19 | 4,000,000 | 4,009,808 | ||||||
1.63%, 07/31/19 | 11,200,000 | 11,215,233 | ||||||
3.63%, 02/15/20 | 2,000,000 | 2,192,445 | ||||||
2.00%, 09/30/20 | 5,000,000 | 5,047,557 | ||||||
2.13%, 06/30/21 | 4,500,000 | 4,552,016 | ||||||
2.13%, 08/15/21 | 2,700,000 | 2,729,951 | ||||||
2.00%, 10/31/21 | 2,500,000 | 2,504,695 |
Principal Amount | Value | |||||||
U.S. Treasury Notes–(continued) | ||||||||
2.00%, 11/15/21 | $ | 3,300,000 | $ | 3,309,810 | ||||
2.38%, 08/15/24 | 6,000,000 | 6,109,122 | ||||||
84,921,491 | ||||||||
U.S. Treasury Bonds–2.34% | ||||||||
8.75%, 05/15/20 | 3,500,000 | 4,764,913 | ||||||
7.88%, 02/15/21 | 1,100,000 | 1,485,190 | ||||||
5.38%, 02/15/31 | 3,800,000 | 5,301,776 | ||||||
3.38%, 05/15/44 | 4,000,000 | 4,506,085 | ||||||
16,057,964 | ||||||||
U.S. Treasury Inflation — Indexed Bonds–1.94% | ||||||||
0.63%, 01/15/24 | 13,229,580 | (e) | 13,344,133 | |||||
Total U.S. Treasury Securities |
| 115,937,039 | ||||||
U.S. Government Sponsored Agency Securities–12.27% |
| |||||||
Federal Agricultural Mortgage Corp. (FAMC)–2.83% | ||||||||
Sr. Unsec. Medium-Term Notes, | 4,000,000 | 4,087,345 | ||||||
Series 2007-1, Sec. Gtd. Notes, | 14,000,000 | 15,352,409 | ||||||
19,439,754 | ||||||||
Federal Farm Credit Bank (FFCB)–1.43% | ||||||||
Unsec. Bonds, 1.05%, 03/28/16 | 7,000,000 | 7,056,174 | ||||||
Unsec. Medium-Term Notes, | 2,100,000 | 2,761,526 | ||||||
9,817,700 | ||||||||
Federal Home Loan Bank (FHLB)–3.90% | ||||||||
Unsec. Bonds, | 4,800,000 | 4,845,382 | ||||||
4.50%, 09/13/19 | 5,000,000 | 5,621,900 | ||||||
1.88%, 03/13/20 | 6,000,000 | 6,012,972 | ||||||
3.38%, 06/12/20 | 6,220,000 | 6,698,710 | ||||||
2.88%, 09/11/20 | 3,455,000 | 3,631,852 | ||||||
26,810,816 | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC)–0.98% | ||||||||
Series 1, Unsec. Global Notes, | 1,650,000 | 1,629,298 | ||||||
Unsec. Global Notes, 2.38%, 01/13/22 | 5,000,000 | 5,078,533 | ||||||
6,707,831 | ||||||||
Federal National Mortgage Association (FNMA)–0.22% | ||||||||
Unsec. Global Notes, 2.63%, 09/06/24 | 1,500,000 | 1,521,023 | ||||||
Financing Corp (FICO)–0.50% | ||||||||
Sec. Bonds, 9.80%, 04/06/18 | 700,000 | 883,105 | ||||||
Series E, Sec. Bonds, 9.65%, 11/02/18 | 1,985,000 | 2,574,300 | ||||||
3,457,405 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Principal Amount | Value | |||||||
Tennessee Valley Authority (TVA)–2.41% | ||||||||
Sr. Unsec. Global Bonds, | $ | 13,553,000 | $ | 14,634,731 | ||||
Sr. Unsec. Global Notes, | 2,000,000 | 1,943,184 | ||||||
16,577,915 | ||||||||
Total U.S. Government Sponsored Agency Securities |
| 84,332,444 | ||||||
Bonds–8.28% |
| |||||||
Collateralized Mortgage Obligations–6.58% | ||||||||
La Hipotecaria El Salvadorian Mortgage Trust (El Salvador), Series 2013-1A, Class A, Pass Through Ctfs., 3.50%, 10/25/41 (Acquired 04/22/13; | 11,332,587 | 11,938,178 | ||||||
La Hipotecaria Panamanian Mortgage Trust (El Salvador), Series 2010-1GA, Class A, Floating Rate Pass Through Ctfs., 2.50%, 09/08/39 (Acquired 11/05/10; | 19,330,352 | 20,091,485 | ||||||
LB-UBS Commercial Mortgage Trust, | 2,375,000 | 2,397,236 | ||||||
Series 2005-C7, Class AJ, Pass Through Ctfs., 5.32%, 11/15/40 | 775,000 | 795,439 | ||||||
LSTAR Commercial Mortgage Trust, | 6,300,000 | 6,370,305 | ||||||
Morgan Stanley Capital I Trust, Series 2005-HQ6, Class AJ, Pass Through Ctfs., 5.07%, 08/13/42 | 3,575,000 | 3,629,281 | ||||||
45,221,924 | ||||||||
Credit Cards–1.03% | ||||||||
Citibank Credit Card Issuance Trust, Series 2014-A5, Class A5, Pass Through Ctfs., 2.68%, 06/07/23 | 7,000,000 | 7,085,775 | ||||||
Sovereign Debt–0.67% | ||||||||
Israel Government Agency for International Development (AID) Bond, Unsec. Gtd. Global Bonds, 5.13%, 11/01/24 | 3,800,000 | 4,574,472 | ||||||
Total Bonds |
| 56,882,171 |
Principal Amount | Value | |||||||
Corporate Notes–2.43% |
| |||||||
Private Export Funding Corp.–2.43% | ||||||||
Series BB, Sec. Gtd. Notes, | $ | 1,540,000 | $ | 1,719,755 | ||||
Series DD, Sec. Gtd. Notes, | 5,000,000 | 5,107,075 | ||||||
Series FF, Sec. Gtd. Notes, | 5,000,000 | 5,048,649 | ||||||
Series HH, Sr. Sec. Gtd. Notes, | 5,000,000 | 4,866,320 | ||||||
Total Corporate Notes |
| 16,741,799 | ||||||
Non-Agency Sponsored Obligations–1.74% |
| |||||||
Freddie Mac, | 7,300,000 | 7,181,068 | ||||||
Series 2014-DN4, Class M2, Floating Rate STACR® Debt Notes, 2.57%, 10/25/24(a)(f) | 1,100,000 | 1,097,433 | ||||||
Series 2014-HQ2, Class M2, Floating Rate STACR® Debt Notes, 2.37%, 09/25/24(a)(f) | 3,800,000 | 3,715,619 | ||||||
Total Non-Agency Obligations |
| 11,994,120 | ||||||
Shares | ||||||||
Money Market Funds–0.59% |
| |||||||
Government & Agency Portfolio, Institutional Class (Cost $4,040,705)(g) | 4,040,705 | 4,040,705 | ||||||
Options Purchased–0.00% |
| |||||||
(Cost $198,756)(h) | 25,780 | |||||||
TOTAL INVESTMENTS–99.65% |
| 684,947,983 | ||||||
OTHER ASSETS LESS LIABILITIES–0.35% |
| 2,396,182 | ||||||
NET ASSETS–100.00% |
| $ | 687,344,165 |
Investment Abbreviations:
ARM | – Adjustable Rate Mortgage | |
BAL | – Balloon | |
Ctfs. | – Certificates | |
Gtd. | – Guaranteed | |
REMICs | – Real Estate Mortgage Investment Conduits |
Sec. | – Secured | |
Sr. | – Senior | |
STACR® | – Structured Agency Credit Risk | |
Unsec. | – Unsecured |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Notes to Schedule of Investments:
(a) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 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 December 31, 2014 was $54,106,625, which represented 7.87% 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 1J and Note 4. |
(e) | Principal amount of security and interest payments are adjusted for inflation. |
(f) | Principal payments are determined by the delinquency and principal payment experience on the STACR® reference pool. Freddie Mac transfers credit risk from the mortgages in the reference pool to credit investors who invest in the STACR® debt notes. |
(g) | The money market fund and the Fund are affiliated by having the same investment adviser. |
(h) | The table below details options purchased: |
Over-the-Counter Swaptions Purchased — Interest Rate Risk | ||||||||||||||||||||||||||||||
Description | Type of Contract | Counterparty | Premium Rate | Pay/Receive Premium Rate | Floating Rate Index | Expiration Date | Notional Value | Value | ||||||||||||||||||||||
30 Year Interest Rate Swap | Put | Goldman Sachs International | 3.45 | % | Receive | 3 Month USD BBA LIBOR | 05/06/15 | $ | 12,250,000 | $ | 25,780 |
Currency Abbreviations:
BBA | – British Bankers’ Association | |
LIBOR | – London Interbank Offered Rate | |
USD | – U.S. Dollar |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $665,228,269) | $ | 680,907,278 | ||
Investments in affiliated money market funds, at value and cost | 4,040,705 | |||
Total investments, at value (Cost $669,268,974) | 684,947,983 | |||
Receivable for: | ||||
Investments sold | 34,800,782 | |||
Variation margin | 183,068 | |||
Fund shares sold | 680,329 | |||
Dividends and interest | 2,409,435 | |||
Principal paydowns | 529,838 | |||
Investment for trustee deferred compensation and retirement plans | 234,935 | |||
Total assets | 723,786,370 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 34,746,142 | |||
Fund shares reacquired | 743,416 | |||
Accrued fees to affiliates | 578,463 | |||
Accrued trustees’ and officers’ fees and benefits | 903 | |||
Accrued other operating expenses | 104,479 | |||
Trustee deferred compensation and retirement plans | 268,802 | |||
Total liabilities | 36,442,205 | |||
Net assets applicable to shares outstanding | $ | 687,344,165 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 677,007,132 | ||
Undistributed net investment income | 12,310,425 | |||
Undistributed net realized gain (loss) | (20,807,355 | ) | ||
Net unrealized appreciation | 18,833,963 | |||
$ | 687,344,165 | |||
Net Assets: |
| |||
Series I | $ | 474,556,423 | ||
Series II | $ | 212,787,742 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 40,414,588 | |||
Series II | 18,282,009 | |||
Series I: | ||||
Net asset value per share | $ | 11.74 | ||
Series II: | ||||
Net asset value per share | $ | 11.64 |
Investment income: |
| |||
Interest | $ | 16,134,366 | ||
Dividends from affiliated money market funds | 1,149 | |||
Total investment income | 16,135,515 | |||
Expenses: |
| |||
Advisory fees | 3,515,893 | |||
Administrative services fees | 2,001,922 | |||
Custodian fees | 64,719 | |||
Distribution fees — Series II | 556,340 | |||
Transfer agent fees | 52,963 | |||
Trustees’ and officers’ fees and benefits | 39,355 | |||
Other | 240,159 | |||
Total expenses | 6,471,351 | |||
Less: Fees waived | (2,514 | ) | ||
Net expenses | 6,468,837 | |||
Net investment income | 9,666,678 | |||
Realized and unrealized gain from: |
| |||
Net realized gain from: | ||||
Investment securities | 187,573 | |||
Futures contracts | 9,145,665 | |||
9,333,238 | ||||
Change in net unrealized appreciation of: | ||||
Investment securities | 7,300,849 | |||
Futures contracts | 3,965,332 | |||
11,266,181 | ||||
Net realized and unrealized gain | 20,599,419 | |||
Net increase in net assets resulting from operations | $ | 30,266,097 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Government Securities Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 9,666,678 | $ | 9,968,610 | ||||
Net realized gain (loss) | 9,333,238 | (11,506,190 | ) | |||||
Change in net unrealized appreciation (depreciation) | 11,266,181 | (25,851,310 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 30,266,097 | (27,388,890 | ) | |||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | (16,177,318 | ) | (22,128,544 | ) | ||||
Series ll | (6,330,149 | ) | (7,761,089 | ) | ||||
Total distributions from net investment income | (22,507,467 | ) | (29,889,633 | ) | ||||
Share transactions–net: |
| |||||||
Series l | (96,681,441 | ) | (265,152,570 | ) | ||||
Series ll | (16,660,069 | ) | (18,936,311 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (113,341,510 | ) | (284,088,881 | ) | ||||
Net increase (decrease) in net assets | (105,582,880 | ) | (341,367,404 | ) | ||||
Net assets: |
| |||||||
Beginning of year | 792,927,045 | 1,134,294,449 | ||||||
End of year (includes undistributed net investment income of $12,310,425 and $20,577,692, respectively) | $ | 687,344,165 | $ | 792,927,045 |
Notes to Financial Statements
December 31, 2014
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 ask 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 net investment 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. | Treasury Inflation-Protected Securities — The Fund may invest in Treasury Inflation-Protected Securities (TIPS”). TIPS are fixed income securities whose principal value is periodically adjusted to the rate of inflation. The principal value of TIPS will be adjusted upward or downward, and any increase or decrease in the principal amount of TIPS will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. |
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 (“Counterparties”) 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. | 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 Counterparty 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.
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. |
Additionally, the Fund may enter into an option on a swap agreement, also called a “swaption”. 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.
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 as Net realized gain from Investment securities. A risk in buying an option is that the Fund pays a premium whether or not the option is exercised. In addition, there can be no assurance that a liquid secondary market will exist for any option purchased.
M. | 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. |
N. | 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.47%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $2,514.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $178,312 for accounting and fund administrative services and reimbursed $1,823,610 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 | $ | 4,040,705 | $ | — | $ | — | $ | 4,040,705 | ||||||||
U.S. Treasury Securities | — | 115,937,039 | — | 115,937,039 | ||||||||||||
U.S. Government Sponsored Agency Securities | — | 479,326,369 | — | 479,326,369 | ||||||||||||
Non-Agency Sponsored Obligations | — | 11,994,120 | — | 11,994,120 | ||||||||||||
Corporate Debt Securities | — | 16,741,799 | — | 16,741,799 | ||||||||||||
Bonds | — | 20,278,036 | — | 20,278,036 | ||||||||||||
Foreign Debt Securities | — | 32,029,663 | — | 32,029,663 | ||||||||||||
Foreign Sovereign Debt Securities | — | 4,574,472 | — | 4,574,472 | ||||||||||||
Options Purchased | — | 25,780 | — | 25,780 | ||||||||||||
4,040,705 | 680,907,278 | — | 684,947,983 | |||||||||||||
Futures Contracts* | 3,154,954 | — | — | 3,154,954 | ||||||||||||
Total Investments | $ | 7,195,659 | $ | 680,907,278 | $ | — | $ | 688,102,937 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Interest rate risk: | ||||||||
Futures contracts(a) | $ | 3,914,735 | $ | (759,781 | ) | |||
Options purchased(b) | 25,780 | — | ||||||
Total | $ | 3,940,515 | $ | (759,781 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
(b) | Options purchased at value as reported in the Schedule of Investments. |
Effect of Derivative Investments for the year ended December 31, 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 | Options(a) | |||||||
Realized Gain: | ||||||||
Interest rate risk | $ | 9,145,665 | $ | 99,000 | ||||
Change in Unrealized Appreciation (Depreciation): | ||||||||
Interest rate risk | 3,965,332 | (172,976 | ) | |||||
Total | $ | 13,110,997 | $ | (73,976 | ) |
(a) | Options purchased are included in the net realized gain from investment securities and net change in unrealized appreciation on investment securities. |
The table below summarizes the twelve month average notional value of futures contracts and the four month average notional value of options purchased during the period.
Futures Contracts | Options Purchased | |||||||
Average notional value | $ | 202,576,102 | $ | 171,125,000 |
Invesco V.I. Government Securities Fund
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
U.S. Treasury 2 Year Notes | Long | 160 | March-2015 | $ | 34,975,000 | $ | (5,336 | ) | ||||||||||||
U.S. Treasury 5 Year Notes | Long | 204 | March-2015 | 24,261,656 | 6,755 | |||||||||||||||
U.S. Treasury 10 Year Notes | Long | 127 | March-2015 | 16,103,203 | 47,963 | |||||||||||||||
U.S. Ultra Bonds | Long | 532 | March-2015 | 87,879,750 | 3,860,017 | |||||||||||||||
U.S. Treasury 30 Year Bonds | Short | 208 | March-2015 | (30,069,000 | ) | (754,445 | ) | |||||||||||||
Total Futures Contracts — Interest Rate Risk | $ | 3,154,954 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 22,507,467 | $ | 29,889,633 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 12,568,420 | ||
Net unrealized appreciation — investments | 15,620,031 | |||
Temporary book/tax differences | (559,612 | ) | ||
Capital loss carryforward | (17,291,806 | ) | ||
Shares of beneficial interest | 677,007,132 | |||
Total net assets | $ | 687,344,165 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards 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 utilized $8,750,211 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, 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 | 9,291,880 | 4,154,087 | 13,445,967 | |||||||||
$ | 13,137,719 | $ | 4,154,087 | $ | 17,291,806 |
* | 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 year ended December 31, 2014 was $284,137,444 and $367,924,978, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $124,349,754 and $142,154,821, 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 | $ | 17,511,408 | ||
Aggregate unrealized (depreciation) of investment securities | (1,891,377 | ) | ||
Net unrealized appreciation of investment securities | $ | 15,620,031 |
Cost of investments for tax purposes is $669,327,952.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of paydown gains (losses) and dollar rolls, on December 31, 2014, undistributed net investment income was increased by $4,573,522 and undistributed net realized gain (loss) was decreased by $4,573,522. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,780,129 | $ | 44,538,169 | 4,151,119 | $ | 50,366,115 | ||||||||||
Series II | 2,344,721 | 27,332,900 | 2,789,136 | 33,454,648 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 1,398,212 | 16,177,318 | 1,892,946 | 22,128,544 | ||||||||||||
Series II | 551,407 | 6,330,149 | 669,059 | 7,761,089 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (13,365,628 | ) | (157,396,928 | ) | (27,869,610 | ) | (337,647,229 | ) | ||||||||
Series II | (4,310,995 | ) | (50,323,118 | ) | (5,008,779 | ) | (60,152,048 | ) | ||||||||
Net increase (decrease) in share activity | (9,602,154 | ) | $ | (113,341,510 | ) | (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 82% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Government Securities Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 11.64 | $ | 0.16 | $ | 0.32 | $ | 0.48 | $ | (0.38 | ) | $ | 11.74 | 4.14 | % | $ | 474,556 | 0.78 | %(d) | 0.78 | %(d) | 1.36 | %(d) | 55 | % | |||||||||||||||||||||||
Year ended 12/31/13 | 12.40 | 0.13 | (0.45 | ) | (0.32 | ) | (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 | ) | 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 | ) | 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 | ) | 12.00 | 5.40 | 1,072,405 | 0.73 | 0.75 | 1.98 | 61 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 11.54 | 0.13 | 0.31 | 0.44 | (0.34 | ) | 11.64 | 3.88 | 212,788 | 1.03 | (d) | 1.03 | (d) | 1.11 | (d) | 55 | ||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 12.29 | 0.10 | (0.45 | ) | (0.35 | ) | (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 | ) | 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 | ) | 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 | ) | 11.92 | 5.10 | 24,074 | 0.98 | 1.00 | 1.73 | 61 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the period ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $309,171,077 and sold of $25,033,352 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. Government Fund into the Fund. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $530,996 and $222,536 for Series I and Series II shares, respectively. |
Invesco V.I. Government Securities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Government Securities Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Government Securities Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,017.80 | $ | 4.02 | $ | 1,021.22 | $ | 4.02 | 0.79 | % | ||||||||||||
Series II | 1,000.00 | 1,016.80 | 5.29 | 1,019.96 | 5.30 | 1.04 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Government Securities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0 | % | ||
U.S. Treasury Obligations* | 22.97 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Government Securities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Government Securities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Government Securities Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Growth and Income Fund underperformed the Russell 1000 Value Index, the Fund’s style-specific benchmark. Stock selection was the primary driver of Fund performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 10.28 | % | |||
Series II Shares | 9.96 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 1000 Value Index‚ (Style-Specific Index) | 13.45 | ||||
Lipper VUF Large-Cap Value Funds Indexn (Peer Group Index) | 10.83 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities.
Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, most US equity market indexes delivered strong gains. Sector performance within the Russell 1000 Value Index was mixed for the reporting period, with some sectors, like information technology, utilities and health care returning over 20%, while other sectors, like materials and telecommunication services posted low single-digit returns. Energy was the only sector to post a negative return.
The Fund’s underweight exposure to energy stocks versus the Russell 1000 Value Index, and stock selection within the energy sector, contributed to relative Fund performance. Energy stocks sold off beginning in mid-September due to a sharp decline in the price of oil. Having underweight exposure to Exxon Mobil and not owning Chevron were the largest relative contributors to Fund performance, as both of these stocks posted negative returns and were relatively large
holdings within the style-specific benchmark. Underweight exposure to industrials stocks, and stock selection within the industrials sector, also helped relative Fund performance for the year, as the industrials sector posted only a mid-single digit return. General Dynamics, an aerospace company, helped the Fund’s relative performance. The company beat profit forecasts and provided positive guidance based on strong demand for its Gulfstream jets.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the portfolio. Derivatives were used for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period. This was mainly due to the strength of the US dollar compared to the foreign currencies in which the Fund’s non-US holdings were denominated.
On the negative side, stock selection within, and underweight exposure to, the consumer staples sector was a large detractor from the Fund’s relative performance. Notably, Avon Products, a household and personal products company, was a large detractor, posting a double-digit loss for the reporting period. Despite improving earnings, the stock performed poorly after the company settled bribery charges with the Justice Department toward the end of the reporting period. We sold our position in Avon Products before the end of the year.
Stock selection in, and underweight exposure to, the financials sector dampened Fund performance as well. Not having any exposure to real estate investment trusts was the largest detractor
Portfolio Composition | |||||
By sector | |||||
Financials | 29.9 | % | |||
Information Technology | 14.7 | ||||
Health Care | 12.7 | ||||
Energy | 10.5 | ||||
Consumer Discretionary | 10.4 | ||||
Industrials | 7.9 | ||||
Consumer Staples | 5.5 | ||||
Telecommunication Services | 2.5 | ||||
Utilities | 1.5 | ||||
Materials | 1.1 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 3.3 |
Top 10 Equity Holdings* | |||||
1. JPMorgan Chase & Co. | 4.7 | % | |||
2. Citigroup Inc. | 4.5 | ||||
3. General Electric Co. | 2.8 | ||||
4. Morgan Stanley | 2.6 | ||||
5. Royal Dutch Shell PLC- Class A | 2.5 | ||||
6. Bank of America Corp. | 2.2 | ||||
7. Target Corp. | 1.8 | ||||
8. PNC Financial Services Group, Inc. (The) | 1.7 | ||||
9. Carnival Corp. | 1.7 | ||||
10. Applied Materials, Inc. | 1.7 |
Top Five Industries | |||||
1. Diversified Banks | 12.4 | % | |||
2. Pharmaceuticals | 7.8 | ||||
3. Integrated Oil & Gas | 5.7 | ||||
4. Investment Banking & Brokerage | 5.0 | ||||
5. Regional Banks | 4.4 |
Total Net Assets | $2.0 billion | |||||||||
Total Number of Holdings* | 85 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Growth and Income Fund
within the sector. As value managers, we seek companies that are undervalued compared to the company’s historical price, the broad equity market and relative peers. Real estate posted outsized returns during the year due to investor demand for yield, which drove valuations to unattractive levels.
Weak stock selection in the consumer discretionary sector also hurt Fund performance relative to our style-specific benchmark. Fund holdings such as media giant Viacom and automobile manufacturer General Motors posted negative returns. Investor confidence in General Motors eroded somewhat after the firm announced a recall of faulty ignition switches after a 10-year delay.
Cash also detracted from relative Fund performance. We use cash to purchase holdings when we discover promising investment opportunities and for liquidity, to allow for redemptions.
Equity markets, although providing investors strong absolute returns, experienced continued volatility during the reporting period. Reasons for volatility included political unrest in Eastern Europe, a sluggish Chinese economy and the effects on the global economy of falling oil prices. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
Thank you for your investment in Invesco V.I. Growth and Income Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Thomas Bastian Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Growth and | ||
Income Fund. He joined Invesco in 2010. Mr. Bastian earned a BA in accounting from St. John’s University and an MBA in finance from University of Michigan. | ||
Mary Jayne Maly Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Growth and Income Fund. | ||
She joined Invesco in 2010. Ms. Maly earned a BA from the University of Pittsburgh and an MBA from the Thunderbird School of Global Management. | ||
Sergio Marcheli Portfolio Manager, is manager of Invesco V.I. Growth and Income Fund. He joined Invesco in 2010. | ||
Mr. Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. | ||
James Roeder Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Growth and Income Fund. | ||
He joined Invesco in 2010. Mr. Roeder earned a BS in accounting from Clemson University and an MBA in economics and finance from the University of Chicago Booth School of Business. |
Invesco V.I. Growth and Income Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14
| |||||
Series I Shares | |||||
Inception (12/23/96) | 9.19 | % | |||
10 Years | 7.58 | ||||
5 Years | 13.32 | ||||
1 Year | 10.28 | ||||
Series II Shares | |||||
Inception (9/18/00) | 6.57 | % | |||
10 Years | 7.31 | ||||
5 Years | 13.02 | ||||
1 Year | 9.96 |
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 June 30, 2016. See current prospectus for more information. |
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, 2016. See current prospectus for more information. |
Invesco V.I. Growth and Income Fund
Invesco V.I. Growth and Income Fund’s investment objective is to seek long-term growth of capital and income.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with
characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Growth and Income Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.69% |
| |||||||
Aerospace & Defense–0.97% | ||||||||
General Dynamics Corp. | 140,310 | $ | 19,309,462 | |||||
Agricultural Products–1.11% | ||||||||
Archer-Daniels-Midland Co. | 425,611 | 22,131,772 | ||||||
Application Software–1.78% | ||||||||
Adobe Systems Inc.(b) | 280,917 | 20,422,666 | ||||||
Citrix Systems, Inc.(b) | 236,906 | 15,114,603 | ||||||
35,537,269 | ||||||||
Asset Management & Custody Banks–2.51% | ||||||||
Northern Trust Corp. | 309,802 | 20,880,655 | ||||||
State Street Corp. | 370,137 | 29,055,754 | ||||||
49,936,409 | ||||||||
Automobile Manufacturers–1.13% | ||||||||
General Motors Co. | 644,091 | 22,485,217 | ||||||
Biotechnology–1.37% | ||||||||
Amgen Inc. | 171,009 | 27,240,024 | ||||||
Cable & Satellite–2.72% | ||||||||
Comcast Corp.–Class A | 566,236 | 32,847,350 | ||||||
Time Warner Cable Inc. | 140,295 | 21,333,258 | ||||||
54,180,608 | ||||||||
Communications Equipment–1.36% | ||||||||
Cisco Systems, Inc. | 973,127 | 27,067,527 | ||||||
Construction Machinery & Heavy Trucks–1.13% | ||||||||
Caterpillar Inc. | 245,569 | 22,476,931 | ||||||
Consumer Finance–0.52% | ||||||||
Synchrony Financial(b) | 344,814 | 10,258,216 | ||||||
Diversified Banks–12.39% | ||||||||
Bank of America Corp. | 2,486,202 | 44,478,154 | ||||||
Citigroup Inc. | 1,641,665 | 88,830,493 | ||||||
Comerica Inc. | 434,968 | 20,373,901 | ||||||
JPMorgan Chase & Co. | 1,484,089 | 92,874,290 | ||||||
246,556,838 | ||||||||
Diversified Chemicals–0.48% | ||||||||
Dow Chemical Co. (The) | 208,170 | 9,494,634 | ||||||
Diversified Metals & Mining–0.58% | ||||||||
Freeport-McMoRan Inc. | 497,221 | 11,615,082 | ||||||
Electric Utilities–0.66% | ||||||||
FirstEnergy Corp. | 338,707 | 13,206,186 | ||||||
Electronic Components–1.22% | ||||||||
Corning Inc. | 1,061,592 | 24,342,304 | ||||||
General Merchandise Stores–1.75% | ||||||||
Target Corp. | 459,744 | 34,899,167 |
Shares | Value | |||||||
Health Care Equipment–0.89% | ||||||||
Medtronic, Inc. | 244,483 | $ | 17,651,673 | |||||
Health Care Services–0.40% | ||||||||
Express Scripts Holding Co.(b) | 92,931 | 7,868,468 | ||||||
Hotels, Resorts & Cruise Lines–1.71% | ||||||||
Carnival Corp. | 749,978 | 33,996,503 | ||||||
Household Products–1.22% | ||||||||
Procter & Gamble Co. (The) | 267,248 | 24,343,620 | ||||||
Hypermarkets & Super Centers–0.30% | ||||||||
Wal-Mart Stores, Inc. | 69,686 | 5,984,634 | ||||||
Industrial Conglomerates–2.82% | ||||||||
General Electric Co. | 2,223,414 | 56,185,672 | ||||||
Industrial Machinery–1.20% | ||||||||
Ingersoll-Rand PLC | 376,773 | 23,883,640 | ||||||
Insurance Brokers–3.18% | ||||||||
Aon PLC | 210,421 | 19,954,224 | ||||||
Marsh & McLennan Cos., Inc. | 472,588 | 27,050,937 | ||||||
Willis Group Holdings PLC | 362,563 | 16,246,448 | ||||||
63,251,609 | ||||||||
Integrated Oil & Gas–5.74% | ||||||||
Exxon Mobil Corp. | 216,942 | 20,056,288 | ||||||
Occidental Petroleum Corp. | 236,092 | 19,031,376 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 1,519,166 | 50,358,225 | ||||||
Total S.A. (France) | 482,154 | 24,860,511 | ||||||
114,306,400 | ||||||||
Integrated Telecommunication Services–1.58% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 1,392,551 | 4,390,590 | ||||||
Orange S.A. (France) | 300,083 | 5,103,504 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 2,803,486 | 2,973,276 | ||||||
Telefonica S.A. (Spain) | 211,524 | 3,025,756 | ||||||
Verizon Communications Inc. | 339,178 | 15,866,747 | ||||||
31,359,873 | ||||||||
Internet Software & Services–1.54% | ||||||||
eBay Inc.(b) | 545,358 | 30,605,491 | ||||||
Investment Banking & Brokerage–4.95% | ||||||||
Charles Schwab Corp. (The) | 824,273 | 24,884,802 | ||||||
Goldman Sachs Group, Inc. (The) | 112,003 | 21,709,541 | ||||||
Morgan Stanley | 1,336,351 | 51,850,419 | ||||||
98,444,762 | ||||||||
IT Consulting & Other Services–1.18% | ||||||||
Amdocs Ltd. | 501,955 | 23,418,710 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Shares | Value | |||||||
Managed Health Care–2.25% | ||||||||
Anthem, Inc. | 159,935 | $ | 20,099,032 | |||||
UnitedHealth Group Inc. | 245,081 | 24,775,238 | ||||||
44,874,270 | ||||||||
Movies & Entertainment–2.25% | ||||||||
Time Warner Inc. | 167,405 | 14,299,735 | ||||||
Viacom Inc.–Class B | 405,002 | 30,476,401 | ||||||
44,776,136 | ||||||||
Multi-Utilities–0.78% | ||||||||
PG&E Corp. | 293,377 | 15,619,391 | ||||||
Oil & Gas Drilling–0.58% | ||||||||
Ensco PLC–Class A | 384,185 | 11,506,341 | ||||||
Oil & Gas Equipment & Services–1.17% | ||||||||
Baker Hughes Inc. | 413,954 | 23,210,401 | ||||||
Oil & Gas Exploration & Production–3.01% | ||||||||
Anadarko Petroleum Corp. | 204,686 | 16,886,595 | ||||||
Apache Corp. | 349,984 | 21,933,497 | ||||||
California Resources Corp.(b) | 1 | 4 | ||||||
Canadian Natural Resources Ltd. (Canada) | 685,537 | 21,195,119 | ||||||
60,015,215 | ||||||||
Other Diversified Financial Services–1.24% | ||||||||
Voya Financial, Inc. | 582,650 | 24,692,707 | ||||||
Packaged Foods & Meats–1.91% | ||||||||
Mondelez International Inc.–Class A | 642,338 | 23,332,928 | ||||||
Unilever N.V.–New York Shares (United Kingdom) | 375,397 | 14,655,499 | ||||||
37,988,427 | ||||||||
Pharmaceuticals–7.83% | ||||||||
Eli Lilly and Co. | 392,130 | 27,053,049 | ||||||
Hospira, Inc.(b) | 154,805 | 9,481,806 | ||||||
Merck & Co., Inc. | 518,938 | 29,470,489 | ||||||
Novartis AG (Switzerland) | 309,454 | 28,462,569 | ||||||
Novartis AG–ADR (Switzerland) | 25,019 | 2,318,260 | ||||||
Pfizer Inc. | 475,998 | 14,827,338 | ||||||
Sanofi (France) | 189,705 | 17,289,652 | ||||||
Teva Pharmaceutical Industries Ltd.– ADR (Israel) | 468,856 | 26,963,909 | ||||||
155,867,072 | ||||||||
Publishing–0.86% | ||||||||
Thomson Reuters Corp. | 424,780 | 17,136,718 | ||||||
Railroads–0.78% | ||||||||
CSX Corp. | 431,283 | 15,625,383 |
Shares | Value | |||||||
Regional Banks–4.38% | ||||||||
BB&T Corp. | 434,544 | $ | 16,899,416 | |||||
Citizens Financial Group Inc. | 577,161 | 14,348,222 | ||||||
Fifth Third Bancorp | 845,957 | 17,236,374 | ||||||
First Horizon National Corp. | 292,933 | 3,978,030 | ||||||
PNC Financial Services Group, Inc. (The) | 380,851 | 34,745,037 | ||||||
87,207,079 | ||||||||
Security & Alarm Services–1.02% | ||||||||
Tyco International PLC | 462,995 | 20,309,276 | ||||||
Semiconductor Equipment–1.70% | ||||||||
Applied Materials, Inc. | 1,354,410 | 33,751,897 | ||||||
Semiconductors–2.30% | ||||||||
Broadcom Corp.–Class A | 447,013 | 19,369,073 | ||||||
Intel Corp. | 727,519 | 26,401,665 | ||||||
45,770,738 | ||||||||
Specialized Finance–0.76% | ||||||||
CME Group Inc.–Class A | 170,975 | 15,156,934 | ||||||
Systems Software–2.73% | ||||||||
Microsoft Corp. | 553,003 | 25,686,989 | ||||||
Symantec Corp. | 1,117,278 | 28,663,767 | ||||||
54,350,756 | ||||||||
Technology Hardware, Storage & Peripherals–0.84% | ||||||||
NetApp, Inc. | 403,404 | 16,721,096 | ||||||
Tobacco–0.99% | ||||||||
Philip Morris International Inc. | 243,117 | 19,801,880 | ||||||
Wireless Telecommunication Services–0.92% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 537,971 | 18,382,469 | ||||||
Total Common Stocks & Other Equity Interests |
| 1,924,802,887 | ||||||
Money Market Funds–3.40% |
| |||||||
Liquid Assets Portfolio–Institutional Class(c) | 33,836,434 | 33,836,434 | ||||||
Premier Portfolio–Institutional | 33,836,433 | 33,836,433 | ||||||
Total Money Market Funds |
| 67,672,867 | ||||||
TOTAL INVESTMENTS–100.09% |
| 1,992,475,754 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.09)% |
| (1,756,176 | ) | |||||
NET ASSETS–100.00% |
| $ | 1,990,719,578 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Growth and Income Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $1,517,342,053) | $ | 1,924,802,887 | ||
Investments in affiliated money market funds, at value and cost | 67,672,867 | |||
Total investments, at value (Cost $1,585,014,920) | 1,992,475,754 | |||
Cash | 94,193 | |||
Foreign currencies, at value (Cost $950,432) | 935,010 | |||
Receivable for: | ||||
Investments sold | 6,831,136 | |||
Fund shares sold | 26,460 | |||
Dividends | 3,361,266 | |||
Fund expenses absorbed | 37,826 | |||
Investment for trustee deferred compensation and retirement plans | 186,372 | |||
Unrealized appreciation on forward foreign currency contracts | 3,383,237 | |||
Total assets | 2,007,331,254 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 9,874,363 | |||
Fund shares reacquired | 4,187,592 | |||
Accrued fees to affiliates | 2,280,397 | |||
Accrued trustees’ and officers’ fees and benefits | 1,793 | |||
Accrued other operating expenses | 48,619 | |||
Trustee deferred compensation and retirement plans | 218,912 | |||
Total liabilities | 16,611,676 | |||
Net assets applicable to shares outstanding | $ | 1,990,719,578 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 1,290,273,312 | ||
Undistributed net investment income | 39,229,409 | |||
Undistributed net realized gain | 250,422,201 | |||
Net unrealized appreciation | 410,794,656 | |||
$ | 1,990,719,578 | |||
Net Assets: |
| |||
Series I | $ | 161,865,958 | ||
Series II | $ | 1,828,853,620 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 6,436,569 | |||
Series II | 72,886,101 | |||
Series I: | ||||
Net asset value per share | $ | 25.15 | ||
Series II: | ||||
Net asset value per share | $ | 25.09 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,211,212) | $ | 64,350,593 | ||
Dividends from affiliated money market funds | 23,607 | |||
Total investment income | 64,374,200 | |||
Expenses: | ||||
Advisory fees | 12,071,801 | |||
Administrative services fees | 5,527,652 | |||
Custodian fees | 97,144 | |||
Distribution fees — Series II | 4,963,455 | |||
Transfer agent fees | 29,397 | |||
Trustees’ and officers’ fees and benefits | 56,813 | |||
Other | 96,831 | |||
Total expenses | 22,843,093 | |||
Less: Fees waived | (1,209,055 | ) | ||
Net expenses | 21,634,038 | |||
Net investment income | 42,740,162 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (includes net gains from a redemption-in-kind of $146,350,402) | 383,474,913 | |||
Foreign currencies | (11,473 | ) | ||
Forward foreign currency contracts | 11,740,909 | |||
395,204,349 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (254,270,237 | ) | ||
Foreign currencies | (54,632 | ) | ||
Forward foreign currency contracts | 5,061,610 | |||
(249,263,259 | ) | |||
Net realized and unrealized gain | 145,941,090 | |||
Net increase in net assets resulting from operations | $ | 188,681,252 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 42,740,162 | $ | 26,853,402 | ||||
Net realized gain | 395,204,349 | 233,036,749 | ||||||
Change in net unrealized appreciation (depreciation) | (249,263,259 | ) | 415,214,219 | |||||
Net increase in net assets resulting from operations | 188,681,252 | 675,104,370 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (2,868,324 | ) | (2,305,237 | ) | ||||
Series ll | (27,337,329 | ) | (27,699,552 | ) | ||||
Total distributions from net investment income | (30,205,653 | ) | (30,004,789 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (18,653,014 | ) | (1,362,853 | ) | ||||
Series ll | (213,598,375 | ) | (19,141,457 | ) | ||||
Total distributions from net realized gains | (232,251,389 | ) | (20,504,310 | ) | ||||
Share transactions–net: | ||||||||
Series l | (3,091,739 | ) | (11,114,225 | ) | ||||
Series ll | (438,796,408 | ) | (193,330,275 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (441,888,147 | ) | (204,444,500 | ) | ||||
Net increase (decrease) in net assets | (515,663,937 | ) | 420,150,771 | |||||
Net assets: | ||||||||
Beginning of year | 2,506,383,515 | 2,086,232,744 | ||||||
End of year (includes undistributed net investment income of $39,229,409 and $26,706,352, respectively) | $ | 1,990,719,578 | $ | 2,506,383,515 |
Notes to Financial Statements
December 31, 2014
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.
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. Growth and Income 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 ask 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 net investment 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. Growth and Income Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.56%.
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, 2016, 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
Invesco V.I. Growth and Income Fund
advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the total annual fund operating expenses after fee waiver and/or expense reimbursement to exceed the numbers reflected above: (1) interest; (2) taxes; (3) dividend expense on short sales; (4) extraordinary or non-routine items, including litigation expenses; and (5) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Unless Invesco continues the fee waiver agreement, it will terminate on April 30, 2016. 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 year ended December 31, 2014, the Adviser waived advisory fees of $1,209,055.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $434,424 for accounting and fund administrative services and reimbursed $5,093,228 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $20,118 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 1,856,011,670 | $ | 136,464,084 | $ | — | $ | 1,992,475,754 | ||||||||
Forward Foreign Currency Contracts* | — | 3,383,237 | — | 3,383,237 | ||||||||||||
Total Investments | $ | 1,856,011,670 | $ | 139,847,321 | $ | — | $ | 1,995,858,991 |
* | Unrealized appreciation. |
Invesco V.I. Growth and Income Fund
NOTE 4—Derivative Investments
Value of Derivative Investments at Period-End
The table below summarizes the value of the Fund’s derivative investments, detailed by primary risk exposure, held as of December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 3,505,341 | $ | (122,104 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts. |
Effect of Derivative Investments for the year ended December 31, 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 | ||||
Realized Gain: | ||||
Currency risk | $ | 11,740,909 | ||
Change in Unrealized Appreciation: | ||||
Currency risk | 5,061,610 | |||
Total | $ | 16,802,519 |
The table below summarizes the average notional value of forward foreign currency contracts outstanding during the period.
Forward Foreign Currency Contracts | ||||
Average notional value | $ | 163,603,453 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CAD | 16,998,531 | USD | 14,922,642 | $ | 14,628,501 | $ | 294,141 | |||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CAD | 17,046,183 | USD | 14,964,475 | 14,669,510 | 294,965 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CHF | 11,714,479 | USD | 12,161,285 | 11,785,780 | 375,505 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CHF | 11,738,974 | USD | 12,184,058 | 11,810,424 | 373,634 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | EUR | 23,245,120 | USD | 29,004,331 | 28,131,333 | 872,998 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | EUR | 23,277,202 | USD | 29,044,711 | 28,170,158 | 874,553 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | GBP | 15,514,848 | USD | 24,387,945 | 24,181,486 | 206,459 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | GBP | 15,522,876 | USD | 24,407,084 | 24,193,998 | 213,086 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | ILS | 39,068,164 | USD | 9,963,319 | 10,020,702 | (57,383 | ) | ||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | ILS | 39,205,664 | USD | 9,991,249 | 10,055,970 | (64,721 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk |
| $ | 3,383,237 |
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. Growth and Income Fund
There were no derivative instruments subject to a netting agreement for which the Fund is not currently netting. The following tables present derivative instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements as of December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | 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 New York Mellon (The) | $ | 1,749,103 | $ | (57,383) | $ | 1,691,720 | $ | — | $ | — | $ | 1,691,720 | ||||||||||||
State Street Bank and Trust Co. | 1,756,238 | (64,721) | 1,691,517 | — | — | 1,691,517 | ||||||||||||||||||
Total | $ | 3,505,341 | $ | (122,104) | $ | 3,383,237 | $ | — | $ | — | $ | 3,383,237 | ||||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts of Recognized Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in | Collateral Pledged | |||||||||||||||||||||
Counterparty | Financial Instruments | Cash | Net Amount | |||||||||||||||||||||
Bank of New York Mellon (The) | $ | 57,383 | $ | (57,383 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
State Street Bank and Trust Co. | 64,721 | (64,721 | ) | — | — | — | ||||||||||||||||||
Total | $ | 122,104 | $ | (122,104 | ) | $ | — | $ | — | $ | — | $ | — |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 46,556,343 | $ | 30,004,789 | ||||
Long-term capital gain | 215,900,699 | 20,504,310 | ||||||
Total distributions | $ | 262,457,042 | $ | 50,509,099 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 55,012,323 | ||
Undistributed long-term gain | 238,762,375 | |||
Net unrealized appreciation — investments | 406,934,784 | |||
Net unrealized appreciation (depreciation) — other investments | (49,415 | ) | ||
Temporary book/tax differences | (213,801 | ) | ||
Shares of beneficial interest | 1,290,273,312 | |||
Total net assets | $ | 1,990,719,578 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Invesco V.I. Growth and Income Fund
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
On April 28, 2014, 308,207 of Series I and 17,107,924 of Series II shares valued at $8,195,231 and $453,531,068, respectively, were redeemed by a significant shareholder and settled through a redemption-in-kind transaction, of which $7,845,151 consisted of cash, which resulted in a realized gain of $146,350,402 to the Fund for book purposes. From a federal income tax perspective, the realized gains are not recognized.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $656,806,578 and $1,290,515,183, 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 | $ | 448,007,684 | ||
Aggregate unrealized (depreciation) of investment securities | (41,072,900 | ) | ||
Net unrealized appreciation of investment securities | $ | 406,934,784 |
Cost of investments for tax purposes is $1,585,540,970.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and redemption-in-kind, on December 31, 2014, undistributed net investment income was decreased by $11,452, undistributed net realized gain was decreased by $145,990,666 and shares of beneficial interest was increased by $146,002,118. This reclassification had no effect on the net assets of the Fund.
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 581,688 | $ | 15,339,280 | 732,389 | $ | 17,501,732 | ||||||||||
Series II | 4,416,406 | 110,573,933 | 3,449,020 | 79,001,588 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 878,063 | 21,521,338 | 150,517 | 3,668,090 | ||||||||||||
Series II | 9,846,167 | 240,935,704 | 1,925,237 | 46,841,009 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,513,399 | ) | (39,952,357 | ) | (1,364,259 | ) | (32,284,047 | ) | ||||||||
Series II | (30,433,883 | ) | (790,306,045 | ) | (13,466,001 | ) | (319,172,872 | ) | ||||||||
Net increase (decrease) in share activity | (16,224,958 | ) | $ | (441,888,147 | ) | (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 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. Growth and Income Fund
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains on securities (both | Total from operations | Dividends income | Distributions from net gains | Total distributions | 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(d) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 26.29 | $ | 0.59 | (f) | $ | 2.02 | $ | 2.61 | $ | (0.50 | ) | $ | (3.25 | ) | $ | (3.75 | ) | $ | 25.15 | 10.28 | % | $ | 161,866 | 0.78 | %(e) | 0.83 | %(e) | 2.22 | %(e)(f) | 31 | % | ||||||||||||||||||||||||
Year ended 12/31/13 | 20.07 | 0.32 | 6.47 | 6.79 | (0.36 | ) | (0.21 | ) | (0.57 | ) | 26.29 | 34.08 | 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 | 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 | ) | 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 | 154,488 | 0.61 | 0.74 | 1.42 | 30 | ||||||||||||||||||||||||||||||||||||||||
Series II(d) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 26.23 | 0.52 | (f) | 2.01 | 2.53 | (0.42 | ) | (3.25 | ) | (3.67 | ) | 25.09 | 9.96 | 1,828,854 | 1.03 | (e) | 1.08 | (e) | 1.97 | (e)(f) | 31 | |||||||||||||||||||||||||||||||||||
Year ended 12/31/13 | 20.03 | 0.26 | 6.46 | 6.72 | (0.31 | ) | (0.21 | ) | (0.52 | ) | 26.23 | 33.77 | 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 | 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 | ) | 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 | 1,725,378 | 0.86 | 0.99 | 1.17 | 30 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | 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. |
(e) | Ratios are based on average daily net assets (000’s omitted) of $164,037 and $1,985,382 for Series I and Series II shares, respectively. |
(f) | Net investment income per share and the ratio of net investment income 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 $0.35 and 1.29 %, $0.28 and 1.04%, for Series I and Series II shares, respectively. |
Invesco V.I. Growth and Income Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Growth and Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Growth and Income Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,033.20 | $ | 4.00 | $ | 1,021.27 | $ | 3.97 | 0.78 | % | ||||||||||||
Series II | 1,000.00 | 1,031.60 | 5.27 | 1,020.01 | 5.24 | 1.03 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Growth and Income Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 215,900,699 | ||
Corporate Dividends Received Deduction* | 96.61 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Growth and Income Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Growth and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees —(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Growth and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Growth and Income Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Growth and Income Fund
|
| |||
Annual Report to Shareholders
| December 31, 2014 | |||
Invesco V.I. High Yield 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. VIHYI-AR-1
| ||
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. High Yield Fund underperformed its style-specific index, the Barclays U.S. Corporate High Yield 2% Issuer Cap Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 1.73 | % | |||
Series II Shares | 1.59 | ||||
Barclays U.S. Aggregate Index‚ (Broad Market Index) | 5.97 | ||||
Barclays U.S. Corporate High Yield 2% Issuer Cap Index‚ (Style-Specific Index) | 2.46 | ||||
Lipper VUF High Current Yield Bond Funds Classification Averagen (Peer Group) | 1.59 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
The high yield market produced positive results for the year, but increased volatility in the second half of the year tempered gains. High yield markets had a strong start to 2014, and over the first half of the year they outperformed most other fixed income asset classes. The US Federal Reserve (the Fed) policy remained accommodative, lengthening the credit cycle and extending the low interest rate environment. As the US economy continued along a slow growth path, the Fed reduced its asset purchase program throughout 2014, finally ending all purchases in October. Unusually cold winter weather in the first quarter of 2014 impacted consumer spending, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the
Portfolio Composition† | |||||
By credit quality, based on total investments*
|
| ||||
BBB | 0.8 | % | |||
BB | 48.5 | ||||
B | 39.7 | ||||
CCC | 9.6 | ||||
Non-rated | 1.4 |
† | Source: Standard & Poor’s. A credit rating is an assessment provided by a nationally recognized statistical rating organization (NRSRO) of the creditworthiness of an issuer with respect to debt obligations, including specific securities, money market instruments or other debts. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest); ratings are subject to change without notice. “Non-Rated” indicates the debtor was not rated, and should not be interpreted as indicating low quality. For more information on Standard and Poor’s rating methodology, please visit standardandpoors.com and select “Understanding Ratings” under Rating Resources on the homepage. |
year. During the summer, volatility picked up amid growing geopolitical concerns and shifting language from the Fed. Despite positive earnings trends and relatively low default rates, significant mutual fund redemptions put further technical pressure on bond valuations.
Additional concerns included weakness in commodity prices, general economic weakness in Europe and slowing growth in China. As investors wrestled with evidence that the US economy appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities and high yield bonds. Energy is the largest sector in the high yield market, and it came under considerable pressure as oil prices dropped around the globe. However, in December the Fed indicated its intention to be patient before raising interest rates; this caused investor
Top 10 Issuers* | ||||||||
1. | T-Mobile USA, Inc. | 2.1 | % | |||||
2. | First Data Corp. | 1.5 | ||||||
3. | Valeant Pharmaceuticals International, Inc. | 1.5 | ||||||
4. | Tenet Healthcare Corp. | 1.5 | ||||||
5. | Sprint Corp. | 1.4 | ||||||
6. | Intelsat Luxembourg S.A. | 1.3 | ||||||
7. | TransDigm Inc. | 1.2 | ||||||
8. | Wind Acquisition Finance S.A. | 1.2 | ||||||
9. | Berry Plastics Corp. | 1.1 | ||||||
10. | SBA Communications Corp. | 1.1 |
Total Net Assets
| $
| 154.0 million
|
| ||
Total Number of Holdings* | 302 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding U.S. Treasury Bills and money market fund holdings.
confidence to improve regarding the high yield market.
The par-weighted high yield default rate increased to 2.96% in 2014, the highest level since 2009.1 The main cause for the increase was the widely anticipated default of TXU during the second quarter. This was the largest default in high yield history and had a significant impact on the 12-month default rate.1 Excluding TXU, the default rate was a more modest 1.63%, which is consistent with the default rate seen over the last few years.1
New issuance had another impressive year in 2014, albeit not as impressive as the record-breaking 2013, which saw $399 billion of new issuance.1 However, even with a challenging macroeconomic backdrop, total new issuance for 2014 was $356 billion.1 Further, non-US-dollar- denominated high yield new issuance was a record $108 billion, shattering 2013’s record of $82 billion.1
The US high yield bond market, as measured by the Barclays U.S. Corporate High Yield 2% Issuer Cap Index, the Fund’s style-specific index, generated a positive return for the year ended December 31, 2014. Likewise, the Fund generated positive returns for the year; however, it underperformed its style-specific index. During the first half of the year, we were overweight in the energy sector, but we reduced our exposure to energy companies in August as we thought relative value targets had been achieved.
The most significant contributor to the Fund’s performance versus its style-specific index was underweight exposure to the independent energy sector, one of the worst-performing sectors in the high yield market. Additionally, strong credit selection in the retailers, gaming, aerospace/defense and finance companies sectors contributed to relative performance. Further amplifying our relative returns were our overweight allocations to the other REITs (real estate investment trusts) and food and beverage sectors. Although oil field services was the poorest-performing sector in the market for the year, strong credit selection in the sector helped the Fund’s relative performance.
The leading detractor from Fund performance was our positioning in the metals and mining sector, due to both an overweight allocation and credit selection. Similarly, the wirelines and banking sectors were detractors due to both credit selection and sector allocation. We were
Invesco V.I. High Yield Fund
underweight in these sectors, and they proved to be market outperformers. Additionally, issuer selection in the automotive and midstream sectors resulted in negative relative Fund performance. Finally, our underweight exposure to BB-rated securities throughout the year hurt our relative performance as the highest-rated tier of the high yield market outperformed, in part because of the higher duration feature of the securities in this tier.†
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-dollar-denominated debt. The use of currency forward contracts had a positive impact on the Fund’s performance relative to our style-specific index for the reporting period. This was due to the strengthening of the US dollar. We also used credit default swaps (CDX) to efficiently manage the portfolio and to take advantage of relative value opportunities. The use of CDX also had a small benefit to Fund performance.
At the close of 2014, investors continued to watch the Fed for signs of when it might hike interest rates. Uncertainty around oil prices led to volatility, as the high yield market has heavy exposure to energy. The escalation we have seen in risk premiums associated with the decline in commodity prices, and the pressure that placed on the energy sector has created quite a bit of value in the overall market. Away from the energy space, the market continued to price in a default rate closer to 4%.1 This is considerably higher than most analyst forecasts which are in the 2.5% range.1 We believe default rates may rise in 2015, but we simply do not believe defaults will be as high as spreads would imply. Additionally, high yield securities have typically performed relatively well in rising rate environments. We believe the case for high yield is compelling: the long term fundamental background for the asset class remains constructive, there are very low default rates, and the asset class may provide a cushion against interest rate increases due to its relatively short duration and high average coupon.
We wish to remind you that the Fund is subject to interest rate risk, meaning when interest rates rise, the value of fixed income securities tend to fall. This risk may be greater in the current market environment because interest rates are at or near historic lows. The degree to which the value of fixed income securities may decline due to rising interest rates may vary depending on the speed and magnitude of the increase in interest
rates, as well as individual security characteristics such as price, maturity, duration and coupon and market forces such as supply and demand for similar securities. We are monitoring interest rates, and the market, economic and geopolitical factors that may impact the direction, speed and magnitude of changes to interest rates across the maturity spectrum, including the potential impact of monetary policy changes by the Fed and certain foreign central banks. If interest rates rise, markets may experience increased volatility, which may affect the value and/ or liquidity of certain of the Fund’s investments.
Thank you for investing in Invesco V.I. High Yield Fund and for sharing our long-term investment horizon.
1 | Source: J.P. Morgan High Yield Monitor |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Darren Hughes Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. High Yield Fund. He |
joined Invesco in 1992. Mr. Hughes earned a BBA in finance and economics from Baylor University.
Scott Roberts Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. High Yield Fund. He joined |
Invesco in 2000. Mr. Roberts earned a BBA in finance from the University of Houston.
Invesco V.I. High Yield Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/1/98) | 4.29 | % | |||
10 Years | 6.70 | ||||
5 Years | 7.90 | ||||
1 Year | 1.73 | ||||
Series II Shares | |||||
Inception (3/26/02) | 7.48 | % | |||
10 Years | 6.44 | ||||
5 Years | 7.69 | ||||
1 Year | 1.59 |
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 data at the Fund level, excluding variable product charges, is available at 800 451 4246. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial adviser.
Had the adviser not waived fees and/ or reimbursed expenses in the past, performance would have been lower.
Invesco V.I. High Yield Fund
Invesco V.I. High Yield Fund’s investment objective is total return, comprised of current income and capital appreciation.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Collateralized loan obligations risk. In addition to the normal interest rate, default and other risk of fixed income securities, collateralized loan obligations carry additional risks, including the possibility that distributions from collateral securities will not be adequate to make interest or other payments, the quality of the collateral may decline in value or default, the Fund may invest in collateralized loan obligations that are subordinate to other classes, values may be volatile, and disputes with the issuer may produce unexpected investment results.
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions
at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
High yield bond (junk bond) risk. Junk bonds involve a greater risk of default or price changes due to changes in the credit quality of the issuer. The values of junk bonds fluctuate more than those of high- quality bonds in response to company, political, regulatory or economic developments. Values of junk bonds can decline significantly over short periods of time.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Liquidity risk. The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose
its entire investment in such securities.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mortgage- and asset-backed securities risk. The Fund may invest in mortgage- and asset-backed securities that are subject to prepayment or call risk, which is the risk that the borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. Faster prepayments often happen when interest rates are falling. As a result, the Fund may reinvest these early payments at lower interest rates, thereby reducing the Fund’s income. Conversely, when interest rates rise, prepayments may happen more slowly, causing the security to lengthen in duration. Longer duration securities tend to be more volatile. Securities may be prepaid at a price less than the original purchase value. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. The risk of such defaults is generally higher in the case of mortgage pools that include subprime mortgages. Subprime mortgages refer to loans made to borrowers with weakened credit histories or with lower capacity to make timely payments on their mortgages.
Municipal securities risk. The Fund may invest in municipal securities. Constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives, and the issuer’s regional economic conditions may affect the municipal security’s value, interest payments, repayment of principal and the Fund’s ability to sell it. Failure of a municipal security issuer to comply with applicable tax requirements may make income paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax
Invesco V.I. High Yield Fund
exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
Reinvestment risk. Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be reinvested at an interest rate below that on the original bond.
Zero coupon or pay-in-kind securities risk. The value, interest rates, and liquidity of non-cash paying instruments, such as zero coupon and pay-in-kind securities, are subject to greater fluctuation than other types of securities. The higher yields and interest rates on pay-in-kind securities reflect the payment deferral and increased credit risk associated with such instruments and that such investments may represent a higher credit risk than coupon loans. Pay-in-kind securities may have a potential variability in valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral.
About indexes used in this report
The Barclays U.S. Aggregate Index is an unmanaged index considered representative of the US investment-grade, fixed-rate bond market.
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an unmanaged index comprising US corporate, fixed-rate, noninvestment-grade debt with at least one year to maturity and at least $150 million in par outstanding. Index weights for each issuer are capped at 2%.
The Lipper VUF High Current Yield Bond Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper High Current Yield Bond Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Invesco V.I. High Yield Fund
Schedule of Investments(a)
December 31, 2014
Principal Amount | Value | |||||||
U.S. Dollar Denominated Bonds and Notes–90.17% |
| |||||||
Aerospace & Defense–2.61% | ||||||||
Bombardier Inc. (Canada), Sr. Unsec. Notes, 7.75%, 03/15/20(b) | $ | 927,000 | $ | 1,010,430 | ||||
GenCorp Inc., Sec. Gtd. Global Notes, 7.13%, 03/15/21 | 766,000 | 806,215 | ||||||
Moog Inc., Sr. Unsec. Gtd. Notes, 5.25%, 12/01/22(b) | 360,000 | 366,300 | ||||||
TransDigm Inc., Sr. Unsec. Gtd. Sub. Global Notes, | ||||||||
5.50%, 10/15/20 | 955,000 | 940,675 | ||||||
6.00%, 07/15/22 | 310,000 | 310,775 | ||||||
6.50%, 07/15/24 | 227,000 | 228,703 | ||||||
7.50%, 07/15/21 | 335,000 | 355,100 | ||||||
4,018,198 | ||||||||
Agricultural Products–0.33% | ||||||||
Darling Ingredients, Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 01/15/22 | 513,000 | 507,870 | ||||||
Airlines–0.59% | ||||||||
United Continental Holdings Inc., Sr. Unsec. Gtd. Notes, 6.00%, 12/01/20 | 770,000 | 795,025 | ||||||
US Airways Pass Through Trust, Series 1998-1, Class C, Sec. Pass Through Ctfs., 6.82%, 01/30/19 | 113,174 | 114,872 | ||||||
909,897 | ||||||||
Alternative Carriers–1.83% | ||||||||
EarthLink Holdings Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 7.38%, 06/01/20 | 285,000 | 289,275 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.88%, 05/15/19 | 654,000 | 652,365 | ||||||
Level 3 Communications Inc., Sr. Unsec. Notes, 5.75%, 12/01/22(b) | 400,000 | 404,000 | ||||||
Level 3 Escrow II Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/22(b) | 915,000 | 924,150 | ||||||
Level 3 Financing Inc., Sr. Unsec. Gtd. Global Notes, 6.13%, 01/15/21 | 526,000 | 547,040 | ||||||
2,816,830 | ||||||||
Apparel Retail–2.10% | ||||||||
Hot Topic, Inc., Sr. Sec. Gtd. Notes, 9.25%, 06/15/21(b) | 1,192,000 | 1,287,360 | ||||||
L Brands, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.63%, 02/15/22 | 160,000 | 173,400 | ||||||
Sr. Unsec. Gtd. Notes, 6.63%, 04/01/21 | 80,000 | 90,100 | ||||||
7.00%, 05/01/20 | 150,000 | 170,813 | ||||||
Men’s Wearhouse Inc. (The), Sr. Unsec. Gtd. Notes, 7.00%, 07/01/22(b) | 1,285,000 | 1,318,731 |
Principal Amount | Value | |||||||
Apparel Retail–(continued) | ||||||||
Neiman Marcus Group Ltd. LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/15/21(b) | $ | 185,000 | $ | 196,331 | ||||
3,236,735 | ||||||||
Apparel, Accessories & Luxury Goods–0.16% | ||||||||
William Carter Co. (The), Sr. Unsec. Gtd. Global Notes, 5.25%, 08/15/21 | 244,000 | 252,540 | ||||||
Application Software–0.32% | ||||||||
Nuance Communications Inc., Sr. Unsec. Gtd. Notes, 5.38%, 08/15/20(b) | 484,000 | 487,630 | ||||||
Auto Parts & Equipment–1.83% | ||||||||
CTP Transportation Products LLC/CTP Finance Inc., Sr. Sec. Notes, 8.25%, 12/15/19(b) | 395,000 | 418,700 | ||||||
Dana Holding Corp., Sr. Unsec. Notes, | ||||||||
5.38%, 09/15/21 | 503,000 | 519,347 | ||||||
5.50%, 12/15/24 | 223,000 | 226,903 | ||||||
Gestamp Funding Luxembourg S.A. (Spain), Sr. Sec. Gtd. Notes, 5.63%, 05/31/20(b) | 220,000 | 222,750 | ||||||
Nexteer Automotive Group Ltd. (Hong Kong), Sr. Unsec. Gtd. Notes, 5.88%, 11/15/21(b) | 150,000 | 150,750 | ||||||
Stackpole International Intermediate Co. S.A./Stackpole International Powder Metal (Canada), Sr. Sec. Gtd. Notes, 7.75%, 10/15/21(b) | 863,000 | 858,685 | ||||||
Tenneco Inc., Sr. Unsec. Gtd. Global Notes, 5.38%, 12/15/24 | 413,000 | 425,390 | ||||||
2,822,525 | ||||||||
Automobile Manufacturers–0.10% | ||||||||
General Motors Co., Sr. Unsec. Global Notes, 4.88%, 10/02/23 | 150,000 | 160,969 | ||||||
Automotive Retail–0.19% | ||||||||
CST Brands, Inc., Sr. Unsec. Gtd. Global Notes, 5.00%, 05/01/23 | 291,000 | 295,365 | ||||||
Biotechnology–0.00% | ||||||||
Savient Pharmaceuticals, Inc., Sr. Unsec. Conv. Notes, 4.75%, 02/01/18(c) | 120,000 | 0 | ||||||
Broadcasting–1.77% | ||||||||
Clear Channel Worldwide Holdings Inc., Series B, Sr. Unsec. Gtd. Global Notes, 6.50%, 11/15/22 | 438,000 | 453,330 | ||||||
iHeartCommunications Inc., | ||||||||
Sr. Sec. Gtd. Notes, | 317,000 | 312,245 | ||||||
Sr. Unsec. Global Notes, 10.00%, 01/15/18 | 704,000 | 607,200 | ||||||
LIN Television Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 01/15/21 | 388,000 | 389,455 |
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–(continued) | ||||||||
Sinclair Television Group Inc., Sr. Unsec. Gtd. Notes, 5.63%, 08/01/24(b) | $ | 945,000 | $ | 919,012 | ||||
Starz LLC/Starz Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.00%, 09/15/19 | 50,000 | 50,500 | ||||||
2,731,742 | ||||||||
Building Products–3.51% | ||||||||
Builders FirstSource Inc., Sr. Sec. Notes, 7.63%, 06/01/21(b) | 1,210,000 | 1,240,250 | ||||||
Building Materials Holding Corp., Sr. Sec. Notes, 9.00%, 09/15/18(b) | 742,000 | 779,100 | ||||||
Gibraltar Industries Inc., Sr. Unsec. Gtd. Sub. Global Notes, 6.25%, 02/01/21 | 1,010,000 | 1,035,250 | ||||||
Norbord Inc. (Canada), Sr. Sec. Notes, 5.38%, 12/01/20(b) | 449,000 | 439,640 | ||||||
Nortek Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 04/15/21 | 1,240,000 | 1,336,100 | ||||||
USG Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.88%, 11/01/21(b) | 101,000 | 102,515 | ||||||
7.88%, 03/30/20(b) | 445,000 | 479,487 | ||||||
5,412,342 | ||||||||
Cable & Satellite–3.80% | ||||||||
CCO Holdings LLC/CCO Holdings Capital Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
5.25%, 03/15/21 | 662,000 | 668,620 | ||||||
5.25%, 09/30/22 | 410,000 | 412,050 | ||||||
CCOH Safari LLC, Sr. Unsec. Gtd. Notes, 5.50%, 12/01/22 | 710,000 | 721,538 | ||||||
DigitalGlobe Inc., Sr. Unsec. Gtd. Bonds, 5.25%, 02/01/21(b) | 333,000 | 318,847 | ||||||
DISH DBS Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.13%, 05/01/20 | 1,077,000 | 1,093,155 | ||||||
Sr. Unsec. Gtd. Notes, 5.88%, 11/15/24(b) | 490,000 | 494,900 | ||||||
Hughes Satellite Systems Corp., Sr. Unsec. Gtd. Global Notes, 7.63%, 06/15/21 | 237,000 | 262,181 | ||||||
Numericable Group S.A. (France), Sr. Sec. Bonds, 6.00%, 05/15/22(b) | 1,370,000 | 1,390,550 | ||||||
Unitymedia Hessen GmbH & Co. KG/Unitymedia NRW GmbH (Germany), Sr. Sec. Gtd. Bonds, 5.00%, 01/15/25(b) | 490,000 | 491,225 | ||||||
5,853,066 | ||||||||
Casinos & Gaming–1.19% | ||||||||
Boyd Gaming Corp., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/20 | 2,000 | 2,065 | ||||||
Caesars Entertainment Resort Properties LLC, | ||||||||
Sec. Gtd. Notes, 11.00%, 10/01/21(b) | 258,000 | 236,715 | ||||||
Sr. Sec. Gtd. Notes, 8.00%, 10/01/20(b) | 125,000 | 122,500 |
Principal Amount | Value | |||||||
Casinos & Gaming–(continued) | ||||||||
Caesars Growth Properties Holdings LLC/Caesars Growth Properties Finance Inc., Sec. Gtd. Notes, 9.38%, 05/01/22(b) | $ | 116,000 | $ | 101,790 | ||||
MGM Resorts International, | ||||||||
Sr. Unsec. Gtd. Conv. Notes, 4.25%, 04/15/15 | 95,000 | 112,337 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 12/15/21 | 180,000 | 189,450 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 03/15/23 | 562,000 | 567,620 | ||||||
7.75%, 03/15/22 | 450,000 | 501,750 | ||||||
1,834,227 | ||||||||
Coal & Consumable Fuels–0.81% | ||||||||
CONSOL Energy Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/15/22(b) | 1,195,000 | 1,120,313 | ||||||
Peabody Energy Corp., Sr. Unsec. Gtd. Notes, 6.50%, 09/15/20 | 138,000 | 121,440 | ||||||
1,241,753 | ||||||||
Commercial Printing–0.16% | ||||||||
Multi-Color Corp., Sr. Unsec. Gtd. Notes, 6.13%, 12/01/22(b) | 241,000 | 241,603 | ||||||
Communications Equipment–1.04% | ||||||||
Avaya Inc., | ||||||||
Sec. Gtd. Notes, 10.50%, 03/01/21(b) | 175,000 | 149,625 | ||||||
Sr. Sec. Gtd. Notes, 7.00%, 04/01/19(b) | 955,000 | 939,481 | ||||||
9.00%, 04/01/19(b) | 498,000 | 512,940 | ||||||
1,602,046 | ||||||||
Computer & Electronics Retail–0.29% | ||||||||
Rent-A-Center, Inc., Sr. Unsec. Gtd. Global Notes, 4.75%, 05/01/21 | 505,000 | 440,613 | ||||||
Construction & Engineering–1.25% | ||||||||
AECOM Technology Corp., Sr. Unsec. Gtd. Notes, | ||||||||
5.75%, 10/15/22(b) | 780,000 | 809,072 | ||||||
5.88%, 10/15/24(b) | 341,000 | 352,280 | ||||||
Dycom Investments Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 01/15/21 | 730,000 | 770,150 | ||||||
1,931,502 | ||||||||
Construction Machinery & Heavy Trucks–3.40% | ||||||||
Allied Specialty Vehicles, Inc., Sr. Sec. Notes, 8.50%, 11/01/19(b) | 782,000 | 821,100 | ||||||
Commercial Vehicle Group Inc., Sec. Gtd. Global Notes, 7.88%, 04/15/19 | 1,075,000 | 1,120,687 | ||||||
Meritor Inc., Sr. Unsec. Gtd. Notes, | ||||||||
6.25%, 02/15/24 | 589,000 | 603,725 | ||||||
6.75%, 06/15/21 | 377,000 | 392,080 | ||||||
Navistar International Corp., | ||||||||
Sr. Unsec. Gtd. Notes, 8.25%, 11/01/21 | 660,000 | 650,100 | ||||||
Sr. Unsec. Sub. Conv. Notes, 4.75%, 04/15/19(b) | 280,000 | 269,150 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Construction Machinery & Heavy Trucks–(continued) | ||||||||
Oshkosh Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 03/01/22 | $ | 858,000 | $ | 877,305 | ||||
Titan International Inc., Sr. Sec. Gtd. Global Notes, 6.88%, 10/01/20 | 564,000 | 500,550 | ||||||
5,234,697 | ||||||||
Construction Materials–1.41% | ||||||||
Building Materials Corp. of America, Sr. Unsec. Notes, 5.38%, 11/15/24(b) | 375,000 | 376,172 | ||||||
Cemex S.A.B. de C.V. (Mexico), Sr. Sec. Gtd. Notes, 5.88%, 03/25/19(b) | 830,000 | 845,562 | ||||||
CPG Merger Sub LLC, Sr. Unsec. Gtd. Notes, 8.00%, 10/01/21(b) | 120,000 | 123,300 | ||||||
US Concrete, Inc., Sr. Sec. Gtd. Global Notes, 8.50%, 12/01/18 | 783,000 | 822,150 | ||||||
2,167,184 | ||||||||
Consumer Finance–0.22% | ||||||||
Ally Financial Inc., | ||||||||
Sr. Unsec. Global Notes, 5.13%, 09/30/24 | 176,000 | 180,400 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/20 | 140,000 | 164,850 | ||||||
345,250 | ||||||||
Data Processing & Outsourced Services–1.94% | ||||||||
CoreLogic, Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/01/21 | 655,000 | 689,387 | ||||||
First Data Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 12.63%, 01/15/21 | 286,000 | 339,625 | ||||||
Sr. Unsec. Gtd. Sub. Global Notes, 11.75%, 08/15/21 | 1,698,000 | 1,965,435 | ||||||
2,994,447 | ||||||||
Distillers & Vintners–0.28% | ||||||||
CEDC Finance Corp. International Inc. (Poland), Sr. Sec. Gtd. Global Notes, 9.00%, 04/30/18(d) | 243,474 | 206,953 | ||||||
Constellation Brands Inc., Sr. Unsec. Gtd. Notes, 4.75%, 11/15/24 | 225,000 | 227,812 | ||||||
434,765 | ||||||||
Diversified Banks–0.14% | ||||||||
Royal Bank of Scotland Group PLC (The) (United Kingdom), Unsec. Sub. Notes, 6.13%, 12/15/22 | 195,000 | 212,961 | ||||||
Diversified Metals & Mining–1.14% | ||||||||
FMG Resources (August 2006) Pty. Ltd. (Australia), Sr. Unsec. Gtd. Notes, | ||||||||
6.00%, 04/01/17(b) | 365,000 | 350,856 | ||||||
6.88%, 04/01/22(b) | 625,000 | 524,219 | ||||||
HudBay Minerals, Inc. (Canada), | ||||||||
Sr. Unsec. Gtd. Global Notes, 9.50%, 10/01/20 | 501,000 | 490,980 | ||||||
Sr. Unsec. Gtd. Notes, 9.50%, 10/01/20(b) | 210,000 | 204,750 |
Principal Amount | Value | |||||||
Diversified Metals & Mining–(continued) | ||||||||
Imperial Metals Corp. (Canada), Sr. Unsec. | $ | 200,000 | $ | 185,500 | ||||
1,756,305 | ||||||||
Electric Utilities–0.00% | ||||||||
LSP Energy L.P./LSP Batesville Funding | 275,000 | 0 | ||||||
Electronics & Electrical–0.36% | ||||||||
Freescale Semiconductor Inc., Sr. Sec. Gtd. Notes, 6.00%, 01/15/22(b) | 523,000 | 547,843 | ||||||
Environmental & Facilities Services–0.18% | ||||||||
ADS Waste Holdings, Inc., Sr. Unsec. Gtd. | 271,000 | 272,355 | ||||||
Food Retail–0.94% | ||||||||
1011778 BC ULC/New Red Finance, Inc. | 1,411,000 | 1,449,803 | ||||||
Forest Products–0.00% | ||||||||
Emerald Plantation Holdings Ltd. | 5,751 | 5,009 | ||||||
Sino-Forest Corp. (Hong Kong), Sr. Unsec. Gtd. Notes, 6.25%, 10/21/17(b)(c)(f) | 40,000 | 200 | ||||||
5,209 | ||||||||
Gas Utilities–1.10% | ||||||||
Ferrellgas L.P./Ferrellgas Finance Corp., Sr. Unsec. Global Notes, | ||||||||
6.50%, 05/01/21 | 785,000 | 773,225 | ||||||
6.75%, 01/15/22 | 127,000 | 125,730 | ||||||
Suburban Propane Partners, L.P./Suburban Energy Finance Corp., Sr. Unsec. Global Notes, 5.50%, 06/01/24 | 813,000 | 788,610 | ||||||
1,687,565 | ||||||||
Gold–0.74% | ||||||||
New Gold Inc. (Canada), Sr. Unsec. Notes, 6.25%, 11/15/22(b) | 1,158,000 | 1,140,630 | ||||||
Health Care Equipment–0.20% | ||||||||
Universal Hospital Services Inc., Sec. Gtd. Global Notes, 7.63%, 08/15/20 | 360,000 | 310,500 | ||||||
Health Care Facilities–3.99% | ||||||||
Community Health Systems, Inc., | ||||||||
Sr. Sec. Gtd. Global Notes, 5.13%, 08/01/21 | 540,000 | 565,650 | ||||||
Sr. Unsec. Gtd. Global Notes, 6.88%, 02/01/22 | 982,202 | 1,046,045 | ||||||
HCA Holdings, Inc., Sr. Unsec. Notes, 6.25%, 02/15/21 | 859,000 | 921,278 | ||||||
HCA, Inc., | ||||||||
Sr. Sec. Gtd. Global Notes, 5.88%, 03/15/22 | 801,000 | 881,100 | ||||||
Sr. Unsec. Gtd. Global Notes, 7.50%, 02/15/22 | 334,000 | 382,430 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Health Care Facilities–(continued) | ||||||||
LifePoint Hospitals, Inc., Sr. Unsec. Gtd. Global Notes, 5.50%, 12/01/21 | $ | 113,000 | $ | 116,390 | ||||
Tenet Healthcare Corp., | ||||||||
Sr. Sec. Gtd. Global Notes, 6.00%, 10/01/20 | 395,000 | 426,600 | ||||||
Sr. Unsec. Global Notes, 6.75%, 02/01/20 | 360,000 | 378,900 | ||||||
8.13%, 04/01/22 | 1,271,000 | 1,429,875 | ||||||
6,148,268 | ||||||||
Health Care Services–0.88% | ||||||||
MPH Acquisition Holdings LLC, Sr. Unsec. Gtd. Notes, 6.63%, 04/01/22(b) | 1,001,000 | 1,036,035 | ||||||
Omnicare Inc., Sr. Unsec. Gtd. Notes, 5.00%, 12/01/24 | 305,000 | 313,769 | ||||||
1,349,804 | ||||||||
Home Improvement Retail–0.79% | ||||||||
Hillman Group Inc. (The), Sr. Unsec. Notes, 6.38%, 07/15/22(b) | 1,260,000 | 1,215,900 | ||||||
Homebuilding–2.31% | ||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co., Sr. Unsec. Notes, 6.88%, 02/15/21(b) | 1,502,000 | 1,425,022 | ||||||
AV Homes, Inc., Sr. Unsec. Notes, 8.50%, 07/01/19(b) | 270,000 | 261,225 | ||||||
Beazer Homes USA Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/21 | 360,000 | 363,600 | ||||||
K. Hovnanian Enterprises Inc., | ||||||||
Sr. Sec. Gtd. Notes, | 92,000 | 95,450 | ||||||
Sr. Unsec. Gtd. Notes, 7.00%, 01/15/19(b) | 400,000 | 380,000 | ||||||
8.00%, 11/01/19(b) | 255,000 | 245,437 | ||||||
KB Home, Sr. Unsec. Gtd. Notes, | ||||||||
7.00%, 12/15/21 | 181,000 | 191,408 | ||||||
7.50%, 09/15/22 | 105,000 | 112,088 | ||||||
Ryland Group Inc. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 483,000 | 475,755 | ||||||
3,549,985 | ||||||||
Hotels, Resorts & Cruise Lines–0.25% | ||||||||
NCL Corp. Ltd., Sr. Unsec. Notes, 5.25%, 11/15/19(b) | 380,000 | 384,750 | ||||||
Household Products–1.32% | ||||||||
Reynolds Group Issuer Inc./LLC, | ||||||||
Sr. Sec. Gtd. Global Notes, 5.75%, 10/15/20 | 857,000 | 881,639 | ||||||
Sr. Unsec. Gtd. Global Notes, 8.25%, 02/15/21 | 1,118,000 | 1,152,937 | ||||||
2,034,576 | ||||||||
Independent Power Producers & Energy Traders–1.38% | ||||||||
AES Corp., Sr. Unsec. Global Notes, 7.38%, 07/01/21 | 754,000 | 863,330 | ||||||
Calpine Corp., Sr. Unsec. Global Notes, 5.38%, 01/15/23 | 796,000 | 809,930 |
Principal Amount | Value | |||||||
Independent Power Producers & Energy Traders–(continued) | ||||||||
NRG Energy Inc., Sr. Unsec. Gtd. Global Notes, 6.25%, 07/15/22 | $ | 298,000 | $ | 306,195 | ||||
Red Oak Power LLC, Series A, Sr. Sec. Bonds, 8.54%, 11/30/19 | 139,854 | 153,315 | ||||||
2,132,770 | ||||||||
Industrial Conglomerates–0.63% | ||||||||
Unifrax I LLC/Unifrax Holding Co., Sr. Unsec. Gtd. Notes, | ||||||||
7.50%, 02/15/19(b) | 370,000 | 366,300 | ||||||
7.50%, 02/15/19(b) | 607,000 | 600,930 | ||||||
967,230 | ||||||||
Industrial Machinery–0.56% | ||||||||
EnPro Industries, Inc., Sr. Unsec. Gtd. Notes, 5.88%, 09/15/22(b) | 79,000 | 79,691 | ||||||
Waterjet Holdings, Inc., Sr. Sec. Gtd. Notes, 7.63%, 02/01/20(b) | 764,000 | 787,875 | ||||||
867,566 | ||||||||
Integrated Oil & Gas–0.71% | ||||||||
California Resources Corp., Sr. Unsec. Gtd. Notes, 5.50%, 09/15/21(b) | 1,264,000 | 1,087,040 | ||||||
Integrated Telecommunication Services–0.38% | ||||||||
CenturyLink, Inc., Series V, Sr. Unsec. Global Notes, 5.63%, 04/01/20 | 340,000 | 355,851 | ||||||
Telecom Italia S.p.A. (Italy), Sr. Unsec. Notes, 5.30%, 05/30/24(b) | 232,000 | 235,454 | ||||||
591,305 | ||||||||
Internet Software & Services–0.71% | ||||||||
CyrusOne L.P./CyrusOne Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.38%, 11/15/22 | 860,000 | 922,350 | ||||||
Equinix Inc., Sr. Unsec. Notes, 5.38%, 01/01/22 | 165,000 | 165,825 | ||||||
1,088,175 | ||||||||
Leisure Facilities–0.04% | ||||||||
Cedar Fair L.P./Canada’s Wonderland Co./Magnum Management Corp., Sr. Unsec. Gtd. Global Notes, 5.25%, 03/15/21 | 64,000 | 65,440 | ||||||
Marine–0.59% | ||||||||
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Sr. Sec. Gtd. Mortgage Notes, 8.13%, 11/15/21(b) | 928,000 | 914,080 | ||||||
Metal & Glass Containers–1.70% | ||||||||
Ball Corp., Sr. Unsec. Gtd. Notes, 5.00%, 03/15/22 | 372,000 | 384,555 | ||||||
Berry Plastics Corp., Sec. Gtd. Notes, 5.50%, 05/15/22 | 1,693,000 | 1,731,093 | ||||||
Owens-Brockway Glass Container Inc., Sr. Unsec. Notes, 5.00%, 01/15/22(b) | 200,000 | 204,281 | ||||||
Signode Industrial Group Lux S.A./Signode Industrial Group U.S. Inc., Sr. Unsec. Notes, 6.38%, 05/01/22(b) | 304,000 | 294,880 | ||||||
2,614,809 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Movies & Entertainment–0.62% | ||||||||
AMC Entertainment Inc., Sr. Unsec. Gtd. Sub. Global Notes, 5.88%, 02/15/22 | $ | 235,000 | $ | 240,288 | ||||
DreamWorks Animation SKG, Inc., Sr. Unsec. Gtd. Notes, 6.88%, 08/15/20(b) | 375,000 | 388,125 | ||||||
Outerwall, Inc., Sr. Unsec. Gtd. Global Notes, 6.00%, 03/15/19 | 331,000 | 326,035 | ||||||
954,448 | ||||||||
Oil & Gas Drilling–0.27% | ||||||||
Pioneer Energy Services Corp., Sr. Unsec. Gtd. Global Notes, 6.13%, 03/15/22 | 574,000 | 419,020 | ||||||
Oil & Gas Equipment & Services–0.96% | ||||||||
Bristow Group, Inc., Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22 | 443,000 | 440,785 | ||||||
Exterran Partners L.P./EXLP Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.00%, 04/01/21 | 745,000 | 670,500 | ||||||
Sr. Unsec. Gtd. Notes, 6.00%, 10/01/22(b) | 288,000 | 252,000 | ||||||
Hiland Partners L.P./Hiland Partners Finance Corp., Sr. Unsec. Gtd. Notes, 5.50%, 05/15/22(b) | 143,000 | 122,265 | ||||||
1,485,550 | ||||||||
Oil & Gas Exploration & Production–4.64% | ||||||||
Antero Resources Corp., Sr. Unsec. Gtd. Notes, 5.13%, 12/01/22(b) | 650,000 | 617,500 | ||||||
Antero Resources Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 11/01/21 | 416,000 | 404,560 | ||||||
Approach Resources Inc., Sr. Unsec. Gtd. Global Notes, 7.00%, 06/15/21 | 781,000 | 599,417 | ||||||
Carrizo Oil & Gas Inc., Sr. Unsec. Gtd. Notes, 7.50%, 09/15/20(b) | 218,000 | 210,370 | ||||||
Cimarex Energy Co., Sr. Unsec. Gtd. Notes, | ||||||||
4.38%, 06/01/24 | 440,000 | 425,700 | ||||||
5.88%, 05/01/22 | 286,000 | 300,300 | ||||||
Concho Resources Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.50%, 10/01/22 | 114,000 | 115,140 | ||||||
5.50%, 04/01/23 | 550,000 | 555,500 | ||||||
Sr. Unsec. Gtd. Notes, 6.50%, 01/15/22 | 114,000 | 120,270 | ||||||
Denbury Resources Inc., Sr. Unsec. Gtd. Sub. Notes, 5.50%, 05/01/22 | 1,225,000 | 1,127,000 | ||||||
EV Energy Partners L.P./EV Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 8.00%, 04/15/19 | 219,000 | 187,245 | ||||||
Newfield Exploration Co., Sr. Unsec. Sub. Notes, 6.88%, 02/01/20 | 318,000 | 326,745 | ||||||
QEP Resources Inc., | ||||||||
Sr. Unsec. Global Notes, 5.25%, 05/01/23 | 215,000 | 201,025 | ||||||
Sr. Unsec. Notes, 5.38%, 10/01/22 | 226,000 | 214,135 | ||||||
Range Resources Corp., Sr. Unsec. Gtd. Sub. Notes, 5.00%, 08/15/22 | 298,000 | 300,980 |
Principal Amount | Value | |||||||
Oil & Gas Exploration & Production–(continued) | ||||||||
Rosetta Resources, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 5.63%, 05/01/21 | $ | 232,000 | $ | 212,860 | ||||
Sr. Unsec. Gtd. Notes, 5.88%, 06/01/22 | 487,000 | 446,822 | ||||||
RSP Permian, Inc., Sr. Unsec. Gtd. Notes, 6.63%, 10/01/22(b) | 526,000 | 494,440 | ||||||
SM Energy Co., | ||||||||
Sr. Unsec. Global Notes, 6.50%, 01/01/23 | 111,000 | 107,670 | ||||||
Sr. Unsec. Notes, 6.13%, 11/15/22(b) | 183,000 | 173,393 | ||||||
7,141,072 | ||||||||
Oil & Gas Refining & Marketing–0.57% | ||||||||
Calumet Specialty Products Partners L.P./Calumet Finance Corp., Sr. Unsec. Gtd. Notes, 6.50%, 04/15/21(b) | 986,000 | 882,470 | ||||||
Oil & Gas Storage & Transportation–1.83% | ||||||||
Access Midstream Partners L.P./ACMP Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, 4.88%, 05/15/23 | 443,000 | 454,075 | ||||||
Sr. Unsec. Gtd. Notes, 4.88%, 03/15/24 | 178,000 | 182,450 | ||||||
Crestwood Midstream Partners L.P./Crestwood Midstream Finance Corp., Sr. Unsec. Gtd. Global Notes, 6.00%, 12/15/20 | 90,000 | 86,625 | ||||||
Energy Transfer Equity L.P., Sr. Sec. Gtd. Notes, 7.50%, 10/15/20 | 122,000 | 137,250 | ||||||
MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Unsec. Gtd. Notes, 5.50%, 02/15/23 | 413,000 | 421,260 | ||||||
NGL Energy Partners L.P./NGL Energy Finance Corp., Sr. Unsec. Gtd. Notes, 6.88%, 10/15/21(b) | 316,000 | 313,630 | ||||||
Regency Energy Partners L.P./Regency Energy Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.88%, 03/01/22 | 95,000 | 93,813 | ||||||
Teekay Corp. (Bermuda), Sr. Unsec. Global Notes, 8.50%, 01/15/20 | 316,000 | 357,080 | ||||||
Teekay Offshore Partners L.P./Teekay Offshore Finance Corp. (Bermuda), Sr. Unsec. Global Notes, 6.00%, 07/30/19 | 214,000 | 198,057 | ||||||
Tesoro Logistics L.P./Tesoro Logistics Finance Corp., | ||||||||
Sr. Unsec. Gtd. Global Notes, | ||||||||
5.88%, 10/01/20 | 506,000 | 511,060 | ||||||
Sr. Unsec. Gtd. Notes, 6.25%, 10/15/22(b) | 62,000 | 63,240 | ||||||
2,818,540 | ||||||||
Packaged Foods & Meats–4.04% | ||||||||
Bertin S.A./Bertin Finance Ltd. (Brazil), Sr. Unsec. Gtd. Bonds, 10.25%, 10/05/16(b) | 200,000 | 221,000 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Packaged Foods & Meats–(continued) | ||||||||
Chiquita Brands International Inc., Sr. Unsec. Conv. Notes, 4.25%, 08/15/16 | $ | 1,202,000 | $ | 1,207,259 | ||||
Diamond Foods Inc., Sr. Unsec. Gtd. Notes, 7.00%, 03/15/19(b) | 1,505,000 | 1,553,912 | ||||||
JBS Investments GmbH (Brazil), | ||||||||
Sr. Unsec. Gtd. Notes, 7.25%, 04/03/24(b) | 900,000 | 895,500 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 7.25%, 04/03/24(b) | 200,000 | 197,000 | ||||||
JBS S.A. (Brazil), | ||||||||
Sr. Unsec. Notes, 10.50%, 08/04/16Cost $332,440(b) | 300,000 | 330,000 | ||||||
REGS, Sr. Unsec. Gtd. Euro Notes, 10.50%, 08/04/16(b) | 300,000 | 327,090 | ||||||
Marfrig Holding Europe B.V. (Brazil), Sr. Unsec. Gtd. Notes, 6.88%, 06/24/19(b) | 204,000 | 192,780 | ||||||
Post Holdings Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 7.38%, 02/15/22 | 427,000 | 431,270 | ||||||
Sr. Unsec. Gtd. Notes, 6.75%, 12/01/21(b) | 114,000 | 112,005 | ||||||
Smithfield Foods Inc., Sr. Unsec. Notes, | ||||||||
5.88%, 08/01/21(b) | 100,000 | 102,750 | ||||||
6.63%, 08/15/22 | 331,000 | 350,032 | ||||||
WhiteWave Foods Co. (The), Sr. Unsec. Gtd. Notes, 5.38%, 10/01/22 | 293,000 | 302,523 | ||||||
6,223,121 | ||||||||
Paper Packaging–0.68% | ||||||||
Graphic Packaging International Inc., Sr. Unsec. Gtd. Notes, | ||||||||
4.75%, 04/15/21 | 27,000 | 27,338 | ||||||
4.88%, 11/15/22 | 1,009,000 | 1,015,306 | ||||||
1,042,644 | ||||||||
Paper Products–0.69% | ||||||||
Mercer International Inc., Sr. Unsec. Gtd. Notes, 7.00%, 12/01/19(b) | 301,000 | 305,139 | ||||||
PH Glatfelter Co., Sr. Unsec. Gtd. Global Notes, 5.38%, 10/15/20 | 735,000 | 751,537 | ||||||
1,056,676 | ||||||||
Personal Products–0.68% | ||||||||
NBTY Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 10/01/18 | 1,053,000 | 1,054,316 | ||||||
Pharmaceuticals–1.70% | ||||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Gtd. Notes, 6.00%, 01/15/21(b) | 340,000 | 349,350 | ||||||
Valeant Pharmaceuticals International, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.63%, 12/01/21(b) | 1,456,000 | 1,479,660 | ||||||
6.38%, 10/15/20(b) | 315,000 | 330,750 | ||||||
6.75%, 08/15/21(b) | 273,000 | 286,650 | ||||||
7.25%, 07/15/22(b) | 116,000 | 124,120 | ||||||
7.50%, 07/15/21(b) | 45,000 | 48,937 | ||||||
2,619,467 |
Principal Amount | Value | |||||||
Real Estate Services–0.19% | ||||||||
Kennedy-Wilson Inc., Sr. Unsec. Gtd. Notes, 5.88%, 04/01/24 | $ | 288,000 | $ | 290,160 | ||||
Regional Banks–0.54% | ||||||||
Synovus Financial Corp., Sr. Unsec. Global Notes, 7.88%, 02/15/19 | 750,000 | 838,125 | ||||||
Security & Alarm Services–0.20% | ||||||||
ADT Corp. (The), Sr. Unsec. Global Notes, 6.25%, 10/15/21 | 292,000 | 302,220 | ||||||
Semiconductor Equipment–1.14% | ||||||||
Amkor Technology Inc., Sr. Unsec. Global Notes, 6.38%, 10/01/22 | 1,299,000 | 1,263,278 | ||||||
Entegris Inc., Sr. Unsec. Gtd. Notes, 6.00%, 04/01/22(b) | 488,000 | 497,760 | ||||||
1,761,038 | ||||||||
Semiconductors–1.03% | ||||||||
Micron Technology, Inc., Sr. Unsec. Notes, | ||||||||
5.50%, 02/01/25(b) | 400,000 | 408,000 | ||||||
5.88%, 02/15/22(b) | 613,000 | 649,780 | ||||||
NXP B.V./NXP Funding LLC (Netherlands), Sr. Unsec. Gtd. Notes, 5.75%, 02/15/21(b) | 500,000 | 527,500 | ||||||
1,585,280 | ||||||||
Specialized Finance–3.77% | ||||||||
AerCap Ireland Capital Ltd./AerCap Global Aviation Trust (Netherlands), Sr. Unsec. Notes, 5.00%, 10/01/21(b) | 345,000 | 360,956 | ||||||
Aircastle Ltd., | ||||||||
Sr. Unsec. Global Notes, 7.63%, 04/15/20 | 584,000 | 651,160 | ||||||
Sr. Unsec. Notes, 5.13%, 03/15/21 | 555,000 | 559,162 | ||||||
CIT Group Inc., Sr. Unsec. Global Notes, | ||||||||
5.00%, 08/15/22 | 586,000 | 600,650 | ||||||
5.00%, 08/01/23 | 680,000 | 698,700 | ||||||
Fly Leasing Ltd. (Ireland), Sr. Unsec. Global Notes, 6.75%, 12/15/20 | 621,000 | 630,315 | ||||||
International Lease Finance Corp., | ||||||||
Sr. Unsec. Global Notes, 5.88%, 08/15/22 | 850,000 | 928,625 | ||||||
Sr. Unsec. Notes, 8.25%, 12/15/20 | 585,000 | 713,700 | ||||||
MSCI Inc., Sr. Unsec. Gtd. Notes., 5.25%, 11/15/24(b) | 640,000 | 667,200 | ||||||
5,810,468 | ||||||||
Specialized REIT’s–0.71% | ||||||||
Crown Castle International Corp., | ||||||||
Sr. Unsec. Global Notes, 5.25%, 01/15/23 | 590,000 | 603,275 | ||||||
Sr. Unsec. Notes, 4.88%, 04/15/22 | 483,000 | 490,245 | ||||||
1,093,520 | ||||||||
Specialty Chemicals–0.20% | ||||||||
PolyOne Corp., Sr. Unsec. Global Notes, 5.25%, 03/15/23 | 300,000 | 301,875 | ||||||
Specialty Stores–1.03% | ||||||||
Michaels Stores Inc., Sr. Unsec. Gtd. Sub. Notes, 5.88%, 12/15/20(b) | 1,524,000 | 1,541,145 |
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 Stores–(continued) | ||||||||
Sally Holdings LLC/Sally Capital Inc., Sr. Unsec. Gtd. Global Bonds, 5.50%, 11/01/23 | $ | 39,000 | $ | 41,145 | ||||
1,582,290 | ||||||||
Steel–2.74% | ||||||||
AK Steel Corp., Sr. Unsec. Gtd. Notes, 7.63%, 10/01/21 | 484,000 | 447,700 | ||||||
ArcelorMittal (Luxembourg), Sr. Unsec. Global Notes, | ||||||||
6.00%, 03/01/21 | 725,000 | 754,000 | ||||||
6.75%, 02/25/22 | 595,000 | 634,270 | ||||||
Magnetation LLC/Mag Finance Corp., Sr. Sec. Gtd. Notes, 11.00%, 05/15/18(b) | 1,003,000 | 697,085 | ||||||
Steel Dynamics, Inc., Sr. Unsec. Gtd. Notes, | ||||||||
5.13%, 10/01/21(b) | 121,000 | 123,722 | ||||||
5.50%, 10/01/24(b) | 243,000 | 247,860 | ||||||
SunCoke Energy Partners L.P./SunCoke Energy Partners Finance Corp., Sr. Unsec. Gtd. Notes, | ||||||||
7.38%, 02/01/20(b) | 520,000 | 542,750 | ||||||
7.38%, 02/01/20(b) | 733,000 | 765,069 | ||||||
4,212,456 | ||||||||
Trading Companies & Distributors–0.46% | ||||||||
United Rentals North America Inc., Sr. Unsec. Gtd. Notes, 6.13%, 06/15/23 | 670,000 | 708,525 | ||||||
Wireless Telecommunication Services–9.31% | ||||||||
Altice S.A. (Luxembourg), Sr. Sec. Gtd. Notes, 7.75%, 05/15/22(b) | 1,010,000 | 1,013,787 | ||||||
Digicel Group Ltd. (Jamaica), Sr. Unsec. Notes, | 400,000 | 392,000 | ||||||
Digicel Ltd. (Jamaica), Sr. Unsec. Notes, 6.00%, 04/15/21(b) | 600,000 | 570,000 | ||||||
Intelsat Luxembourg S.A. (Luxembourg), Sr. Unsec. Gtd. Global Bonds, | ||||||||
7.75%, 06/01/21 | 1,225,000 | 1,234,187 | ||||||
8.13%, 06/01/23 | 725,000 | 743,125 | ||||||
SBA Communications Corp., Sr. Unsec. Notes, | 1,735,000 | 1,687,287 | ||||||
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 6.88%, 11/15/28 | 705,000 | 623,925 | ||||||
Sprint Communications Inc., Sr. Unsec. Global Notes, | ||||||||
6.00%, 11/15/22 | 591,000 | 548,153 | ||||||
11.50%, 11/15/21 | 150,000 | 183,375 | ||||||
Sprint Corp., Sr. Unsec. Gtd. Global Notes, | ||||||||
7.25%, 09/15/21 | 1,375,000 | 1,375,000 | ||||||
7.88%, 09/15/23 | 865,000 | 858,513 |
Principal Amount | Value | |||||||
Wireless Telecommunication Services–(continued) | ||||||||
T-Mobile USA, Inc., | ||||||||
Sr. Unsec. Gtd. Global Notes, 6.63%, 04/01/23 | $ | 1,796,000 | $ | 1,845,390 | ||||
Sr. Unsec. Gtd. Notes, 6.38%, 03/01/25 | 1,132,000 | 1,157,470 | ||||||
6.84%, 04/28/23 | 287,000 | 298,121 | ||||||
Wind Acquisition Finance S.A. (Italy), | ||||||||
Sr. Sec. Gtd. Notes, 4.75%, 07/15/20(b) | 350,000 | 333,813 | ||||||
Sr. Unsec. Gtd. Notes, 7.38%, 04/23/21(b) | 1,345,000 | 1,268,503 | ||||||
REGS, Sr. Sec. Gtd. Euro Notes, 6.50%, 04/30/20(b) | 200,000 | 205,250 | ||||||
14,337,899 | ||||||||
Total U.S. Dollar Denominated Bonds and Notes (Cost $148,356,063) |
| 138,889,845 | ||||||
Non-U.S. Dollar Denominated Bonds & Notes–4.02%(g) |
| |||||||
Asset Management & Custody Banks–0.19% | ||||||||
Alize Finco PLC (United Kingdom), Sr. Sec. Gtd. Bonds, 6.25%, 12/01/21(b) | EUR | 250,000 | 290,575 | |||||
Auto Parts & Equipment–0.28% | ||||||||
Autodis S.A. (France), Sr. Sec. Gtd. Notes, 6.50%, 02/01/19(b) | EUR | 360,000 | 437,814 | |||||
Cable & Satellite–0.11% | ||||||||
Virgin Media Secured Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 6.00%, 04/15/21(b) | GBP | 107,000 | 176,371 | |||||
Casinos & Gaming–0.31% | ||||||||
Gala Group Finance PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 8.88%, 09/01/18(b) | GBP | 198,000 | 324,066 | |||||
William Hill PLC (United Kingdom), Sr. Unsec. Gtd. Euro Notes, 4.25%, 06/05/20 | GBP | 100,000 | 151,973 | |||||
476,039 | ||||||||
Construction Materials–0.41% | ||||||||
Grupo Isolux Corsan Finance B.V. (Spain), Sr. Unsec. Gtd. Bonds, 6.63%, 04/15/21(b) | EUR | 300,000 | 316,889 | |||||
Manutencoop Facility Management SpA (Italy), | ||||||||
Sr. Sec. Gtd. Notes, 8.50%, 08/01/20(b) | EUR | 200,000 | 205,717 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 8.50%, 08/01/20(b) | EUR | 100,000 | 102,859 | |||||
625,465 | ||||||||
Environmental & Facilities Services–0.24% | ||||||||
Waste Italia SpA (Italy), Sr. Sec. Gtd. Bonds, 10.50%, 11/15/19(b) | EUR | 325,000 | 363,786 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Principal Amount | Value | |||||||
Food Distributors–0.26% | ||||||||
Bakkavor Finance 2 PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 8.25%, 02/15/18(b) | GBP | 250,000 | $ | 399,440 | ||||
Hotels, Resorts & Cruise Lines–0.29% | ||||||||
Thomas Cook Group PLC (United Kingdom), Sr. Unsec. Gtd. Medium-Term Euro Notes, 7.75%, 06/22/17 | GBP | 200,000 | 323,820 | |||||
TUI AG (Germany), Sr. Unsec. Notes, 4.50%, 10/01/19(b) | EUR | 100,000 | 127,787 | |||||
451,607 | ||||||||
Internet Software & Services–0.24% | ||||||||
United Group B.V. (Serbia), REGS, Sr. Sec. Gtd. Euro Notes, 7.88%, 11/15/20(b) | EUR | 280,000 | 362,207 | |||||
Movies & Entertainment–0.51% | ||||||||
Odeon & UCI Finco PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. Notes, 9.00%, 08/01/18(b) | GBP | 110,000 | 160,312 | |||||
REGS, Sr. Sec. Gtd. Medium-Term Euro Notes, 9.00%, 08/01/18(b) | GBP | 430,000 | 626,676 | |||||
786,988 | ||||||||
Other Diversified Financial Services–0.79% | ||||||||
AG Spring Finance II Ltd. (Spain), Sr. Sec. Notes, 9.50%, 06/01/19(b) | EUR | 120,000 | 110,216 | |||||
Boats Investments Netherlands B.V. (Netherlands), REGS -Series 97, Sr. Sec. PIK Medium-Term Mortgage Euro Notes, 11.00%, 03/31/17(b)(e) | EUR | 112,793 | 39,070 | |||||
Cabot Financial Luxembourg S.A. (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 10.38%, 10/01/19(b) | GBP | 115,000 | 195,824 | |||||
Financiere Gaillon 8 SAS (France), Sr. Sec. Notes, 7.00%, 09/30/19(b) | EUR | 280,000 | 330,493 | |||||
Lowell Group Financing PLC (United Kingdom), REGS, Sr. Sec. Gtd. Euro Notes, 10.75%, 04/01/19(b) | GBP | 320,000 | 540,557 | |||||
1,216,160 | ||||||||
Personal Products–0.08% | ||||||||
Ontex Group N.V. (Belgium), Sr. Sec. Gtd. Notes, 4.75%, 11/15/21 | EUR | 100,000 | 127,363 | |||||
Publishing–0.10% | ||||||||
Johnston Press Bond PLC (United Kingdom), Sr. Sec. Gtd. Notes, | GBP | 100,000 | 149,051 | |||||
Specialized Finance–0.21% | ||||||||
HSS Financing PLC (United Kingdom), | ||||||||
Sr. Sec. Gtd. Notes, 6.75%, 08/01/19(b) | GBP | 100,000 | 161,715 | |||||
REGS, Sr. Sec. Gtd. Euro Notes, 6.75%, 08/01/19(b) | GBP | 100,000 | 161,715 | |||||
323,430 | ||||||||
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost $6,865,708) |
| 6,186,296 |
Shares | Value | |||||||
Common Stocks & Other Equity Interests–0.91% |
| |||||||
Automobile Manufacturers–0.52% | ||||||||
General Motors Co.(h) | 14,474 | $ | 505,287 | |||||
General Motors Co.–Wts. expiring 07/10/16(h)(i) | 6,025 | 152,192 | ||||||
General Motors Co.–Wts. expiring 07/10/19(h)(i) | 6,025 | 103,208 | ||||||
Motors Liquidation Co. GUC Trust | 1,538 | 29,607 | ||||||
790,294 | ||||||||
Broadcasting–0.00% | ||||||||
Adelphia Communications Corp.(j) | 3,280 | 2,526 | ||||||
Adelphia Recovery Trust–Series ACC-1(j) | 318,570 | 764 | ||||||
Adelphia Recovery Trust–Series Arahova(j) | 109,170 | 1,092 | ||||||
4,382 | ||||||||
Construction Materials–0.17% | ||||||||
U.S. Concrete, Inc.(i) | 9,253 | 263,248 | ||||||
Forest Products–0.00% | ||||||||
Emerald Plantation Holdings Ltd. (Cayman Islands)(f)(i) | 6,205 | 1,241 | ||||||
Integrated Telecommunication Services–0.14% | ||||||||
Hawaiian Telcom Holdco Inc.–Wts. expiring 10/28/15(k) | 1,527 | 21,042 | ||||||
Largo Ltd. (Luxembourg)–Class A(i) | 17,563 | 19,765 | ||||||
Largo Ltd. (Luxembourg)–Class B(i) | 158,069 | 177,890 | ||||||
218,697 | ||||||||
Paper Products–0.07% | ||||||||
NewPage Holdings Inc. (Acquired 07/21/11-08/29/11; Cost $245,385)(b)(l) | 1,140 | 102,600 | ||||||
Semiconductors–0.01% | ||||||||
Magnachip Semiconductor Corp. (South Korea)(i) | 1,372 | 17,822 | ||||||
Total Common Stocks & Other Equity Interests (Cost $2,624,809) |
| 1,398,284 | ||||||
Principal Amount | ||||||||
Variable Rate Senior Loan Interests–0.51%(m) |
| |||||||
Diversified Support Services–0.38% | ||||||||
Laureate Education, Inc., Sr. Sec. Gtd. Term Loan, 5.00%, 06/16/18 | $ | 606,941 | 580,639 | |||||
Health Care Facilities–0.13% | ||||||||
Acadia Healthcare Co., Inc., Sr. Unsec. | 205,000 | 205,000 | ||||||
Total Variable Rate Senior Loan Interests (Cost $792,833) |
| 785,639 | ||||||
U.S. Treasury Bills–0.21%(o)(p) |
| |||||||
0.06%, 08/20/15 | 20,000 | 19,981 | ||||||
0.07%, 08/20/15 | 125,000 | 124,880 | ||||||
0.08%, 08/20/15 | 90,000 | 89,914 | ||||||
0.09%, 08/20/15 | 100,000 | 99,904 | ||||||
Total U.S. Treasury Bills (Cost $334,833) | 334,679 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Shares | Value | |||||||
Money Market Funds–3.63% | ||||||||
Liquid Assets Portfolio–Institutional Class(q) | 2,794,315 | $ | 2,794,315 | |||||
Premier Portfolio–Institutional Class(q) | 2,794,314 | 2,794,314 | ||||||
Total Money Market Funds (Cost $5,588,629) | 5,588,629 | |||||||
TOTAL INVESTMENTS–99.45% |
| 153,183,372 | ||||||
OTHER ASSETS LESS LIABILITIES–0.55% |
| 845,231 | ||||||
NET ASSETS–100.00% |
| $ | 154,028,603 |
Investment Abbreviations:
Conv. | – Convertible | |
Ctfs. | – Certificates | |
EUR | – Euro | |
GBP | – British Pound | |
Gtd. | – Guaranteed | |
PIK | – Payment in Kind | |
REGS | – Regulation S | |
REIT | – Real Estate Investment Trust | |
Sec. | – Secured | |
Sr. | – Senior | |
Sub. | – Subordinated | |
Unsec. | – Unsecured | |
Wts. | – Warrants |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2014 was $64,212,625, which represented 41.69% of the Trust’s Net Assets. |
(c) | Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate value of these securities at December 31, 2014 was $200, which represented less than 1% of the Fund’s Net Assets. |
(d) | Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. |
(e) | 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 | % | ||||
Emerald Plantation Holdings Ltd., Sr. Sec. Gtd. Global PIK Notes | 6.00 | 8.00 |
(f) | Acquired as part of the Sino-Forest Corp. reorganization. |
(g) | Foreign denominated security. Principal amount is denominated in the currency indicated. |
(h) | Acquired as part of the General Motors reorganization. |
(i) | Non-income producing security. |
(j) | Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. |
(k) | Non-income producing security acquired as part of the Hawaiian Telcom bankruptcy reorganization. |
(l) | Non-income producing security acquired as part of the NewPage Corp. bankruptcy reorganization. |
(m) | Variable rate senior loan interests are, at present, not readily marketable, not registered under 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. |
(n) | This variable rate interest will settle after December 31, 2014, at which time the interest rate will be determined. The senior loan commitment cannot fund until settlement. |
(o) | Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(p) | All or a portion of the value was pledged as collateral to cover margin requirements for swap agreements. See Note 1M and Note 4. |
(q) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $158,974,246) | $ | 147,594,743 | ||
Investments in affiliated money market funds, at value and cost | 5,588,629 | |||
Total investments, at value (Cost $164,562,875) | 153,183,372 | |||
Cash | 7,577 | |||
Receivable for: | ||||
Investments sold | 1,455,000 | |||
Variation margin — centrally cleared swap agreements | 2,330 | |||
Fund shares sold | 78,151 | |||
Dividends and interest | 2,504,169 | |||
Investment for trustee deferred compensation and retirement plans | 82,049 | |||
Unrealized appreciation on forward foreign currency contracts | 91,653 | |||
Total assets | 157,404,301 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 3,094,143 | |||
Fund shares reacquired | 32,561 | |||
Amount due custodian — foreign (Cost $134) | 133 | |||
Accrued fees to affiliates | 126,080 | |||
Accrued trustees’ and officers’ fees and benefits | 490 | |||
Accrued other operating expenses | 36,472 | |||
Trustee deferred compensation and retirement plans | 85,819 | |||
Total liabilities | 3,375,698 | |||
Net assets applicable to shares outstanding | $ | 154,028,603 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 165,204,148 | ||
Undistributed net investment income | 7,223,759 | |||
Undistributed net realized gain (loss) | (7,076,345 | ) | ||
Net unrealized appreciation (depreciation) | (11,322,959 | ) | ||
$ | 154,028,603 | |||
Net Assets: |
| |||
Series I | $ | 94,345,208 | ||
Series II | $ | 59,683,395 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 17,061,342 | |||
Series II | 10,855,451 | |||
Series I: | ||||
Net asset value per share | $ | 5.53 | ||
Series II: | ||||
Net asset value per share | $ | 5.50 |
Investment income: |
| |||
Interest | $ | 9,198,813 | ||
Dividends (net of foreign withholding taxes of $21) | 79,415 | |||
Dividends from affiliated money market funds | 2,003 | |||
Total investment income | 9,280,231 | |||
Expenses: | ||||
Advisory fees | 961,248 | |||
Administrative services fees | 390,523 | |||
Custodian fees | 22,078 | |||
Distribution fees — Series II | 135,302 | |||
Transfer agent fees | 25,936 | |||
Trustees’ and officers’ fees and benefits | 24,784 | |||
Other | 90,004 | |||
Total expenses | 1,649,875 | |||
Less: Fees waived | (94,203 | ) | ||
Net expenses | 1,555,672 | |||
Net investment income | 7,724,559 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 1,823,560 | |||
Foreign currencies | (71,556 | ) | ||
Forward foreign currency contracts | 643,679 | |||
Swap agreements | 138,329 | |||
2,534,012 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (8,300,313 | ) | ||
Foreign currencies | (3,710 | ) | ||
Forward foreign currency contracts | 169,401 | |||
Swap agreements | (92,632 | ) | ||
(8,227,254 | ) | |||
Net realized and unrealized gain (loss) | (5,693,242 | ) | ||
Net increase in net assets resulting from operations | $ | 2,031,317 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. High Yield Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 7,724,559 | $ | 7,439,662 | ||||
Net realized gain | 2,534,012 | 2,772,367 | ||||||
Change in net unrealized appreciation (depreciation) | (8,227,254 | ) | (1,942,674 | ) | ||||
Net increase in net assets resulting from operations | 2,031,317 | 8,269,355 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (4,795,964 | ) | (4,719,053 | ) | ||||
Series ll | (2,707,280 | ) | (2,040,917 | ) | ||||
Total distributions from net investment income | (7,503,244 | ) | (6,759,970 | ) | ||||
Share transactions–net: | ||||||||
Series l | (946,144 | ) | 3,352,924 | |||||
Series ll | 17,576,271 | 23,475,224 | ||||||
Net increase in net assets resulting from share transactions | 16,630,127 | 26,828,148 | ||||||
Net increase in net assets | 11,158,200 | 28,337,533 | ||||||
Net assets: | ||||||||
Beginning of year | 142,870,403 | 114,532,870 | ||||||
End of year (includes undistributed net investment income of $7,223,759 and $6,921,357, respectively) | $ | 154,028,603 | $ | 142,870,403 |
Notes to Financial Statements
December 31, 2014
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 asset value per share, futures and option contracts generally are valued 15 minutes after the close of the customary trading session of the New York Stock Exchange (“NYSE”).
Invesco V.I. High Yield Fund
Investments in open-end and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share. Investments in open-end and closed-end registered investment companies that trade on an exchange are valued at the last sales price or official closing price as of the close of the customary trading session on the exchange where the security is principally traded.
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 ask 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 net investment 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 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 |
Invesco V.I. High Yield Fund
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 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.
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.
An interest rate swap is an agreement between Counterparties pursuant to which the parties exchange a floating rate payment for a fixed rate payment based on a specified notional amount.
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
Notional amounts of each individual credit default swap agreement outstanding as of December 31, 2014 for which the Fund is the seller of protection are disclosed in the Notes to Schedule of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
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, |
Invesco V.I. High Yield Fund
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”. |
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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.625%.
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.
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 year ended December 31, 2014, the Adviser waived advisory fees of $94,203.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $340,523 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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.
Invesco V.I. High Yield Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 6,682,276 | $ | 304,637 | $ | 0 | $ | 6,986,913 | ||||||||
Corporate Debt Securities | — | 139,675,484 | 0 | 139,675,484 | ||||||||||||
Foreign Debt Securities | — | 6,186,296 | — | 6,186,296 | ||||||||||||
Treasury Securities | — | 334,679 | — | 334,679 | ||||||||||||
6,682,276 | 146,501,096 | 0 | 153,183,372 | |||||||||||||
Forward Foreign Currency Contracts* | — | 91,653 | — | 91,653 | ||||||||||||
Swap Agreements* | — | (30,237 | ) | — | (30,237 | ) | ||||||||||
Total Investments | $ | 6,682,276 | $ | 146,562,512 | $ | 0 | $ | 153,244,788 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Credit risk: | ||||||||
Swap agreements(a) | $ | — | $ | (30,237 | ) | |||
Currency risk: | ||||||||
Forward foreign currency contracts(b) | 100,906 | (9,253 | ) | |||||
Total | $ | 100,906 | $ | (39,490 | ) |
(a) | Includes cumulative appreciation (depreciation) of centrally cleared swap agreements. Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
(b) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts. |
Effect of Derivative Investments for the year ended December 31, 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: | ||||||||
Credit risk | $ | — | $ | 138,329 | ||||
Currency risk | 643,679 | — | ||||||
Change in Unrealized Appreciation (Depreciation): | ||||||||
Credit risk | — | (92,632 | ) | |||||
Currency risk | 169,401 | — | ||||||
Total | $ | 813,080 | $ | 45,697 |
Invesco V.I. High Yield Fund
The table below summarizes the twelve month average notional value of forward foreign currency contracts and the ten month average notional value of swap agreements during the period.
Forward Contracts | Swap Agreements | |||||||
Average notional value | $ | 13,910,974 | $ | 2,415,022 |
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date
| Counterparty | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Deliver | Receive | |||||||||||||||||||||||||
03/13/15 | Citigroup Global Markets Inc. | EUR | 2,959,737 | USD | 3,666,582 | $ | 3,583,798 | $ | 82,784 | |||||||||||||||||
03/13/15 | Goldman Sachs International | GBP | 2,288,592 | USD | 3,583,397 | 3,565,275 | 18,122 | |||||||||||||||||||
03/13/15 | Citigroup Global Markets Inc. | USD | 576,864 | EUR | 470,340 | 569,511 | (7,353 | ) | ||||||||||||||||||
03/13/15 | Goldman Sachs International | USD | 200,815 | GBP | 127,686 | 198,915 | (1,900 | ) | ||||||||||||||||||
Total Forward Foreign Currency Contracts — Currency Risk | $ | 91,653 |
Currency Abbreviations:
EUR | – Euro | |
GBP | – British Pound Sterling | |
USD | – U.S. Dollar |
Open Centrally Cleared Credit Default Swap Agreements — Credit Risk | ||||||||||||||||||||||||||||||
Counterparty/Clearinghouse | Reference Entity | Buy/Sell Protection | (Pay)/Receive Fixed Rate | Expiration Date | Implied Credit Spread(a) | Notional Value | Upfront Payments | Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
Credit Suisse Securities (USA) LLC/CME | Markit CDX North America, High Yield Index | Sell | 5.00 | % | 06/20/19 | 3.26 | % | $ | 3,967,686 | $ | 296,058 | $ | (30,237 | ) |
Abbreviations:
CME | – Chicago Mercantile Exchange |
(a) | Implied credit spreads represent the current level as of December 31, 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.
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts Assets | Gross amounts | Net amounts of assets presented in Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Citigroup Global Markets Inc.(a) | $ | 82,784 | $ | (7,353 | ) | $ | 75,431 | $ | — | $ | — | $ | 75,431 | |||||||||||
Credit Suisse Securities (USA) LLC(b) | 296,058 | (30,237 | ) | 265,821 | — | — | 265,821 | |||||||||||||||||
Goldman Sachs International(a) | 18,122 | (1,900 | ) | 16,222 | — | — | 16,222 | |||||||||||||||||
Total | $ | 396,964 | $ | (39,490 | ) | $ | 357,474 | $ | — | $ | — | $ | 357,474 | |||||||||||
Invesco V.I. High Yield Fund
Liabilities: | ||||||||||||||||||||||||
Gross amounts of Recognized Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in Statement of Assets & Liabilities | Collateral Pledged | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Citigroup Global Markets Inc.(a) | $ | 7,353 | $ | (7,353 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
Credit Suisse Securities (USA) LLC(b) | 30,237 | (30,237 | ) | — | — | — | — | |||||||||||||||||
Goldman Sachs International(a) | 1,900 | (1,900 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 39,490 | $ | (39,490 | ) | $ | — | $ | — | $ | — | $ | — |
(a) | Forward foreign currency contracts Counterparty. |
(b) | Swap agreements — centrally cleared Counterparty. Includes upfront payments and cumulative appreciation (depreciation). Only current day’s variation margin receivable is reported within the Statement of Assets and Liabilities. |
NOTE 5—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 2014, the Fund engaged in securities purchases of $4,589,818.
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 7,503,244 | $ | 6,759,970 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 7,300,462 | ||
Net unrealized appreciation (depreciation) — investments | (11,552,344 | ) | ||
Net unrealized appreciation (depreciation) — other investments | (35,110 | ) | ||
Temporary book/tax differences | (76,703 | ) | ||
Capital loss carryforward | (6,811,850 | ) | ||
Shares of beneficial interest | 165,204,148 | |||
Total net assets | $ | 154,028,603 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation (depreciation) difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Invesco V.I. High Yield Fund
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $3,593,915 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 2,969,048 | $ | — | $ | 2,969,048 | ||||||
December 31, 2017 | 3,028,860 | — | 3,028,860 | |||||||||
Not subject to expiration | 533,294 | 280,648 | 813,942 | |||||||||
$ | 6,531,202 | $ | 280,648 | $ | 6,811,850 |
* | 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 year ended December 31, 2014 was $169,152,928 and $153,116,462, 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 | $ | 1,743,143 | ||
Aggregate unrealized (depreciation) of investment securities | (13,295,487 | ) | ||
Net unrealized appreciation (depreciation) of investment securities | $ | (11,552,344 | ) |
Cost of investments for tax purposes is $164,735,716.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of bond premium amortization, foreign currency transactions and swap income, on December 31, 2014, undistributed net investment income was increased by $81,087, undistributed net realized gain (loss) was decreased by $20,467 and shares of beneficial interest was decreased by $60,620. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. High Yield Fund
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 8,876,121 | $ | 51,313,881 | 6,224,196 | $ | 35,375,283 | ||||||||||
Series II | 4,956,536 | 28,473,807 | 2,847,094 | 16,256,247 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 856,422 | 4,795,964 | 858,009 | 4,719,053 | ||||||||||||
Series II | 486,047 | 2,707,280 | 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 | (9,955,032 | ) | (57,055,989 | ) | (8,855,490 | ) | (50,659,381 | ) | ||||||||
Series II | (2,419,660 | ) | (13,604,816 | ) | (1,164,125 | ) | (6,605,421 | ) | ||||||||
Net increase in share activity | 2,800,434 | $ | 16,630,127 | 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 76% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. |
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.
At the year ended December 31, 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 | ||||||
Bank of America, N.A. | $ | 205,000 | $ | 205,000 | ||||
Citibank, N.A. | 606,941 | 580,639 | ||||||
Total | $ | 811,941 | $ | 785,639 |
Invesco V.I. High Yield Fund
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 (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 5.70 | $ | 0.29 | $ | (0.19 | ) | $ | 0.10 | $ | (0.27 | ) | $ | 5.53 | 1.73 | % | $ | 94,345 | 0.92 | %(d) | 0.98 | %(d) | 5.11 | %(d) | 103 | % | ||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.67 | 0.28 | (0.19 | ) | 0.09 | (0.26 | ) | 5.50 | 1.59 | 59,683 | 1.17 | (d) | 1.23 | (d) | 4.86 | (d) | 103 | |||||||||||||||||||||||||||||||
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 |
(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 based on average daily net assets (000’s omitted) of $99,679 and $54,121 for Series I and Series II shares, respectively. |
Invesco V.I. High Yield Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. High Yield Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. High Yield Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 966.40 | $ | 4.86 | $ | 1,020.27 | $ | 4.99 | 0.98 | % | ||||||||||||
Series II | 1,000.00 | 966.40 | 6.10 | 1,019.00 | 6.26 | 1.23 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. High Yield Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 1.89 | % | ||
U.S. Treasury Obligations* | 0.01 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. High Yield Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. High Yield Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. High Yield Fund
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Annual Report to Shareholders
| December 31, 2014 | |||
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Invesco V.I. International Growth Fund
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VIIGR-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. International Growth Fund delivered modest gains, but outperformed its style-specific benchmark, the Custom International Growth Index. Stock selection decisions in the health care and information technology (IT) sectors were key drivers of Fund outperformance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 0.33 | % | |||
Series II Shares | 0.09 | ||||
MSCI EAFE Index‚ (Broad Market Index) | -4.90 | ||||
Custom International Growth Indexn (Style-Specific Index) | -2.65 | ||||
Lipper VUF International Large-Cap Growth Funds Index¿ (Peer Group Index)* | -5.24 |
Source(s): ‚FactSet Research Systems Inc.; nInvesco, FactSet Research Systems Inc.; ¿Lipper Inc.
* | During the reporting period, Lipper eliminated the Lipper VUF International Growth Funds Index, the former peer group index for the Fund, and replaced it with the Lipper VUF International Large-Cap Growth Funds Index. |
Market conditions and your Fund
While 2014 began on an optimistic note, global equity markets pulled back at various points during the year in reaction to economic and geopolitical concerns. In the US, concerns centered around the potential negative effects of the US Federal Reserve reducing the scope of its asset purchase program beginning in early 2014; it ended all purchases in October. Global equity markets also declined in response to an Argentine sovereign bond default, eurozone banking concerns and geopolitical tensions in Ukraine and the Middle East, which weakened the outlook for global economic growth.
Advanced economies such as the UK and US saw an economic rebound that, while modest, was stronger than in Europe, where a nascent recovery stalled. While a more supportive monetary policy in the eurozone failed to ignite dramatic economic recovery, it briefly boosted European equity prices despite having little effect on corporate earnings. Meanwhile, the Bank of Japan remained committed
to extraordinary monetary stimulus.
Equity market performance in emerging markets was mixed. In Russia, markets declined significantly as a result of a sharp drop in the price of energy, recession concerns and a sharp decline in the value of the ruble. China continued to face headwinds and struggled to balance structural reforms with its desire to maintain satisfactory growth, while equity markets in other Asian countries, including India, Indonesia and the Philippines, experienced gains.
In this environment, we continued to construct the Fund’s portfolio with a bottom-up approach, selecting stocks on an individual basis. The Fund outperformed its style-specific benchmark in seven of 10 sectors, significantly outperforming in the health care and IT sectors.
Stock selection decisions in the health care sector led relative performance during the year. Shire, an Ireland-based global specialty biopharmaceutical company, was one of the Fund’s top performers. Shire’s stock price rose over 50%
during the year as it was subject to a takeover bid by US drugmaker AbbVie (not a Fund holding). Teva Pharmaceutical, an Israel-based healthcare company engaged in the manufacture and sale of generics, branded and over-the-counter pharmaceuticals, was a top contributor in the sector as well. The departure of the company’s chief executive officer led to the board accelerating restructuring costs ahead of expectations. In addition, approval of a new formulation of Copax-one (used to treat multiple sclerosis) helped alleviate concerns of a generic threat. Late in 2014, the company also benefited from third quarter earnings that were well above estimates.
The Fund’s IT holdings delivered strong gains as well, meaningfully outperforming the style-specific index in the IT sector. Semiconductor and Internet software stocks showed particular strength. Avago Technologies, a Singapore-based semiconductor company, was the Fund’s strongest performer. In August 2014, the company reported earnings and forward guidance that were significantly better than consensus expectations. Also, the market was pleasantly surprised by the speed and integration of the company’s acquisition of LSI (not a Fund holding). In addition, Avago’s stock price rallied in anticipation of greater-than- expected content in the latest iPhones.
Stock selection decisions and underweight positions in the weak industrials and materials sectors also contributed to Fund performance versus the style-specific index, which posted negative returns in the sectors for the reporting period. Taiwan Semiconductor also contributed to relative performance during the reporting period.
Geographically, stock selection in Europe, Asia/Pacific, Africa/Middle East and Latin America contributed to relative outperformance versus the style-specific
Portfolio Composition | |||||
By sector
| |||||
Consumer Discretionary | 23.7 | % | |||
Financials | 17.5 | ||||
Information Technology | 15.1 | ||||
Industrials | 10.2 | ||||
Health Care | 9.0 | ||||
Consumer Staples | 8.6 | ||||
Energy | 5.2 | ||||
Materials | 3.1 | ||||
Utilities | 0.7 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 6.9 |
Top 10 Equity Holdings* | |||||
1. Sky PLC | 2.5 | % | |||
2. Teva Pharmaceutical Industries Ltd.-ADR | 2.3 | ||||
3. WPP PLC | 2.2 | ||||
4. Reed Elsevier PLC | 2.2 | ||||
5. Avago Technologies Ltd. | 2.1 | ||||
6. British American Tobacco PLC | 2.1 | ||||
7. SAP S.E. | 2.1 | ||||
8. Suncor Energy, Inc. | 2.0 | ||||
9. Toyota Motor Corp. | 2.0 | ||||
10. Baidu, Inc.-ADR | 1.9 |
Top Five Countries* | |||||
1. United Kingdom | 18.9 | % | |||
2. Switzerland | 8.1 | ||||
3. Germany | 7.7 | ||||
4. Japan | 7.7 | ||||
5. Canada | 7.3 |
Total Net Assets | $1.7 billion | ||||
Total Number of Holdings* | 70 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. International Growth Fund
index. Top country-level contributors included the UK, Singapore and Australia. Stock selection in each country was the primary driver of relative outperformance. Overweight exposure in Ireland and Israel and 0% exposure in the weak Russian market were supportive on a relative basis as well.
In contrast, exposure to the consumer discretionary sector was the largest sector-level detractor from relative performance versus the Fund’s style-specific index. Galaxy Entertainment was the largest detractor from performance during the reporting period. After enjoying extremely strong returns, this leading developer and operator of casinos in Macau, succumbed to profit-taking as investors remained somewhat cautious about the growth outlook for the VIP segment in Macau. At the end of the reporting period, we continued to hold Galaxy due to potential earnings growth and the opening of Galaxy Macau Phase 2 on track for the first half of 2015, the first in the next round of openings. Additionally, German sportswear manufacturer Adidas detracted from performance during the reporting period.
Fund exposure to the consumer staples sector was also a detractor from relative performance. Denmark-based beer-maker Carlsberg was the leading detractor in the sector. The company’s significant exposure to Russia and Ukraine caused its stock price to fall as geopolitical tensions rose in the two countries earlier in the year.
Holdings in the utilities sector detracted from both absolute and relative results as well. Centrica, the biggest energy supplier to UK households, was the largest detractor from performance in the sector. The company’s share price declined during the fourth quarter as it cut its full-year earnings outlook because of mild weather and outages at nuclear power plants.
Geographically, Fund exposure in Hong Kong was the largest detractor from performance versus the style-specific index. Fund exposure in Germany and Canada hurt relative performance as well. In Canada, select holdings within the energy sector were down as prices in the sector fell significantly in the latter part of the year.
As mentioned above, stock selection in the Fund is driven by the underlying fundamentals of each individual company, not by any top-down macroeconomic views. This focus on bottom-up stock selection is the key driver of the Fund’s overall profile. The Fund ended the reporting period with meaningful overweight exposures to the consumer discretionary, financials and IT sectors relative
to our style-specific benchmark. The Fund had meaningful underweight exposures to the utilities, materials, industrials and energy sectors.
With market volatility likely to continue for some time, our focus remains on ensuring that our portfolio is comprised of high-quality, reasonably-valued companies capable of sustained earnings growth. We believe that this balanced EQV-focused approach may help deliver attractive returns over the long term.
We thank you for your continued investment in Invesco V.I. International Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Clas Olsson Portfolio Manager and Chief Investment Officer of Invesco’s international growth investments team, is | ||
lead manager of Invesco V.I. International Growth Fund. He joined Invesco in 1994. Mr. Olsson became a commissioned officer at the Royal Swedish Naval Academy in 1988. He also earned a BBA from The University of Texas at Austin. | ||
Brent Bates Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 1996. Mr. Bates earned a BBA from Texas A&M University and is a Certified Public Accountant. |
Shuxin (Steve) Cao Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 1997. Mr. Cao earned a BA in English from the Tianjin Foreign Language Institute and an MBA from Texas A&M University. He is also a Certified Public Accountant. | ||
Matthew Dennis Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 2000. Mr. Dennis earned a BA in economics from The University of Texas at Austin and an MS in finance from Texas A&M University. | ||
Jason Holzer Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 1996. Mr. Holzer earned a BA in quantitative economics and an MS in engineering economic systems from Stanford University. | ||
Mark Jason Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 2001. Mr. Jason earned a BS in finance and a BS in real estate from California State University, Northridge. | ||
Richard Nield Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. International Growth | ||
Fund. He joined Invesco in 2000. Mr. Nield earned a Bachelor of Commerce degree in finance and international business from McGill University in Montreal. |
Invesco V.I. International Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Please note: The Lipper VUF International Large-Cap Growth Funds Index is not shown on the chart as the index does not have 10 years of performance history.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/5/93) | 7.58 | % | |||
10 Years | 7.34 | ||||
5 Years | 7.74 | ||||
1 Year | 0.33 | ||||
Series II Shares | |||||
Inception (9/19/01) | 8.14 | % | |||
10 Years | 7.08 | ||||
5 Years | 7.48 | ||||
1 Year | 0.09 |
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
Invesco V.I. International Growth Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Geographic focus risk. From time to time the Fund may invest a substantial amount of its assets in securities of issuers located in a single country or a limited number of countries. If the Fund focuses its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance. The Fund’s investment performance may also be more volatile if it focuses its investments in certain countries, especially emerging markets countries.
Growth investing risk. Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result they tend to be more sensitive to changes in their earnings and can be more volatile.
Investing in the European Union risk. Many countries in the European Union are susceptible to high economic risks associated with high levels of debt, notably due to investments in sovereign debts of European countries such as Greece, Italy and Spain. One or more member states might exit the European Union, placing its currency and banking system in jeopardy. The European Union faces major issues involving its membership, structure, procedures and policies, including the adoption, abandonment or adjustment of
the new constitutional treaty, the European Union’s enlargement to the south and east, and resolution of the European Union’s problematic fiscal and democratic accountability. Efforts of the member states to further unify their economic and monetary policies may increase the potential for the downward movement of one member state’s market to cause a similar effect on other member states’ markets. European countries that are part of the European Economic and Monetary Union may be significantly affected by the tight fiscal and monetary controls that the union seeks to impose on its members.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mid-capitalization risk. Stocks of mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
Invesco V.I. International Growth Fund
About indexes used in this report
The MSCI EAFE® Index is an unmanaged index considered representative of stocks of Europe, Australasia and the Far East. The index is computed using the net return, which withholds applicable taxes for non-resident investors.
The Custom International Growth Index is composed 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 Large-Cap Growth Funds Index is an unmanaged index considered representative of international large-cap 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 an index considered representative of growth companies in developed and emerging markets, 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.
Other information
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. International Growth Fund
Schedule of Investments
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–93.07% |
| |||||||
Australia–3.69% | ||||||||
Amcor Ltd. | 2,878,348 | $ | 31,674,792 | |||||
Brambles Ltd. | 2,215,658 | 19,080,966 | ||||||
CSL Ltd. | 184,001 | 12,955,711 | ||||||
63,711,469 | ||||||||
Belgium–1.55% | ||||||||
Anheuser-Busch InBev N.V. | 237,951 | 26,778,612 | ||||||
Brazil–4.12% | ||||||||
Banco Bradesco S.A.–ADR | 2,409,615 | 32,216,553 | ||||||
BM&FBovespa S.A. | 6,660,560 | 24,422,060 | ||||||
BRF S.A. | 609,848 | 14,557,780 | ||||||
71,196,393 | ||||||||
Canada–7.29% | ||||||||
Canadian National Railway Co. | 242,518 | 16,703,641 | ||||||
Cenovus Energy Inc. | 486,806 | 10,043,673 | ||||||
CGI Group Inc.–Class A (a) | 771,527 | 29,412,060 | ||||||
Encana Corp. | 1,118,912 | 15,573,082 | ||||||
Fairfax Financial Holdings Ltd. | 36,576 | 19,165,723 | ||||||
Suncor Energy, Inc. | 1,103,737 | 35,055,858 | ||||||
125,954,037 | ||||||||
China–5.11% | ||||||||
Baidu, Inc.–ADR(a) | 146,134 | 33,314,168 | ||||||
CNOOC Ltd. | 5,032,000 | 6,807,006 | ||||||
Great Wall Motor Co. Ltd.–Class H | 5,237,000 | 29,554,408 | ||||||
Industrial & Commercial Bank of China Ltd.–Class H | 25,497,000 | 18,522,094 | ||||||
88,197,676 | ||||||||
Denmark–2.10% | ||||||||
Carlsberg AS–Class B | 273,100 | 21,207,233 | ||||||
Novo Nordisk AS–Class B | 357,860 | 15,135,176 | ||||||
36,342,409 | ||||||||
France–2.90% | ||||||||
Publicis Groupe S.A. | 451,199 | 32,317,637 | ||||||
Schneider Electric S.E. | 243,696 | 17,708,133 | ||||||
50,025,770 | ||||||||
Germany–7.72% | ||||||||
adidas AG | 204,080 | 14,229,674 | ||||||
Allianz S.E. | 132,510 | 22,024,121 | ||||||
Deutsche Boerse AG | 375,856 | 26,934,638 | ||||||
Deutsche Post AG | 427,677 | 13,996,651 | ||||||
ProSiebenSat.1 Media AG | 495,629 | 20,889,664 | ||||||
SAP S.E. | 499,764 | 35,337,514 | ||||||
133,412,262 |
Shares | Value | |||||||
Hong Kong–3.31% | ||||||||
Galaxy Entertainment Group Ltd. | 4,580,000 | $ | 25,495,489 | |||||
Hutchison Whampoa Ltd. | 2,764,000 | 31,644,147 | ||||||
57,139,636 | ||||||||
Ireland–0.95% | ||||||||
Shire PLC | 232,778 | 16,447,132 | ||||||
Israel–2.31% | ||||||||
Teva Pharmaceutical Industries Ltd.–ADR | 693,210 | 39,866,507 | ||||||
Japan–7.71% | ||||||||
Denso Corp. | 259,300 | 12,086,849 | ||||||
FANUC Corp. | 105,000 | 17,331,950 | ||||||
Japan Tobacco, Inc. | 750,900 | 20,621,719 | ||||||
Keyence Corp. | 28,200 | 12,492,934 | ||||||
Komatsu Ltd. | 919,237 | 20,382,456 | ||||||
Toyota Motor Corp. | 540,700 | 33,723,990 | ||||||
Yahoo Japan Corp. | 4,577,000 | 16,518,426 | ||||||
133,158,324 | ||||||||
Mexico–1.95% | ||||||||
Fomento Economico Mexicano, S.A.B. de C.V.–ADR(a) | 120,611 | 10,617,386 | ||||||
Grupo Televisa S.A.B.–ADR(a) | 675,475 | 23,006,679 | ||||||
33,624,065 | ||||||||
Singapore–4.83% | ||||||||
Avago Technologies Ltd. | 364,701 | 36,685,274 | ||||||
Keppel Corp. Ltd. | 2,492,661 | 16,632,065 | ||||||
United Overseas Bank Ltd. | 1,626,000 | 30,060,124 | ||||||
83,377,463 | ||||||||
South Korea–2.68% | ||||||||
Hyundai Mobis Co., Ltd.(a) | 88,706 | 19,021,241 | ||||||
Samsung Electronics Co., Ltd. | 22,509 | 27,259,611 | ||||||
46,280,852 | ||||||||
Spain–1.07% | ||||||||
Amadeus IT Holding S.A.–Class A | 466,774 | 18,549,062 | ||||||
Sweden–2.51% | ||||||||
Investor AB–Class B | 693,053 | 25,116,236 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 1,508,432 | 18,256,993 | ||||||
43,373,229 | ||||||||
Switzerland–8.09% | ||||||||
ABB Ltd. | 1,055,734 | 22,332,810 | ||||||
Julius Baer Group Ltd. | 426,160 | 19,449,787 | ||||||
Novartis AG | 219,519 | 20,190,641 | ||||||
Roche Holding AG | 115,288 | 31,250,856 | ||||||
Syngenta AG | 70,486 | 22,635,364 | ||||||
UBS Group AG | 1,387,655 | 23,855,773 | ||||||
139,715,231 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Shares | Value | |||||||
Taiwan–1.86% | ||||||||
Taiwan Semiconductor Manufacturing Co. Ltd.–ADR | 1,437,456 | $ | 32,170,265 | |||||
Thailand–1.23% | ||||||||
Kasikornbank PCL–NVDR | 3,064,300 | 21,166,099 | ||||||
Turkey–1.20% | ||||||||
Akbank T.A.S. | 5,608,758 | 20,665,961 | ||||||
United Kingdom–18.89% | ||||||||
Aberdeen Asset Management PLC | 2,831,331 | 18,912,028 | ||||||
British American Tobacco PLC | 673,115 | 36,575,264 | ||||||
Centrica PLC | 2,730,538 | 11,752,871 | ||||||
Compass Group PLC | 1,621,008 | 27,630,753 | ||||||
Informa PLC | 1,719,487 | 12,547,716 | ||||||
Kingfisher PLC | 4,569,563 | 24,081,350 | ||||||
Next PLC | 145,171 | 15,313,011 | ||||||
Reed Elsevier PLC | 2,184,390 | 37,166,269 | ||||||
Royal Dutch Shell PLC–Class B | 669,753 | 23,010,111 |
Shares | Value | |||||||
United Kingdom–(continued) | ||||||||
Sky PLC | 3,133,082 | $ | 43,609,707 | |||||
Smith & Nephew PLC | 1,040,354 | 19,101,492 | ||||||
Unilever N.V. | 474,003 | 18,620,912 | ||||||
WPP PLC | 1,826,842 | 37,902,425 | ||||||
326,223,909 | ||||||||
Total Common Stocks & Other Equity Interests |
| 1,607,376,363 | ||||||
Money Market Funds–6.48% |
| |||||||
Liquid Assets Portfolio–Institutional Class(b) | 55,918,447 | 55,918,447 | ||||||
Premier Portfolio–Institutional | 55,918,446 | 55,918,446 | ||||||
Total Money Market Funds | 111,836,893 | |||||||
TOTAL INVESTMENTS–99.55% |
| 1,719,213,256 | ||||||
OTHER ASSETS LESS LIABILITIES–0.45% |
| 7,804,238 | ||||||
NET ASSETS–100.00% |
| $ | 1,727,017,494 |
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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $1,178,176,250) | $ | 1,607,376,363 | ||
Investments in affiliated money market funds, at value and cost | 111,836,893 | |||
Total investments, at value (Cost $1,290,013,143) | 1,719,213,256 | |||
Foreign currencies, at value (Cost $4,164,046) | 4,099,483 | |||
Receivable for: | ||||
Investments sold | 3,777,075 | |||
Fund shares sold | 1,214,289 | |||
Dividends | 3,991,599 | |||
Investment for trustee deferred compensation and retirement plans | 245,422 | |||
Other assets | 194 | |||
Total assets | 1,732,541,318 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 601,184 | |||
Fund shares reacquired | 2,033,032 | |||
Accrued foreign taxes | 742,607 | |||
Accrued fees to affiliates | 1,733,488 | |||
Accrued trustees’ and officers’ fees and benefits | 913 | |||
Accrued other operating expenses | 131,545 | |||
Trustee deferred compensation and retirement plans | 281,055 | |||
Total liabilities | 5,523,824 | |||
Net assets applicable to shares outstanding | $ | 1,727,017,494 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 1,357,725,245 | ||
Undistributed net investment income | 13,673,897 | |||
Undistributed net realized gain (loss) | (73,318,652 | ) | ||
Net unrealized appreciation | 428,937,004 | |||
$ | 1,727,017,494 | |||
Net Assets: |
| |||
Series I | $ | 647,529,796 | ||
Series II | $ | 1,079,487,698 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 18,571,292 | |||
Series II | 31,366,242 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 34.87 | ||
Series II: | ||||
Net asset value per share | $ | 34.42 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $3,249,364) | $ | 45,530,992 | ||
Dividends from affiliated money market funds | 50,454 | |||
Total investment income | 45,581,446 | |||
Expenses: | ||||
Advisory fees | 12,453,165 | |||
Administrative services fees | 4,665,269 | |||
Custodian fees | 634,255 | |||
Distribution fees — Series II | 2,702,711 | |||
Transfer agent fees | 91,125 | |||
Trustees’ and officers’ fees and benefits | 52,519 | |||
Other | 124,357 | |||
Total expenses | 20,723,401 | |||
Less: Fees waived | (178,782 | ) | ||
Net expenses | 20,544,619 | |||
Net investment income | 25,036,827 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities (net of tax on the sale of foreign investments of $41,368) | 111,548,875 | |||
Foreign currencies | (1,504,440 | ) | ||
110,044,435 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities (net of foreign taxes on holdings of $742,607) | (132,023,737 | ) | ||
Foreign currencies | (328,678 | ) | ||
(132,352,415 | ) | |||
Net realized and unrealized gain (loss) | (22,307,980 | ) | ||
Net increase in net assets resulting from operations | $ | 2,728,847 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. International Growth Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 25,036,827 | $ | 19,018,143 | ||||
Net realized gain | 110,044,435 | 56,339,312 | ||||||
Change in net unrealized appreciation (depreciation) | (132,352,415 | ) | 199,236,580 | |||||
Net increase in net assets resulting from operations | 2,728,847 | 274,594,035 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (10,756,299 | ) | (7,786,744 | ) | ||||
Series ll | (15,248,241 | ) | (10,137,283 | ) | ||||
Total distributions from net investment income | (26,004,540 | ) | (17,924,027 | ) | ||||
Share transactions–net: | ||||||||
Series l | (30,328,366 | ) | (8,312,424 | ) | ||||
Series ll | 31,387,888 | 82,024,719 | ||||||
Net increase in net assets resulting from share transactions | 1,059,522 | 73,712,295 | ||||||
Net increase (decrease) in net assets | (22,216,171 | ) | 330,382,303 | |||||
Net assets: | ||||||||
Beginning of year | 1,749,233,665 | 1,418,851,362 | ||||||
End of year (includes undistributed net investment income of $13,673,897 and $15,206,100, respectively) | $ | 1,727,017,494 | $ | 1,749,233,665 |
Notes to Financial Statements
December 31, 2014
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 ask 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 net investment 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.71%.
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
Invesco V.I. International Growth Fund
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 year ended December 31, 2014, the Adviser waived advisory fees of $178,782.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $383,952 for accounting and fund administrative services and reimbursed $4,281,317 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 year ended December 31, 2014, there were transfers from Level 1 to Level 2 of $225,287,555 and from Level 2 to Level 1 of $61,638,763, due to foreign fair value adjustments.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Australia | $ | — | $ | 63,711,469 | $ | — | $ | 63,711,469 | ||||||||
Belgium | — | 26,778,612 | — | 26,778,612 | ||||||||||||
Brazil | 71,196,393 | — | — | 71,196,393 | ||||||||||||
Canada | 125,954,037 | — | — | 125,954,037 | ||||||||||||
China | 33,314,168 | 54,883,508 | — | 88,197,676 | ||||||||||||
Denmark | 15,135,176 | 21,207,233 | — | 36,342,409 | ||||||||||||
France | — | 50,025,770 | — | 50,025,770 | ||||||||||||
Germany | 98,074,748 | 35,337,514 | — | 133,412,262 | ||||||||||||
Hong Kong | — | 57,139,636 | — | 57,139,636 | ||||||||||||
Ireland | 16,447,132 | — | — | 16,447,132 | ||||||||||||
Israel | 39,866,507 | — | — | 39,866,507 | ||||||||||||
Japan | — | 133,158,324 | — | 133,158,324 | ||||||||||||
Mexico | 33,624,065 | — | — | 33,624,065 |
Invesco V.I. International Growth Fund
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Singapore | $ | 36,685,274 | $ | 46,692,189 | $ | — | $ | 83,377,463 | ||||||||
South Korea | — | 46,280,852 | — | 46,280,852 | ||||||||||||
Spain | — | 18,549,062 | — | 18,549,062 | ||||||||||||
Sweden | 18,256,993 | 25,116,236 | — | 43,373,229 | ||||||||||||
Switzerland | 23,855,773 | 115,859,458 | — | 139,715,231 | ||||||||||||
Taiwan | 32,170,265 | — | — | 32,170,265 | ||||||||||||
Thailand | — | 21,166,099 | — | 21,166,099 | ||||||||||||
Turkey | — | 20,665,961 | — | 20,665,961 | ||||||||||||
United Kingdom | — | 326,223,909 | — | 326,223,909 | ||||||||||||
United States | 111,836,893 | — | — | 111,836,893 | ||||||||||||
Total Investments | $ | 656,417,424 | $ | 1,062,795,832 | $ | — | $ | 1,719,213,256 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 26,004,540 | $ | 17,924,027 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 23,663,416 | ||
Net unrealized appreciation — investments | 404,187,161 | |||
Net unrealized appreciation (depreciation) — other investments | (263,109 | ) | ||
Temporary book/tax differences | (269,920 | ) | ||
Capital loss carryforward | (58,025,299 | ) | ||
Shares of beneficial interest | 1,357,725,245 | |||
Total net assets | $ | 1,727,017,494 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and passive foreign investment companies.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. International Growth Fund
The Fund utilized $110,938,577 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2016 | $ | 5,717,826 | $ | — | $ | 5,717,826 | ||||||
December 31, 2017 | 14,504,919 | — | 14,504,919 | |||||||||
December 31, 2018 | 37,802,554 | — | 37,802,554 | |||||||||
$ | 58,025,299 | $ | — | $ | 58,025,299 |
* | 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 year ended December 31, 2014 was $425,173,254 and $441,987,277, 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 | $ | 442,989,769 | ||
Aggregate unrealized (depreciation) of investment securities | (38,802,608 | ) | ||
Net unrealized appreciation of investment securities | $ | 404,187,161 |
Cost of investments for tax purposes is $1,315,026,095.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, capital loss carryforward limitation and passive foreign investment company reclasses, on December 31, 2014, undistributed net investment income was decreased by $564,490, undistributed net realized gain (loss) was increased by $951,026 and shares of beneficial interest was decreased by $386,536. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 3,030,640 | $ | 108,099,105 | 3,847,472 | $ | 123,710,056 | ||||||||||
Series II | 6,960,184 | 245,055,431 | 5,793,394 | 183,196,471 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 304,681 | 10,743,048 | 231,886 | 7,786,744 | ||||||||||||
Series II | 437,790 | 15,248,241 | 305,524 | 10,137,283 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (4,195,088 | ) | (149,170,519 | ) | (4,344,114 | ) | (139,809,224 | ) | ||||||||
Series II | (6,504,328 | ) | (228,915,784 | ) | (3,499,681 | ) | (111,309,035 | ) | ||||||||
Net increase in share activity | 33,879 | $ | 1,059,522 | 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 33% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. International Growth Fund
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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 35.32 | $ | 0.56 | $ | (0.44 | ) | $ | 0.12 | $ | (0.57 | ) | $ | 34.87 | 0.33 | % | $ | 647,530 | 1.01 | %(d) | 1.02 | %(d) | 1.58 | %(d) | 26 | % | ||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 34.88 | 0.47 | (0.43 | ) | 0.04 | (0.50 | ) | 34.42 | 0.09 | 1,079,488 | 1.26 | (d) | 1.27 | (d) | 1.33 | (d) | 26 | |||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2011, the portfolio turnover calculation excludes the value of securities purchased of $23,376,285 and sold of $8,831,296 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco Van Kampen V.I. International Growth Equity Fund into the Fund. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $680,082 and $1,081,084 for Series I and Series II shares, respectively. |
Invesco V.I. International Growth Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. International Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. International Growth Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. International Growth Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 944.00 | $ | 4.90 | $ | 1,020.16 | $ | 5.09 | 1.00 | % | ||||||||||||
Series II | 1,000.00 | 943.00 | 6.12 | 1,018.90 | 6.36 | 1.25 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. International Growth Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0 | % | ||
U.S. Treasury Obligations* | 0 | % | ||
Foreign Taxes | $ | 0.0635 | ||
Foreign Source Income | $ | 0.9669 |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. International Growth Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. International Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. International Growth Fund
| ||||
Annual Report to Shareholders
| December 31, 2014 | |||
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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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
Reflecting a modification to its investment strategy, Invesco V.I. Utilities Fund was renamed Invesco V.I. Managed Volatility Fund on April 30, 2014. The results and commentary for this reporting period include the impact of these changes. For the year ended December 31, 2014, Invesco V.I. Managed Volatility Fund outperformed the Russell 1000 Value Index, the Fund’s broad market benchmark. However, the Fund underperformed the style-specific index used by Invesco V.I. Utilities Fund, the S&P 500 Utilities Sector Total Return Index. Stock selection was the primary driver of overall performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 20.57 | % | |||
Series II Shares | 20.23 | ||||
Russell 1000 Value Index‚ (Broad Market Index)* | 13.45 | ||||
S&P 500 Index‚ (Former Broad Market Index)* | 13.69 | ||||
Barclays U.S. Government/Credit Index‚ (Style-Specific Index)* | 6.01 | ||||
S&P 500 Utilities Sector Total Return Index‚ (Former Style-Specific Index)* | 28.98 | ||||
Lipper VUF Equity Income Funds Indexn (Peer Group Index)* | 10.33 | ||||
Lipper VUF Utility Funds Classification Averagen (Former Peer Group)* | 15.44 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
* | The Fund has elected to use the Russell 1000 Value Index, the Barclays U.S. Government/Credit Index and the Lipper VUF Equity Income Funds Index as its broad market, style-specific and peer group benchmarks, respectively, rather than the S&P 500 Index, the S&P 500 Utilities Sector Total Return Index and the Lipper VUF Utility Funds Classification Average, respectively, because the new indexes more closely reflect the performance of the types of securities in which the Fund invests. |
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest
of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
While the Fund was transitioned to a more diversified strategy after April 30, 2014, companies in the utilities sector had the largest impact on performance
for the year. Material overweight exposure to the utilities sector versus the Russell 1000 Value Index, followed by stock selection within the sector, were the largest contributors to relative performance.
Pepco Holdings was the largest contributor in the sector, posting returns of over 40% for the reporting period, after Exelon (not a Fund holding) announced plans to acquire Pepco. We sold our holdings in Pepco toward the end of the reporting period, after it reached fair value.
Underweight exposure to, and stock selection in, the financials sector also boosted relative Fund performance. Citigroup and JPMorgan Chase, leaders in the banking industry, and Morgan Stanley, a diversified financials firm, were the top contributors within this sector, each posting double-digit returns over the reporting period.
Stock selection in, and underweight exposure to, the industrials sector also helped relative performance for the reporting period, as the industrials sector posted only a mid-single-digit return. Also, General Dynamics, an aerospace company, assisted relative Fund performance. The company beat profit forecasts and provided positive guidance on strong demand for its Gulfstream jets. The Fund’s underweight position in General Electric, compared to the Fund’s style-specific benchmark, contributed to relative performance as well.
We used currency forward contracts during the reporting period for the purpose of hedging currency exposure of non-US-based companies held in the portfolio. Derivatives were used solely for the purpose of hedging and not for speculative purposes or leverage. The use of currency forward contracts had a large positive impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period. This was mainly due to the strength of the US dollar versus many major foreign currencies.
Portfolio Composition | |||||
By security type | |||||
Common Stocks & Other Equity Interests | 65.4 | % | |||
Bonds & Notes | 20.3 | ||||
U.S. Treasury Securities | 7.5 | ||||
Preferred Stocks | 0.2 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 6.6 |
Top 10 Equity Holdings* | ||||||||
1. | Citigroup Inc. | 3.1 | % | |||||
2. | JPMorgan Chase & Co. | 3.0 | ||||||
3. | General Electric Co. | 2.0 | ||||||
4. | Morgan Stanley | 1.7 | ||||||
5. | Royal Dutch Shell PLC-Class A | 1.7 | ||||||
6. | Bank of America Corp. | 1.5 | ||||||
7. | Target Corp. | 1.2 | ||||||
8. | Applied Materials, Inc. | 1.2 | ||||||
9. | PNC Financial Services Group, Inc. (The) | 1.2 | ||||||
10. | Comcast Corp.-Class A | 1.1 |
Total Net Assets | $ | 72.5 million | |||||
Total Number of Holdings* | 215 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Managed Volatility Fund
On the negative side, stock selection and underweight exposure to the consumer staples sector was a large detractor from relative performance. Notably, Avon Products, within the household and personal products industry, was a large detractor, posting double-digit negative returns for the reporting period. Despite improving earnings, the stock performed poorly after settling bribery charges with the Justice Department near the end of the reporting period. We sold our position in this stock during the reporting period.
Underweight exposure to health care stocks also dampened the Fund’s performance versus the Russell 1000 Value Index, our style-specific benchmark.
The Fund’s convertible and high-grade bond holdings posted positive returns; however, they detracted from performance versus the Russell 1000 Value Index, as bonds generally underperformed equities.
The Fund’s allocation to cash also acted as a large detractor in the strong equity market. The Fund is a balanced or moderate allocation fund; therefore, allocations to cash and/or fixed income securities typically are detractors during periods of strong equity market performance. Cash is utilized for investment opportunities and the fixed income allocation may provide income and capital preservation during equity market downturns.
As part of our mandate, and to potentially reduce portfolio volatility during a market downturn, we sold short S&P 500 futures contracts during the reporting period for the purpose of reducing equity exposure in the Fund. Derivatives were used solely for the purpose of reducing volatility and not for speculative purposes. The use of S&P 500 futures contracts had a slight negative impact on the Fund’s performance relative to the Russell 1000 Value Index for the reporting period.
Equity markets, although providing investors strong absolute returns, experienced continued volatility during the reporting due to political unrest in Eastern Europe, a sluggish Chinese economy and sharply falling oil prices. We believe that market volatility creates opportunities to invest in companies with attractive valuations and strong fundamentals. We believe that ultimately those valuations and fundamentals will be reflected in those companies’ stock prices.
Thank you for your continued investment in Invesco V.I. Managed Volatility Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Thomas Bastian Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Managed Volatility | ||
Fund. He joined Invesco in 2010. Mr. Bastian earned a BA in accounting from St. John’s University and an MBA in finance from University of Michigan. | ||
Chuck Burge Portfolio Manager, is manager of Invesco V.I. Managed Volatility Fund. He joined Invesco in 2002. Mr. | ||
Burge earned a BS in economics from Texas A&M University and an MBA in finance and accounting from Rice University. | ||
Mary Jayne Maly Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Managed Volatility | ||
Fund. She joined Invesco in 2010. Ms. Maly earned a BA from the University of Pittsburgh and an MBA from the Thunderbird School of Global Management. | ||
Sergio Marcheli Portfolio Manager, is manager of Invesco V.I. Managed Volatility Fund. He joined Invesco in 2010. Mr. | ||
Marcheli earned a BBA from the University of Houston and an MBA from the University of St. Thomas. | ||
Duy Nguyen Chartered Financial Analyst, Portfolio Manager and Director of Quantitative Research for the | ||
quantitative strategies team, is manager of Invesco V.I. Managed Volatility Fund. He joined Invesco in 2000. Mr. Nguyen earned a BBA from The University of Texas at Austin and an MS from the University of Houston. | ||
James Roeder Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Managed Volatility | ||
Fund. He joined Invesco in 2010. Mr. Roeder earned a BS in accounting from Clemson University and an MBA in economics and finance from the University of Chicago Booth School of Business. |
Invesco V.I. Managed Volatility Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
The Fund has elected to use the Russell 1000 Value Index, the Barclays U.S. Government/Credit Index and the Lipper VUF Equity Income Funds Index as its broad market, style-specific and peer
group benchmarks, respectively, rather than the S&P 500 Index, the S&P 500 Utilities Index and the Lipper VUF Utility Funds Classification Average, respectively, because the new indexes more closely reflect the performance of the types of securities in which the Fund
invests. Because this is the first reporting period since we adopted the new indexes, SEC guidelines require that we compare performance to both the old and new indexes.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (12/30/94) | 7.68 | % | |||
10 Years | 8.94 | ||||
5 Years | 11.36 | ||||
1 Year | 20.57 | ||||
Series II Shares | |||||
Inception (4/30/04) | 10.25 | % | |||
10 Years | 8.67 | ||||
5 Years | 11.07 | ||||
1 Year | 20.23 |
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 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 and/or expense reimbursements by the adviser in effect through at least June 30, 2016. See current prospectus for more information. |
Invesco V.I. Managed Volatility Fund
Invesco V.I. Managed Volatility Fund’s investment objective is both capital appreciation and current income while managing portfolio volatility.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Active trading risk. The Fund engages in frequent trading of portfolio securities. Active trading results in added expenses and may result in a lower return and increased tax liability.
Call risk. If interest rates fall, it is possible that issuers of debt securities with high interest rates will prepay or call their securities before their maturity dates. In this event, the proceeds from the called securities would likely be reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the Fund’s income and distributions to shareholders.
Changing fixed income market conditions risk. The current historically low interest rate environment was created in part by the Federal Reserve Board (FRB) and certain foreign central banks keeping the federal funds and equivalent foreign rates at or near zero. There is a risk that interest rates will rise when the FRB and central banks raise these rates. This risk is heightened due to the “tapering” of the FRB’s quantitative easing program and other similar foreign central bank actions. This tapering and eventual increase in the federal funds and equivalent foreign rates may expose fixed income markets to heightened volatility and reduced liquidity for certain fixed income investments, particularly those with longer maturities. In addition, decreases in fixed income dealer market-making capacity may also potentially lead to heightened volatility and reduced liquidity in the fixed income markets. As a result, the value of the Fund’s investments and share price may decline. Changes in central bank policies could also result in higher than normal shareholder redemptions, which could potentially increase portfolio turnover and the Fund’s transaction costs.
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Depositary receipts risk. Depositary receipts involve many of the same risks as
those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Hedging risk. A hedge is an investment
made in order to reduce the risk of adverse price movements in a security by taking an offsetting position in a related security (often a derivative, such as an option or a short sale). Hedging may be ineffective due to unexpected changes in the market, changes in the values of the security and related security, or changes in the correlation of the security and related security. For gross currency hedges, there is an additional risk that these transactions create exposure to currencies in which the Fund’s securities are not denominated. Moreover, while hedging can reduce or eliminate losses it can also reduce or eliminate gains.
Income risk. The income you receive from the Fund is based primarily on prevailing interest rates, which can vary widely over the short- and long-term. If interest rates drop, your income from the Fund may drop as well.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results. Because the Fund’s investment process relies heavily on its asset allocation process, market movements that are counter to the portfolio managers’ expectations may have a significant adverse effect on the Fund’s net asset value. Further, the portfolio managers’ use of short derivative positions and instruments that provide economic leverage increases the volatility of the Fund’s net asset value, which increases the potential of greater losses that may cause the Fund to liquidate positions when it may not be advantageous to do so.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution
Invesco V.I. Managed Volatility Fund
on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due to the omission or deferment of dividend payments.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Short sales risk. Short sales may cause the Fund to repurchase a security at a higher price, thereby causing a loss. A short position in a security poses more risk than holding the same security long. As there is no limit on how much the price of the security can increase, the Fund’s exposure is unlimited. In order to establish a short position in a security, the Fund must borrow the security from a broker. The Fund may not always be able to borrow a security the Fund seeks to sell short at a particular time or at an acceptable price. The Fund also may not always be able to close out the short position by replacing the borrowed securities at a particular time or at an acceptable price. The Fund will incur increased transaction costs associated with selling securities short. In addition, taking short positions in securities results in a form of leverage which may cause the Fund to be volatile.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Value investing style risk. The Fund emphasizes a value style of investing, which
focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
Volatility management risk. The risk that the Adviser’s strategy for managing portfolio volatility may not produce the desired result or that the Adviser is unable to trade certain derivatives effectively or in a timely manner. There can be no guarantee that the Fund will maintain its target volatility level. Additionally, maintenance of the target volatility level will not ensure that the Fund will deliver competitive returns. The use of derivatives in connection with the Fund’s managed volatility strategy may expose the Fund to losses (some of which may be sudden) that it would not have otherwise been exposed to if it had only invested directly in equity and/or fixed income securities. Efforts to manage the Fund’s volatility could limit the Fund’s gains in rising markets and may expose the Fund to costs to which it would otherwise not have been exposed. The Fund’s managed volatility strategy may result in the Fund outperforming the general securities market during periods of flat or negative market performance, and underperforming the general securities market during periods of positive market performance. The gains and losses of the Fund’s futures positions may not correlate with the Fund’s direct investments in equity securities; as a result, these futures contracts may decline in value at the same time as the Fund’s direct investments in equity securities decline in value. The proprietary and third-party risk models used by the Adviser may perform differently than expected and may negatively affect performance and the ability of the Fund to maintain its volatility at or below its target maximum annual volatility level for various reasons, including errors in using or building the models, technical issues implementing the models and various non-quantitative factors (such as, market or trading system dysfunctions, and investor fear or over-reaction).
Zero coupon securities risk. The value, interest rates, and liquidity of non-cash paying instruments, such as zero coupon and pay-in-kind securities, are subject to greater fluctuation than other types of securities.
About indexes used in this report
The Russell 1000® Value Index is an unmanaged index considered representative of large-cap value stocks. The Russell 1000 Value Index is a trademark/service
mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Barclays U.S. Government/Credit Index includes treasuries and agencies that represent the government portion of the index, and includes publically issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
The Lipper VUF Equity Income Funds Index is an unmanaged index considered representative of equity income variable insurance underlying funds tracked by Lipper.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The S&P 500® Utilities Sector Total Return Index is an unmanaged index considered representative of the utilities market.
The Lipper VUF Utility Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Utility Funds classification.
The Fund is not managed to track the performance of any particular index, including the index(es) described here, and consequently, the performance of the Fund may deviate significantly from the performance of
the index(es).
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Managed Volatility Fund |
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–65.42% |
| |||||||
Aerospace & Defense–0.71% | ||||||||
General Dynamics Corp. | 3,737 | $ | 514,286 | |||||
Agricultural Products–0.81% | ||||||||
Archer-Daniels-Midland Co. | 11,344 | 589,888 | ||||||
Application Software–1.27% | ||||||||
Adobe Systems Inc.(b) | 7,419 | 539,361 | ||||||
Citrix Systems, Inc.(b) | 6,006 | 383,183 | ||||||
922,544 | ||||||||
Asset Management & Custody Banks–1.71% | ||||||||
Northern Trust Corp. | 7,145 | 481,573 | ||||||
State Street Corp. | 9,637 | 756,504 | ||||||
1,238,077 | ||||||||
Automobile Manufacturers–0.78% | ||||||||
General Motors Co. | 16,201 | 565,577 | ||||||
Biotechnology–0.93% | ||||||||
Amgen Inc. | 4,227 | 673,319 | ||||||
Cable & Satellite–1.90% | ||||||||
Comcast Corp.–Class A | 14,104 | 818,173 | ||||||
Time Warner Cable Inc. | 3,676 | 558,973 | ||||||
1,377,146 | ||||||||
Communications Equipment–0.94% | ||||||||
Cisco Systems, Inc. | 24,427 | 679,437 | ||||||
Construction Machinery & Heavy Trucks–0.79% | ||||||||
Caterpillar Inc. | 6,261 | 573,069 | ||||||
Consumer Finance–0.38% | ||||||||
Synchrony Financial(b) | 9,193 | 273,492 | ||||||
Diversified Banks–8.28% | ||||||||
Bank of America Corp. | 62,165 | 1,112,132 | ||||||
Citigroup Inc. | 41,786 | 2,261,040 | ||||||
Comerica Inc. | 10,237 | 479,501 | ||||||
JPMorgan Chase & Co. | 34,407 | 2,153,190 | ||||||
6,005,863 | ||||||||
Diversified Chemicals–0.33% | ||||||||
Dow Chemical Co. (The) | 5,242 | 239,088 | ||||||
Diversified Metals & Mining–0.40% | ||||||||
Freeport-McMoRan Inc. | 12,339 | 288,239 | ||||||
Electric Utilities–0.47% | ||||||||
FirstEnergy Corp. | 8,840 | 344,672 | ||||||
Electronic Components–0.86% | ||||||||
Corning Inc. | 27,243 | 624,682 |
Shares | Value | |||||||
General Merchandise Stores–1.21% | ||||||||
Target Corp. | 11,549 | $ | 876,684 | |||||
Health Care Equipment–0.61% | ||||||||
Medtronic, Inc. | 6,083 | 439,193 | ||||||
Health Care Services–0.27% | ||||||||
Express Scripts Holding Co.(b) | 2,333 | 197,535 | ||||||
Hotels, Resorts & Cruise Lines–1.06% | ||||||||
Carnival Corp. | 16,968 | 769,159 | ||||||
Household Products–0.85% | ||||||||
Procter & Gamble Co. (The) | 6,766 | 616,315 | ||||||
Hypermarkets & Super Centers–0.21% | ||||||||
Wal-Mart Stores, Inc. | 1,742 | 149,603 | ||||||
Industrial Conglomerates–1.96% | ||||||||
General Electric Co. | 56,115 | 1,418,026 | ||||||
Industrial Machinery–0.82% | ||||||||
Ingersoll-Rand PLC | 9,436 | 598,148 | ||||||
Insurance Brokers–2.21% | ||||||||
Aon PLC | 5,278 | 500,513 | ||||||
Marsh & McLennan Cos., Inc. | 11,855 | 678,580 | ||||||
Willis Group Holdings PLC | 9,532 | 427,129 | ||||||
1,606,222 | ||||||||
Integrated Oil & Gas–3.73% | ||||||||
Exxon Mobil Corp. | 5,239 | 484,345 | ||||||
Occidental Petroleum Corp. | 5,337 | 430,216 | ||||||
Royal Dutch Shell PLC–Class A (United Kingdom) | 36,166 | 1,198,852 | ||||||
Total S.A. (France) | 11,468 | 591,306 | ||||||
2,704,719 | ||||||||
Integrated Telecommunication Services–1.08% | ||||||||
Koninklijke KPN N.V. (Netherlands) | 33,944 | 107,023 | ||||||
Orange S.A. (France) | 7,612 | 129,457 | ||||||
Telecom Italia S.p.A. (Italy)(b) | 71,115 | 75,422 | ||||||
Telefonica S.A. (Spain) | 5,258 | 75,213 | ||||||
Verizon Communications Inc. | 8,501 | 397,677 | ||||||
784,792 | ||||||||
Internet Software & Services–1.08% | ||||||||
eBay Inc.(b) | 13,993 | 785,287 | ||||||
Investment Banking & Brokerage–3.26% | ||||||||
Charles Schwab Corp. (The) | 20,676 | 624,209 | ||||||
Goldman Sachs Group, Inc. (The) | 2,788 | 540,398 | ||||||
Morgan Stanley | 30,994 | 1,202,567 | ||||||
2,367,174 | ||||||||
IT Consulting & Other Services–0.77% | ||||||||
Amdocs Ltd. | 11,982 | 559,020 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Shares | Value | |||||||
Managed Health Care–1.49% | ||||||||
Anthem, Inc. | 4,094 | $ | 514,493 | |||||
UnitedHealth Group Inc. | 5,632 | 569,339 | ||||||
1,083,832 | ||||||||
Movies & Entertainment–1.49% | ||||||||
Time Warner Inc. | 3,672 | 313,662 | ||||||
Viacom Inc.–Class B | 10,184 | 766,346 | ||||||
1,080,008 | ||||||||
Multi-Utilities–0.51% | ||||||||
PG&E Corp. | 6,912 | 367,995 | ||||||
Oil & Gas Drilling–0.41% | ||||||||
Ensco PLC–Class A | 9,842 | 294,768 | ||||||
Oil & Gas Equipment & Services–0.73% | ||||||||
Baker Hughes Inc. | 9,463 | 530,590 | ||||||
Oil & Gas Exploration & Production–1.90% | ||||||||
Anadarko Petroleum Corp. | 4,724 | 389,734 | ||||||
Apache Corp. | 8,501 | 532,758 | ||||||
Canadian Natural Resources Ltd. (Canada) | 14,745 | 455,879 | ||||||
1,378,371 | ||||||||
Other Diversified Financial Services–0.88% | ||||||||
Voya Financial, Inc. | 15,043 | 637,522 | ||||||
Packaged Foods & Meats–1.32% | ||||||||
Mondelez International Inc.–Class A | 15,897 | 577,459 | ||||||
Unilever N.V.–New York Shares (United Kingdom) | 9,702 | 378,766 | ||||||
956,225 | ||||||||
Pharmaceuticals–5.26% | ||||||||
Eli Lilly and Co. | 9,593 | 661,821 | ||||||
Hospira, Inc.(b) | 3,973 | 243,346 | ||||||
Merck & Co., Inc. | 13,006 | 738,611 | ||||||
Novartis AG (Switzerland) | 7,497 | 689,550 | ||||||
Pfizer Inc. | 11,775 | 366,791 | ||||||
Sanofi (France) | 4,980 | 453,876 | ||||||
Teva Pharmaceutical Industries Ltd.–ADR (Israel) | 11,430 | 657,339 | ||||||
3,811,334 | ||||||||
Publishing–0.59% | ||||||||
Thomson Reuters Corp. | 10,523 | 424,525 | ||||||
Railroads–0.54% | ||||||||
CSX Corp. | 10,745 | 389,291 | ||||||
Regional Banks–2.96% | ||||||||
BB&T Corp. | 10,821 | 420,829 | ||||||
Citizens Financial Group Inc. | 13,378 | 332,577 | ||||||
Fifth Third Bancorp | 21,152 | 430,972 | ||||||
First Horizon National Corp. | 7,355 | 99,881 | ||||||
PNC Financial Services Group, Inc. (The) | 9,487 | 865,499 | ||||||
2,149,758 |
Shares | Value | |||||||
Security & Alarm Services–0.72% | ||||||||
Tyco International PLC | 11,866 | $ | 520,502 | |||||
Semiconductor Equipment–1.19% | ||||||||
Applied Materials, Inc. | 34,765 | 866,344 | ||||||
Semiconductors–1.59% | ||||||||
Broadcom Corp.–Class A | 11,236 | 486,856 | ||||||
Intel Corp. | 18,262 | 662,728 | ||||||
1,149,584 | ||||||||
Specialized Finance–0.53% | ||||||||
CME Group Inc.–Class A | 4,338 | 384,564 | ||||||
Systems Software–1.71% | ||||||||
Microsoft Corp. | 12,490 | 580,161 | ||||||
Symantec Corp. | 25,640 | 657,794 | ||||||
1,237,955 | ||||||||
Technology Hardware, Storage & Peripherals–0.59% | ||||||||
NetApp, Inc. | 10,332 | 428,261 | ||||||
Tobacco–0.69% | ||||||||
Philip Morris International Inc. | 6,116 | 498,148 | ||||||
Wireless Telecommunication Services–0.64% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 13,647 | 466,318 | ||||||
Total Common Stocks & Other Equity Interests (Cost $44,445,151) |
| 47,437,151 | ||||||
Principal Amount | ||||||||
Bonds and Notes–20.26% |
| |||||||
Aerospace & Defense–0.21% | ||||||||
L-3 Communications Corp., Sr. Unsec. Gtd. Global Notes, 3.95%, 05/28/24 | $ | 150,000 | 151,578 | |||||
Agricultural Products–0.21% | ||||||||
Bunge Ltd Finance Corp., Sr. Unsec. Gtd. Global Notes, 5.10%, 07/15/15 | 150,000 | 153,262 | ||||||
Air Freight & Logistics–0.27% | ||||||||
UTi Worldwide Inc., Sr. Unsec. Conv. Notes, 4.50%, 03/01/19(c) | 174,000 | 193,031 | ||||||
Airlines–0.10% | ||||||||
American Airlines Pass Through Trust, Series 2014-1, Class A, Sr. Sec. Pass Through Ctfs., 3.70%, 10/01/26 | 25,000 | 25,297 | ||||||
United Airlines Pass Through Trust, Series 2014-2, Class A, Sr. Sec. Pass Through Ctfs., 3.75%, 09/03/26 | 30,000 | 30,431 | ||||||
Virgin Australia Pass Through Trust (Australia), Series 2013-1, Class A, Sec. Gtd. Pass Through Ctfs., 5.00%, 10/23/23(c) | 17,900 | 18,370 | ||||||
74,098 | ||||||||
Apparel Retail–0.03% | ||||||||
Ross Stores, Inc., Sr. Unsec. Notes, 3.38%, 09/15/24 | 19,000 | 19,046 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Application Software–0.39% | ||||||||
Citrix Systems Inc., Sr. Unsec. Conv. Notes, 0.50%, 04/15/19(c) | $ | 268,000 | $ | 282,573 | ||||
Asset Management & Custody Banks–0.52% | ||||||||
Apollo Management Holdings L.P., Sr. Unsec. Gtd. Notes, 4.00%, 05/30/24(c) | 40,000 | 42,816 | ||||||
Blackstone Holdings Finance Co. LLC, Sr. Unsec. Gtd. Notes, | 150,000 | 160,989 | ||||||
KKR Group Finance Co III LLC, Sr. Unsec. Gtd. Bonds, 5.13%, 06/01/44(c) | 160,000 | 174,115 | ||||||
377,920 | ||||||||
Automobile Manufacturers–0.28% | ||||||||
Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 2.75%, 05/15/15 | 200,000 | 201,405 | ||||||
Biotechnology–0.34% | ||||||||
BioMarin Pharmaceutical Inc., Sr. Unsec. Sub. Conv. Notes, 1.50%, 10/15/20 | 115,000 | 141,522 | ||||||
Celgene Corp., Sr. Unsec. Global Notes, 4.63%, 05/15/44 | 100,000 | 104,177 | ||||||
245,699 | ||||||||
Broadcasting–1.00% | ||||||||
Discovery Communications LLC, Sr. Unsec. Gtd. Global Notes, 3.70%, 06/01/15 | 200,000 | 202,313 | ||||||
Grupo Televisa S.A.B. (Mexico), Sr. Unsec. Global Notes, 5.00%, 05/13/45 | 200,000 | 205,505 | ||||||
Liberty Media Corp., Sr. Unsec. Conv. Bonds, 1.38%, 10/15/23 | 324,000 | 321,165 | ||||||
728,983 | ||||||||
Cable & Satellite–0.97% | ||||||||
Comcast Corp., Sr. Unsec. Gtd. Global Notes, 5.70%, 05/15/18 | 150,000 | 169,103 | ||||||
Cox Communications, Inc., Sr. Unsec. Notes, 8.38%, 03/01/39(c) | 150,000 | 214,775 | ||||||
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., Sr. Unsec. Gtd. Global Notes, 5.15%, 03/15/42 | 150,000 | 155,343 | ||||||
Time Warner Cable, Inc., Sr. Unsec. Gtd. Notes, 5.00%, 02/01/20 | 150,000 | 165,448 | ||||||
704,669 | ||||||||
Catalog Retail–0.23% | ||||||||
Liberty Interactive LLC, Sr. Unsec. Conv. Global Bonds, 0.75%, 03/30/23(d) | 81,000 | 115,526 | ||||||
QVC, Inc., Sr. Sec. Gtd. Global Notes, 5.45%, 08/15/34 | 50,000 | 48,874 | ||||||
164,400 | ||||||||
Coal & Consumable Fuels–0.08% | ||||||||
Peabody Energy Corp., Jr. Unsec. Sub. Conv. Deb., 4.75%, 12/15/41 | 114,000 | 60,420 | ||||||
Communications Equipment–0.37% | ||||||||
Ciena Corp., Sr. Unsec. Conv. Notes, 4.00%, 12/15/20(c) | 81,000 | 100,794 |
Principal Amount | Value | |||||||
Communications Equipment–(continued) | ||||||||
JDS Uniphase Corp., Sr. Unsec. Conv. Bonds, 0.63%, 08/15/18(d) | $ | 155,000 | $ | 164,494 | ||||
265,288 | ||||||||
Consumer Finance–0.16% | ||||||||
American Express Co., Unsec. Sub. Global Notes, 3.63%, 12/05/24 | 18,000 | 18,224 | ||||||
American Express Credit Corp., Sr. Unsec. Medium-Term Notes, 2.75%, 09/15/15 | 95,000 | 96,486 | ||||||
114,710 | ||||||||
Diversified Banks–2.23% | ||||||||
Banco Inbursa S.A. Institucion de Banca Multiple (Mexico), Sr. Unsec. Notes, 4.13%, 06/06/24(c) | 150,000 | 149,182 | ||||||
BNP Paribas S.A. (France), Unsec. Sub. Notes, 4.25%, 10/15/24 | 200,000 | 203,268 | ||||||
Citigroup Inc., | ||||||||
Sr. Unsec. Global Notes, 6.01%, 01/15/15 | 150,000 | 150,206 | ||||||
2.65%, 03/02/15 | 40,000 | 40,104 | ||||||
Unsec. Sub. Notes, 4.00%, 08/05/24 | 60,000 | 60,163 | ||||||
JPMorgan Chase & Co., | ||||||||
Unsec. Sub. Global Notes, 3.88%, 09/10/24 | 40,000 | 40,126 | ||||||
Series V, Jr. Unsec. Sub. Global Notes, 5.00%(e) | 150,000 | 147,375 | ||||||
Series X, Jr. Unsec. Sub. Global Notes, 6.10%(e) | 60,000 | 60,300 | ||||||
Mizuho Financial Group Cayman 3 Ltd. (Japan), Unsec. Gtd. Sub. Notes, 4.60%, 03/27/24(c) | 200,000 | 209,954 | ||||||
Santander Holdings USA Inc., Sr. Unsec. Global Notes, 3.00%, 09/24/15 | 150,000 | 151,700 | ||||||
Santander U.S. Debt S.A. Unipersonal (Spain), Sr. Unsec. Gtd. Notes, 3.72%, 01/20/15(c) | 200,000 | 200,481 | ||||||
Wells Fargo & Co., Unsec. Sub. Medium-Term Notes, | ||||||||
4.10%, 06/03/26 | 95,000 | 97,038 | ||||||
4.65%, 11/04/44 | 100,000 | 104,010 | ||||||
1,613,907 | ||||||||
Diversified Chemicals–0.06% | ||||||||
Eastman Chemical Co., Sr. Unsec. Global Notes, 2.70%, 01/15/20 | 43,000 | 43,207 | ||||||
Drug Retail–0.11% | ||||||||
CVS Health Corp., Sr. Unsec. Global Notes, 3.38%, 08/12/24 | 20,000 | 20,278 | ||||||
Walgreens Boots Alliance Inc., Sr. Unsec. Gtd. Global Notes, | ||||||||
3.30%, 11/18/21 | 32,000 | 32,283 | ||||||
4.50%, 11/18/34 | 24,000 | 25,059 | ||||||
77,620 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Fertilizers & Agricultural Chemicals–0.03% | ||||||||
Monsanto Co., Sr. Unsec. Global Notes, | ||||||||
2.13%, 07/15/19 | $ | 15,000 | $ | 14,942 | ||||
3.38%, 07/15/24 | 10,000 | 10,196 | ||||||
25,138 | ||||||||
Food Distributors–0.07% | ||||||||
Sysco Corp., Sr. Unsec. Gtd. Notes, 3.50%, 10/02/24 | 47,000 | 48,507 | ||||||
General Merchandise Stores–0.02% | ||||||||
Dollar General Corp., Sr. Unsec. Global Notes, 3.25%, 04/15/23 | 20,000 | 18,242 | ||||||
Health Care Distributors–0.07% | ||||||||
AmerisourceBergen Corp., Sr. Unsec. Bonds, 3.40%, 05/15/24 | 50,000 | 50,177 | ||||||
Health Care Equipment–0.78% | ||||||||
Becton, Dickinson and Co., Sr. Unsec. Notes, 2.68%, 12/15/19 | 17,000 | 17,156 | ||||||
CareFusion Corp., Sr. Unsec. Global Notes, | ||||||||
3.88%, 05/15/24 | 165,000 | 169,959 | ||||||
4.88%, 05/15/44 | 170,000 | 180,876 | ||||||
Medtronic Inc., Sr. Unsec. Notes, | ||||||||
3.15%, 03/15/22(c) | 58,000 | 58,803 | ||||||
4.38%, 03/15/35(c) | 21,000 | 22,157 | ||||||
NuVasive Inc., Sr. Unsec. Conv. Notes, 2.75%, 07/01/17 | 94,000 | 119,967 | ||||||
568,918 | ||||||||
Health Care Facilities–0.69% | ||||||||
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 | 262,465 | ||||||
500,084 | ||||||||
Health Care REIT’s–0.03% | ||||||||
HCP, Inc., Sr. Unsec. Global Notes, 3.88%, 08/15/24 | 25,000 | 25,482 | ||||||
Health Care Services–0.46% | ||||||||
Express Scripts Holding Co., Sr. Unsec. Gtd. Global Notes, 2.25%, 06/15/19 | 50,000 | 49,527 | ||||||
Omnicare, Inc., | ||||||||
Sr. Unsec. Gtd. Sub. Conv. Notes, 3.50%, 02/15/44 | 128,000 | 153,600 | ||||||
Series OCR, Sr. Unsec. Gtd. Conv. Notes, 3.25%, 01/15/21(d) | 114,000 | 132,454 | ||||||
335,581 | ||||||||
Integrated Oil & Gas–0.02% | ||||||||
Suncor Energy Inc. (Canada), Sr. Unsec. Notes, 3.60%, 12/01/24 | 18,000 | 17,799 | ||||||
Integrated Telecommunication Services–0.44% | ||||||||
Telefonica Emisiones SAU (Spain), Sr. Unsec. Gtd. Global Notes, 7.05%, 06/20/36 | 150,000 | 200,647 |
Principal Amount | Value | |||||||
Integrated Telecommunication Services–(continued) | ||||||||
Verizon Communications, Inc., Sr. Unsec. Global Notes, 4.40%, 11/01/34 | $ | 120,000 | 120,772 | |||||
321,419 | ||||||||
Internet Retail–0.07% | ||||||||
Amazon.com, Inc., Sr. Unsec. Global Notes, 4.80%, 12/05/34 | 49,000 | 51,334 | ||||||
Investment Banking & Brokerage–0.65% | ||||||||
Jefferies Group LLC, Sr. Unsec. Conv. Deb., 3.88%, 11/01/17(d) | 124,000 | 128,573 | ||||||
Macquarie Group Ltd. (Australia), Sr. Unsec. Notes, 6.00%, 01/14/20(c) | 150,000 | 168,431 | ||||||
Morgan Stanley, Sr. Unsec. Global Medium-Term Notes, 2.38%, 07/23/19 | 175,000 | 173,559 | ||||||
470,563 | ||||||||
Managed Health Care–0.81% | ||||||||
Anthem, Inc., | ||||||||
Sr. Unsec. Global Notes, 1.25%, 09/10/15 | 105,000 | 105,420 | ||||||
Sr. Unsec. Conv. Bonds, 2.75%, 10/15/42 | 281,000 | 485,076 | ||||||
590,496 | ||||||||
Movies & Entertainment–0.10% | ||||||||
Live Nation Entertainment, Inc., Sr. Unsec. Conv. Notes, 2.50%, 05/15/19(c) | 48,000 | 50,820 | ||||||
Viacom Inc., Sr. Unsec. Global Notes, 4.85%, 12/15/34 | 19,000 | 19,513 | ||||||
70,333 | ||||||||
Multi-Line Insurance–0.51% | ||||||||
American Financial Group, Inc., Sr. Unsec. Notes, 9.88%, 06/15/19 | 150,000 | 192,885 | ||||||
American International Group, Inc., Sr. Unsec. Global Notes, 2.30%, 07/16/19 | 20,000 | 20,027 | ||||||
Farmers Exchange Capital III, Unsec. Sub. Notes, 5.45%, 10/15/54(c) | 70,000 | 72,828 | ||||||
Hartford Financial Services Group Inc. (The), Sr. Unsec. Notes, 4.00%, 03/30/15 | 35,000 | 35,278 | ||||||
Nationwide Financial Services Inc., Sr. Unsec. Notes, 5.30%, 11/18/44(c) | 50,000 | 52,825 | ||||||
373,843 | ||||||||
Multi-Utilities–0.29% | ||||||||
Dominion Resources, Inc., Jr. Unsec. Sub. Notes, 5.75%, 10/01/54 | 14,000 | 14,641 | ||||||
Enable Midstream Partners L.P., Sr. Unsec. Gtd. Notes, 2.40%, 05/15/19(c) | 200,000 | 194,506 | ||||||
209,147 | ||||||||
Office REIT’s–0.21% | ||||||||
Highwoods Realty L.P., Sr. Unsec. Notes, 3.20%, 06/15/21 | 150,000 | 149,606 | ||||||
Oil & Gas Equipment & Services–0.13% | ||||||||
Helix Energy Solutions Group, Inc., Sr. Unsec. Conv. Notes, 3.25%, 03/15/18(d) | 84,000 | 93,608 |
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–0.64% | ||||||||
Cobalt International Energy Inc., Sr. Unsec. Conv. Notes, 2.63%, 12/01/19 | $ | 129,000 | $ | 78,045 | ||||
ConocoPhillips Co., Sr. Unsec. Gtd. Global Notes, | ||||||||
2.88%, 11/15/21 | 46,000 | 46,476 | ||||||
4.15%, 11/15/34 | 49,000 | 50,469 | ||||||
Devon Energy Corp., Sr. Unsec. Global Notes, | ||||||||
2.25%, 12/15/18 | 25,000 | 24,938 | ||||||
3.25%, 05/15/22 | 20,000 | 19,658 | ||||||
Marathon Oil Corp., Sr. Unsec. Notes, 0.90%, 11/01/15 | 90,000 | 89,774 | ||||||
Stone Energy Corp., Sr. Unsec. Gtd. Conv. Notes, 1.75%, 03/01/17 | 174,000 | 152,141 | ||||||
461,501 | ||||||||
Oil & Gas Storage & Transportation–0.27% | ||||||||
Enterprise Products Operating LLC, Sr. Unsec. Gtd. Notes, 2.55%, 10/15/19 | 20,000 | 19,817 | ||||||
Kinder Morgan Inc., Sr. Unsec. Gtd. Notes, 5.30%, 12/01/34 | 28,000 | 28,545 | ||||||
Williams Partners L.P., Sr. Unsec. Global Notes, 3.80%, 02/15/15 | 150,000 | 150,521 | ||||||
198,883 | ||||||||
Other Diversified Financial Services–0.07% | ||||||||
ERAC USA Finance LLC, Sr. Unsec. Gtd. Notes, 2.35%, 10/15/19(c) | 50,000 | 49,668 | ||||||
Packaged Foods & Meats–0.39% | ||||||||
General Mills, Inc., Sr. Unsec. Global Notes, 2.20%, 10/21/19 | 45,000 | 44,744 | ||||||
Grupo Bimbo S.A.B. de C.V. (Mexico), Sr. Unsec. Gtd. Notes, | 200,000 | 200,554 | ||||||
Tyson Foods, Inc., Sr. Unsec. Gtd. Global Bonds, | ||||||||
3.95%, 08/15/24 | 13,000 | 13,489 | ||||||
4.88%, 08/15/34 | 11,000 | 12,108 | ||||||
5.15%, 08/15/44 | 12,000 | 13,566 | ||||||
284,461 | ||||||||
Pharmaceuticals–1.06% | ||||||||
Actavis Funding SCS, Sr. Unsec. Gtd. Global Notes, 4.85%, 06/15/44 | 150,000 | 152,458 | ||||||
Bayer US Finance LLC (Germany), Sr. Unsec. Gtd. Notes, 3.00%, 10/08/21(c) | 200,000 | 201,342 | ||||||
Jazz Investments I Ltd., Sr. Unsec. Gtd. Conv. Notes, 1.88%, 08/15/21(c) | 76,000 | 86,355 | ||||||
Salix Pharmaceuticals Ltd., Sr. Unsec. Conv. Notes, 1.50%, 03/15/19 | 178,000 | 325,406 | ||||||
765,561 | ||||||||
Property & Casualty Insurance–0.23% | ||||||||
Liberty Mutual Group Inc., Sr. Unsec. Gtd. Bonds, 4.85%, 08/01/44(c) | 100,000 | 102,692 | ||||||
Old Republic International Corp., Sr. Unsec. Conv. Notes, 3.75%, 03/15/18 | 57,000 | 66,334 | ||||||
169,026 |
Principal Amount | Value | |||||||
Railroads–0.05% | ||||||||
Union Pacific Corp., Sr. Unsec. Notes, | ||||||||
3.25%, 01/15/25 | $ | 10,000 | $ | 10,307 | ||||
4.15%, 01/15/45 | 25,000 | 26,187 | ||||||
36,494 | ||||||||
Regional Banks–0.46% | ||||||||
Regions Financial Corp., Sr. Unsec. Notes, 5.75%, 06/15/15 | 325,000 | 331,613 | ||||||
Renewable Electricity–0.22% | ||||||||
Oglethorpe Power Corp., Sr. Sec. First Mortgage Bonds, 4.55%, 06/01/44 | 150,000 | 158,761 | ||||||
Retail REIT’s–0.21% | ||||||||
Realty Income Corp., Sr. Unsec. Notes, 2.00%, 01/31/18 | 150,000 | 150,320 | ||||||
Semiconductor Equipment–0.39% | ||||||||
Lam Research Corp., Series B, Sr. Unsec. Conv. Notes, 1.25%, 05/15/18 | 198,000 | 280,913 | ||||||
Semiconductors–0.87% | ||||||||
Micron Technology, Inc., Series G, Sr. Unsec. Conv. Global Bonds, 3.00%, 11/15/28(d) | 219,000 | 289,217 | ||||||
NVIDIA Corp., Sr. Unsec. Conv. Bonds, 1.00%, 12/01/18 | 297,000 | 342,849 | ||||||
632,066 | ||||||||
Specialized Finance–0.23% | ||||||||
Moody’s Corp., Sr. Unsec. Global Notes, 4.88%, 02/15/24 | 150,000 | 164,426 | ||||||
Specialized REIT’s–0.28% | ||||||||
American Tower Corp., Sr. Unsec. Global Notes, 4.63%, 04/01/15 | 200,000 | 201,821 | ||||||
Systems Software–0.30% | ||||||||
NetSuite Inc., Sr. Unsec. Conv. Notes, 0.25%, 06/01/18 | 162,000 | 182,250 | ||||||
Oracle Corp., Sr. Unsec. Global Notes, 4.30%, 07/08/34 | 30,000 | 32,265 | ||||||
214,515 | ||||||||
Technology Hardware, Storage & Peripherals–0.72% | ||||||||
SanDisk Corp., Sr. Unsec. Conv. Bonds, 0.50%, 10/15/20 | 348,000 | 419,775 | ||||||
Seagate HDD Cayman, | ||||||||
Sr. Unsec. Gtd. Bonds, 4.75%, 01/01/25(c) | 65,000 | 67,193 | ||||||
Sr. Unsec. Gtd. Notes, 5.75%, 12/01/34(c) | 37,000 | 39,174 | ||||||
526,142 | ||||||||
Thrifts & Mortgage Finance–0.58% | ||||||||
MGIC Investment Corp., Sr. Unsec. Conv. Notes, | ||||||||
5.00%, 05/01/17 | 170,000 | 191,781 | ||||||
2.00%, 04/01/20 | 46,000 | 67,534 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Managed Volatility Fund
Principal Amount | Value | |||||||
Thrifts & Mortgage Finance–(continued) | ||||||||
Radian Group Inc., Sr. Unsec. Conv. Notes, | ||||||||
3.00%, 11/15/17 | $ | 72,000 | $ | 110,385 | ||||
2.25%, 03/01/19 | 30,000 | 48,394 | ||||||
418,094 | ||||||||
Tobacco–0.07% | ||||||||
Altria Group, Inc., Sr. Unsec. Gtd. Global Notes, 4.13%, 09/11/15 | 25,000 | 25,586 | ||||||
Philip Morris International Inc., Sr. Unsec. Global Notes, 3.25%, 11/10/24 | 28,000 | 28,128 | ||||||
53,714 | ||||||||
Trading Companies & Distributors–0.05% | ||||||||
Air Lease Corp., Sr. Unsec. Global Notes, 4.25%, 09/15/24 | 35,000 | 35,481 | ||||||
Wireless Telecommunication Services–0.23% | ||||||||
Crown Castle Towers LLC, Sr. Sec. Gtd. Notes, 4.88%, 08/15/20(c) | 150,000 | 167,152 | ||||||
Total Bonds and Notes |
| 14,692,705 | ||||||
U.S. Treasury Securities–7.54% |
| |||||||
U.S. Treasury Notes–7.54% | ||||||||
0.63%, 12/31/16 | 3,000,000 | 2,997,410 | ||||||
1.63%, 12/31/19 | 2,064,300 | 2,060,998 | ||||||
2.25%, 11/15/24 | 400,900 | 403,808 | ||||||
Total U.S. Treasury Securities |
| 5,462,216 |
Shares | Value | |||||||
Preferred Stocks–0.16% |
| |||||||
Asset Management & Custody Banks–0.16% | ||||||||
AMG Capital Trust II, $2.58 Jr. Gtd. Sub. Conv. Pfd. (Cost $118,794) | 1,900 | $ | 117,800 | |||||
Money Market Funds–6.35% |
| |||||||
Liquid Assets Portfolio–Institutional Class(f) | 2,301,864 | 2,301,864 | ||||||
Premier Portfolio–Institutional Class(f) | 2,301,864 | 2,301,864 | ||||||
Total Money Market Funds |
| 4,603,728 | ||||||
TOTAL INVESTMENTS–99.73% |
| 72,313,600 | ||||||
OTHER ASSETS LESS LIABILITIES–0.27% |
| 197,201 | ||||||
NET ASSETS–100.00% |
| $ | 72,510,801 |
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. | – Subordinate | |
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 December 31, 2014 was $3,281,580, which represented 4.53% 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. |
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
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $64,380,891) | $ | 67,709,872 | ||
Investments in affiliated money market funds, at value and cost | 4,603,728 | |||
Total investments, at value (Cost $68,984,619) | 72,313,600 | |||
Foreign currencies, at value (Cost $23,444) | 23,051 | |||
Receivable for: | ||||
Investments sold | 171,378 | |||
Fund shares sold | 39,829 | |||
Dividends and interest | 185,841 | |||
Fund expenses absorbed | 15,794 | |||
Investment for trustee deferred compensation and retirement plans | 71,701 | |||
Unrealized appreciation on forward foreign currency contracts outstanding | 81,249 | |||
Other assets | 2,800 | |||
Total assets | 72,905,243 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 189,570 | |||
Fund shares reacquired | 38,351 | |||
Accrued fees to affiliates | 44,798 | |||
Accrued trustees’ and officers’ fees and benefits | 305 | |||
Accrued other operating expenses | 45,550 | |||
Trustee deferred compensation and retirement plans | 75,868 | |||
Total liabilities | 394,442 | |||
Net assets applicable to shares outstanding | $ | 72,510,801 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 45,936,402 | ||
Undistributed net investment income | 717,068 | |||
Undistributed net realized gain | 22,450,056 | |||
Net unrealized appreciation | 3,407,275 | |||
$ | 72,510,801 | |||
Net Assets: |
| |||
Series I | $ | 70,716,776 | ||
Series II | $ | 1,794,025 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 3,717,699 | |||
Series II | 94,998 | |||
Series I: | ||||
Net asset value per share | $ | 19.02 | ||
Series II: | ||||
Net asset value per share | $ | 18.88 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $18,842) | $ | 1,337,081 | ||
Dividends from affiliated money market funds | 2,140 | |||
Interest | 270,166 | |||
Total investment income | 1,609,387 | |||
Expenses: | ||||
Advisory fees | 421,796 | |||
Administrative services fees | 212,887 | |||
Custodian fees | 26,000 | |||
Distribution fees — Series II | 4,344 | |||
Transfer agent fees | 21,450 | |||
Trustees’ and officers’ fees and benefits | 23,588 | |||
Professional services fees | 49,491 | |||
Other | 18,284 | |||
Total expenses | 777,840 | |||
Less: Fees waived | (51,026 | ) | ||
Net expenses | 726,814 | |||
Net investment income | 882,573 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 22,722,245 | |||
Foreign currencies | 768 | |||
Forward foreign currency contracts | 321,883 | |||
Futures contracts | (67,457 | ) | ||
22,977,439 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (11,086,445 | ) | ||
Foreign currencies | (2,847 | ) | ||
Forward foreign currency contracts | 81,249 | |||
(11,008,043 | ) | |||
Net realized and unrealized gain | 11,969,396 | |||
Net increase in net assets resulting from operations | $ | 12,851,969 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 882,573 | $ | 1,836,834 | ||||
Net realized gain | 22,977,439 | 3,092,855 | ||||||
Change in net unrealized appreciation (depreciation) | (11,008,043 | ) | 2,119,618 | |||||
Net increase in net assets resulting from operations | 12,851,969 | 7,049,307 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,956,705 | ) | (2,140,730 | ) | ||||
Series ll | (44,780 | ) | (43,877 | ) | ||||
Total distributions from net investment income | (2,001,485 | ) | (2,184,607 | ) | ||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (3,200,299 | ) | (1,490,858 | ) | ||||
Series ll | (80,119 | ) | (33,701 | ) | ||||
Total distributions from net realized gains | (3,280,418 | ) | (1,524,559 | ) | ||||
Share transactions–net: | ||||||||
Series l | 1,534,064 | (5,600,398 | ) | |||||
Series ll | (63,252 | ) | (64,627 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | 1,470,812 | (5,665,025 | ) | |||||
Net increase (decrease) in net assets | 9,040,878 | (2,324,884 | ) | |||||
Net assets: | ||||||||
Beginning of year | 63,469,923 | 65,794,807 | ||||||
End of year (includes undistributed net investment income of $717,068 and $1,764,410, respectively) | $ | 72,510,801 | $ | 63,469,923 |
Notes to Financial Statements
December 31, 2014
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.
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. Managed Volatility 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 ask 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 net investment 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. Managed Volatility 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. | 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 Counterparties 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. | 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.
Invesco V.I. Managed Volatility 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% 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.
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 year ended December 31, 2014, the Adviser waived advisory fees of $51,026.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $162,887 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $251 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. Managed Volatility Fund
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 48,720,180 | $ | 3,438,499 | $ | — | $ | 52,158,679 | ||||||||
U.S. Treasury Securities | — | 5,462,216 | — | 5,462,216 | ||||||||||||
Corporate Debt Securities | — | 14,692,705 | — | 14,692,705 | ||||||||||||
48,720,180 | 23,593,420 | — | 72,313,600 | |||||||||||||
Forward Foreign Currency Contracts* | — | 81,249 | — | 81,249 | ||||||||||||
Total Investments | $ | 48,720,180 | $ | 23,674,669 | $ | — | $ | 72,394,849 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Currency risk: | ||||||||
Forward foreign currency contracts(a) | $ | 84,226 | $ | (2,977 | ) |
(a) | Values are disclosed on the Statement of Assets and Liabilities under the caption Unrealized appreciation on forward foreign currency contracts outstanding. |
Effect of Derivative Investments for the year ended December 31, 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 Contracts | Futures Contracts | |||||||
Realized Gain (Loss): | ||||||||
Currency risk | $ | 321,883 | $ | — | ||||
Market risk | — | (67,457 | ) | |||||
Change in Unrealized Appreciation: | ||||||||
Currency risk | 81,249 | — | ||||||
Total | $ | 403,132 | $ | (67,457 | ) |
The table below summarizes the average notional value of forward foreign currency and futures contracts outstanding during the period.
Forward Foreign Currency Contracts | Futures Contracts | |||||||
Average notional value | $ | 2,822,379 | $ | 274,373 |
Invesco V.I. Managed Volatility Fund
Open Forward Foreign Currency Contracts | ||||||||||||||||||||||||||
Settlement Date | Contract to | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||
Counterparty | Deliver | Receive | ||||||||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CAD | 389,292 | USD | 341,751 | $ | 335,014 | $ | 6,737 | |||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CAD | 390,385 | USD | 342,710 | 335,955 | 6,755 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | CHF | 262,589 | USD | 272,604 | 264,187 | 8,417 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | CHF | 263,138 | USD | 273,115 | 264,740 | 8,375 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | EUR | 582,003 | USD | 726,200 | 704,342 | 21,858 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | EUR | 582,808 | USD | 727,213 | 705,316 | 21,897 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | GBP | 376,727 | USD | 592,181 | 587,168 | 5,013 | |||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | GBP | 376,922 | USD | 592,646 | 587,472 | 5,174 | |||||||||||||||||||
01/09/15 | Bank of New York Mellon (The) | ILS | 952,421 | USD | 242,890 | 244,289 | (1,399 | ) | ||||||||||||||||||
01/09/15 | State Street Bank and Trust Co. | ILS | 955,775 | USD | 243,571 | 245,149 | (1,578 | ) | ||||||||||||||||||
Total open forward foreign currency contracts — Currency Risk | $ | 81,249 |
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.
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 December 31, 2014.
Assets: | ||||||||||||||||||||||||
Gross amounts of Recognized Assets | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of assets presented in the Statement of Assets & Liabilities | Collateral Received | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 42,025 | $ | (1,399 | ) | $ | 40,626 | $ | — | $ | — | $ | 40,626 | |||||||||||
State Street Bank and Trust Co. | 42,201 | (1,578 | ) | 40,623 | — | — | 40,623 | |||||||||||||||||
Total | $ | 84,226 | $ | (2,977 | ) | $ | 81,249 | $ | — | $ | — | $ | 81,249 | |||||||||||
Liabilities: | ||||||||||||||||||||||||
Gross amounts of Recognized Liabilities | Gross amounts offset in Statement of Assets & Liabilities | Net amounts of liabilities presented in the Statement of Assets & Liabilities | Collateral Pledged | Net Amount | ||||||||||||||||||||
Counterparty | Financial Instruments | Cash | ||||||||||||||||||||||
Bank of New York Mellon (The) | $ | 1,399 | $ | (1,399 | ) | $ | — | $ | — | $ | — | $ | — | |||||||||||
State Street Bank and Trust Co. | 1,578 | (1,578 | ) | — | — | — | — | |||||||||||||||||
Total | $ | 2,977 | $ | (2,977 | ) | $ | — | $ | — | $ | — | $ | — |
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.
Invesco V.I. Managed Volatility Fund
NOTE 6—Cash Balances
The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with State Street Bank and Trust Company, the custodian bank. Such balances, if any at period end, are shown in the Statement of Assets and Liabilities under the payable caption Amount due custodian. To compensate the custodian bank for such overdrafts, the overdrawn Fund may either (1) leave funds as a compensating balance in the account so the custodian bank can be compensated by earning the additional interest; or (2) compensate by paying the custodian bank at a rate agreed upon by the custodian bank and Invesco, not to exceed the contractually agreed upon rate.
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 2,001,485 | $ | 2,201,346 | ||||
Long-term capital gain | 3,280,418 | 1,507,820 | ||||||
Total distributions | $ | 5,281,903 | $ | 3,709,166 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 1,997,110 | ||
Undistributed long-term gain | 21,394,388 | |||
Net unrealized appreciation — investments | 3,254,216 | |||
Net unrealized appreciation (depreciation) — other investments | (2,957 | ) | ||
Temporary book/tax differences | (68,358 | ) | ||
Shares of beneficial interest | 45,936,402 | |||
Total net assets | $ | 72,510,801 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales and adjustments to contingent payment debt instruments.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $75,211,674 and $85,805,339, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $55,876,444 and $50,495,805, 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 | $ | 5,130,287 | ||
Aggregate unrealized (depreciation) of investment securities | (1,876,071 | ) | ||
Net unrealized appreciation of investment securities | $ | 3,254,216 |
Cost of investments for tax purposes is $69,059,384.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and contingent payment debt instrumentals, on December 31, 2014, undistributed net investment income was increased by $71,570 and undistributed net realized gain was decreased by $71,570. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Managed Volatility Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 717,540 | $ | 13,584,291 | 891,055 | $ | 15,490,334 | ||||||||||
Series II | 16,173 | 299,184 | 5,955 | 102,148 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 276,664 | 5,157,004 | 219,299 | 3,631,588 | ||||||||||||
Series II | 6,744 | 124,899 | 4,713 | 77,578 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (906,605 | ) | (17,207,231 | ) | (1,440,447 | ) | (24,722,320 | ) | ||||||||
Series II | (26,293 | ) | (487,335 | ) | (13,991 | ) | (244,353 | ) | ||||||||
Net increase (decrease) in share activity | 84,223 | $ | 1,470,812 | (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 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 investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 17.03 | $ | 0.24 | $ | 3.23 | $ | 3.47 | $ | (0.56 | ) | $ | (0.92 | ) | $ | (1.48 | ) | $ | 19.02 | 20.57 | % | $ | 70,717 | 1.03 | %(d) | 1.10 | %(d) | 1.26 | %(d) | 201 | % | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 16.91 | 0.19 | 3.21 | 3.40 | (0.51 | ) | (0.92 | ) | (1.43 | ) | 18.88 | 20.30 | 1,794 | 1.28 | (d) | 1.35 | (d) | 1.01 | (d) | 201 | ||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $68,562 and $1,738 for Series I and Series II shares, respectively. |
Invesco V.I. Managed Volatility Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Managed Volatility Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Managed Volatility Fund (formerly known as Invesco V.I. Utilities Fund; one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,024.60 | $ | 5.18 | $ | 1,020.09 | $ | 5.17 | 1.02 | % | ||||||||||||
Series II | 1,000.00 | 1,023.30 | 6.45 | 1,018.83 | 6.44 | 1.27 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Managed Volatility Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 3,280,418 | ||
Corporate Dividends Received Deduction* | 95.96 | % | ||
U.S. Treasury Obligations* | 3.4 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Managed Volatility Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Managed Volatility Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Managed Volatility Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Managed Volatility Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Managed Volatility Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
Invesco V.I. Mid Cap Core Equity Fund delivered positive returns for the year ended December 31, 2014, but lagged its broad market and style-specific benchmarks, the S&P 500 Index and the Russell Midcap Index, respectively. The Fund’s absolute return benefited from holdings in the consumer staples, information technology (IT) and materials sectors. The Fund also benefited from stock selection in the utilities sector, but the Fund’s underweight exposure (compared to the Russell Midcap Index) in the sector was a drag on relative performance. The Fund’s largest detractors included stock selection in the financials, health care and industrials sectors. The Fund’s allocation to cash also tempered results for the reporting period.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 4.43 | % | |||
Series II Shares | 4.17 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell Midcap Index‚ (Style-Specific Index) | 13.22 | ||||
Lipper VUF Mid-Cap Core Funds Indexn (Peer Group Index) | 9.56 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger
footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, major US equity market indexes delivered strong gains, with all sectors of the S&P 500 Index, with the exception of the energy sector, posting positive returns. The utilities sector had the highest return of any sector.
The largest contributor to relative performance was Shire, an Ireland-based pharmaceutical company, which was active during the year in both entertaining takeover offers and acquiring interests in several smaller pharmaceutical companies. During the reporting period, we sold our position in Shire.
Sigma Aldrich, a long-term Fund holding in the materials sector, received a buyout offer mid-year, resulting in the liquidation of our position. Sigma Aldrich develops, manufactures and distributes a range of chemicals and biochemicals. Molson Coors Brewing was a standout performer in its sector, in part due to ongoing speculation regarding potential consolidation in the global brewing industry.
The industrials sector was the largest detractor from Fund performance during the year relative to the style-specific benchmark, the Russell Midcap Index. Within the industrials sector, Kennametal struggled. Kennametal is a supplier of tools and industrial materials used in the energy industry. Despite an increase in year-over-year sales, the company reported earnings in 2014 that were below analysts’ expectations, which weighed on shares. The company also reduced its earnings outlook for the full year due to higher operating expenses and integration costs from a recent acquisition.
Also detracting from the Fund’s performance was energy infrastructure company Chicago Bridge & Iron. During the year, concerns arose regarding potential cost increases for select projects acquired through a recent acquisition. In addition, the sharp decline in oil prices put a slight damper on its core business.
The Fund maintained its slight overweight position in the IT and materials sectors compared to the Russell Midcap Index. The Fund also moved from an overweight position in the consumer staples sector to an underweight position. At the end of the year, our largest overweights relative to the Russell Midcap Index were in the energy and materials sectors, and our largest underweights were in the consumer discretionary and financials sectors.
Portfolio Composition | |||||
By sector
| |||||
Information Technology | 17.2 | % | |||
Financials | 14.4 | ||||
Consumer Discretionary | 13.4 | ||||
Health Care | 11.9 | ||||
Industrials | 10.4 | ||||
Energy | 5.6 | ||||
Materials | 4.5 | ||||
Consumer Staples | 3.9 | ||||
Utilities | 1.1 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 17.6 |
Top 10 Equity Holdings* | |||||
1. Progressive Corp. (The) | 2.5 | % | |||
2. Linear Technology Corp. | 2.4 | ||||
3. Stanley Black & Decker, Inc. | 2.2 | ||||
4. Torchmark Corp. | 2.2 | ||||
5. Northern Trust Corp. | 2.2 | ||||
6. Moody’s Corp. | 2.1 | ||||
7. F5 Networks, Inc. | 2.1 | ||||
8. Teradyne, Inc. | 2.0 | ||||
9. Amphenol Corp.-Class A | 1.9 | ||||
10. First Republic Bank | 1.9 |
Top Five Industries* | |||||
1. Industrial Machinery | 7.4 | % | |||
2. Semiconductor Equipment | 4.3 | ||||
3. Property & Casualty Insurance | 4.3 | ||||
4. Pharmaceuticals | 4.2 | ||||
5. Semiconductors | 4.2 |
Total Net Assets | $382.9 million | ||||
Total Number of Holdings* | 68 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Mid Cap Core Equity Fund
Regardless of market conditions, our goal remains the same: to serve as a conservative cornerstone for your mid-cap investment allocation, seeking to provide upside participation with a measure of downside protection, so that over a full market cycle we deliver strong investment results with reduced risk relative to the style-specific benchmark.
As always, we thank you for your continued investment in Invesco V.I. Mid Cap Core Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Ronald Sloan Chartered Financial Analyst, Portfolio Manager and Chief Investment Officer of Invesco’s global core | ||
investments team, is lead manager of Invesco V.I. Mid Cap Core Equity Fund. He joined Invesco in 1998. Mr. Sloan earned a BS in business administration and an MBA from the University of Missouri. | ||
Brian Nelson Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Mid Cap Core Equity | ||
Fund. He joined Invesco in 2004. Mr. Nelson earned a BA from the University of California, Santa Barbara. |
Assisted by Invesco’s Global Core Equity Team
Invesco V.I. Mid Cap Core Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (9/10/01) | 7.73 | % | |||
10 Years | 6.89 | ||||
5 Years | 9.78 | ||||
1 Year | 4.43 | ||||
Series II Shares | |||||
Inception (9/10/01) | 7.46 | % | |||
10 Years | 6.61 | ||||
5 Years | 9.51 | ||||
1 Year | 4.17 |
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
Invesco V.I. Mid Cap Core Equity Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Cash/cash equivalents risk. Holding cash or cash equivalents may negatively affect performance.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization
of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Index is an unmanaged index considered representative of mid-cap stocks. The Russell 1000 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Mid Cap Core Equity Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks–82.36% |
| |||||||
Apparel Retail–0.80% |
| |||||||
Abercrombie & Fitch Co.–Class A | 106,727 | $ | 3,056,661 | |||||
Apparel, Accessories & Luxury Goods–1.56% |
| |||||||
Prada S.p.A. (Italy) | 301,300 | 1,707,649 | ||||||
PVH Corp. | 33,327 | 4,271,522 | ||||||
5,979,171 | ||||||||
Asset Management & Custody Banks–2.17% |
| |||||||
Northern Trust Corp. | 123,099 | 8,296,873 | ||||||
Auto Parts & Equipment–1.71% |
| |||||||
Dana Holding Corp. | 301,728 | 6,559,567 | ||||||
Brewers–1.45% |
| |||||||
Molson Coors Brewing Co.–Class B | 74,613 | 5,560,161 | ||||||
Communications Equipment–3.78% |
| |||||||
F5 Networks, Inc.(b) | 61,671 | 8,045,907 | ||||||
Juniper Networks, Inc. | 181,069 | 4,041,460 | ||||||
Polycom, Inc.(b) | 177,287 | 2,393,375 | ||||||
14,480,742 | ||||||||
Computer & Electronics Retail–0.86% |
| |||||||
GameStop Corp.–Class A | 97,761 | 3,304,322 | ||||||
Construction & Engineering–0.73% |
| |||||||
Chicago Bridge & Iron Co. N.V. | 66,244 | 2,780,923 | ||||||
Construction Materials–0.87% |
| |||||||
CRH PLC (Ireland) | 137,561 | 3,312,605 | ||||||
Data Processing & Outsourced Services–0.79% |
| |||||||
Jack Henry & Associates, Inc. | 48,706 | 3,026,591 | ||||||
Department Stores–0.62% |
| |||||||
Macy’s, Inc. | 35,833 | 2,356,020 | ||||||
Education Services–0.51% |
| |||||||
Houghton Mifflin Harcourt Co.(b) | 93,419 | 1,934,707 | ||||||
Electrical Components & Equipment–1.09% |
| |||||||
Regal-Beloit Corp. | 55,475 | 4,171,720 | ||||||
Electronic Components–1.90% |
| |||||||
Amphenol Corp.–Class A | 134,836 | 7,255,525 | ||||||
Electronic Equipment & Instruments–0.41% |
| |||||||
Keysight Technologies, Inc.(b) | 46,746 | 1,578,612 | ||||||
Environmental & Facilities Services–1.18% |
| |||||||
Republic Services, Inc. | 112,300 | 4,520,075 | ||||||
Footwear–0.46% |
| |||||||
Wolverine World Wide, Inc. | 59,543 | 1,754,732 | ||||||
General Merchandise Stores–0.47% |
| |||||||
Tuesday Morning Corp.(b) | 82,812 | 1,797,020 |
Shares | Value | |||||||
Health Care Distributors–1.07% | ||||||||
Cardinal Health, Inc. | 50,835 | $ | 4,103,910 | |||||
Health Care Equipment–1.72% |
| |||||||
ResMed Inc. | 117,257 | 6,573,427 | ||||||
Health Care Facilities–2.99% |
| |||||||
Community Health Systems Inc.(b) | 116,443 | 6,278,606 | ||||||
Tenet Healthcare Corp.(b) | 101,970 | 5,166,820 | ||||||
11,445,426 | ||||||||
Homebuilding–0.97% |
| |||||||
D.R. Horton, Inc. | 147,080 | 3,719,653 | ||||||
Hotels, Resorts & Cruise Lines–1.43% |
| |||||||
Norwegian Cruise Line Holdings Ltd.(b) | 117,253 | 5,482,750 | ||||||
Human Resource & Employment Services–0.31% |
| |||||||
ManpowerGroup Inc. | 17,500 | 1,192,975 | ||||||
Industrial Machinery–7.37% |
| |||||||
ITT Corp. | 78,421 | 3,172,914 | ||||||
Kennametal Inc. | 114,163 | 4,085,894 | ||||||
Lincoln Electric Holdings, Inc. | 52,806 | 3,648,366 | ||||||
SKF AB–Class B (Sweden) | 228,594 | 4,809,016 | ||||||
Stanley Black & Decker Inc. | 88,379 | 8,491,454 | ||||||
Xylem, Inc. | 105,441 | 4,014,139 | ||||||
28,221,783 | ||||||||
Insurance Brokers–1.69% |
| |||||||
Brown & Brown, Inc. | 196,370 | 6,462,537 | ||||||
Life & Health Insurance–2.17% |
| |||||||
Torchmark Corp. | 153,231 | 8,300,523 | ||||||
Life Sciences Tools & Services–1.93% |
| |||||||
Agilent Technologies, Inc. | 93,493 | 3,827,604 | ||||||
Waters Corp.(b) | 31,749 | 3,578,747 | ||||||
7,406,351 | ||||||||
Marine–1.02% |
| |||||||
Kirby Corp.(b) | 48,232 | 3,894,252 | ||||||
Multi-Utilities–1.05% |
| |||||||
CMS Energy Corp. | 116,127 | 4,035,413 | ||||||
Oil & Gas Drilling–0.54% |
| |||||||
Nabors Industries Ltd. | 157,694 | 2,046,868 | ||||||
Oil & Gas Equipment & Services–2.48% |
| |||||||
Cameron International Corp.(b) | 96,634 | 4,826,868 | ||||||
Dril-Quip, Inc.(b) | 32,094 | 2,462,573 | ||||||
TETRA Technologies, Inc.(b) | 329,740 | 2,202,663 | ||||||
9,492,104 | ||||||||
Oil & Gas Exploration & Production–2.61% |
| |||||||
Concho Resources Inc.(b) | 43,326 | 4,321,769 |
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–(continued) | ||||||||
Ultra Petroleum Corp.(b) | 167,004 | $ | 2,197,773 | |||||
Vermilion Energy, Inc. (Canada) | 71,059 | 3,486,282 | ||||||
10,005,824 | ||||||||
Packaged Foods & Meats–2.43% |
| |||||||
Hain Celestial Group, Inc. (The)(b) | 88,102 | 5,135,466 | ||||||
JM Smucker Co. (The) | 41,281 | 4,168,555 | ||||||
9,304,021 | ||||||||
Paper Packaging–1.29% |
| |||||||
Packaging Corp. of America | 63,095 | 4,924,565 | ||||||
Pharmaceuticals–4.20% |
| |||||||
Endo International PLC(b) | 78,440 | 5,657,093 | ||||||
Perrigo Co. PLC | 29,628 | 4,952,616 | ||||||
Salix Pharmaceuticals, Ltd.(b) | 47,674 | 5,479,650 | ||||||
16,089,359 | ||||||||
Property & Casualty Insurance–4.32% |
| |||||||
Arch Capital Group Ltd.(b) | 117,873 | 6,966,294 | ||||||
Progressive Corp. (The) | 354,768 | 9,575,189 | ||||||
16,541,483 | ||||||||
Regional Banks–1.89% |
| |||||||
First Republic Bank | 138,948 | 7,241,970 | ||||||
Restaurants–0.60% |
| |||||||
Brinker International, Inc. | 39,378 | 2,311,095 | ||||||
Semiconductor Equipment–4.34% |
| |||||||
KLA-Tencor Corp. | 42,722 | 3,004,211 | ||||||
Lam Research Corp. | 74,813 | 5,935,663 | ||||||
Teradyne, Inc. | 388,643 | 7,691,245 | ||||||
16,631,119 |
Shares | Value | |||||||
Semiconductors–4.19% | ||||||||
Linear Technology Corp. | 200,510 | $ | 9,143,256 | |||||
Xilinx, Inc. | 159,559 | 6,907,309 | ||||||
16,050,565 | ||||||||
Specialized Finance–2.13% |
| |||||||
Moody’s Corp. | 85,062 | 8,149,790 | ||||||
Specialty Chemicals–2.36% |
| |||||||
Cytec Industries Inc. | 83,360 | 3,848,731 | ||||||
International Flavors & Fragrances Inc. | 51,197 | 5,189,328 | ||||||
9,038,059 | ||||||||
Specialty Stores–1.24% |
| |||||||
Dick’s Sporting Goods, Inc. | 95,598 | 4,746,441 | ||||||
Technology Hardware, Storage & Peripherals–1.74% |
| |||||||
NetApp, Inc. | 160,800 | 6,665,160 | ||||||
Trading Companies & Distributors–0.92% | ||||||||
WESCO International, Inc.(b) | 46,272 | 3,526,389 | ||||||
Total Common Stocks |
| 315,329,839 | ||||||
Money Market Funds–17.67% | ||||||||
Liquid Assets Portfolio–Institutional Class(c) | 33,827,787 | 33,827,787 | ||||||
Premier Portfolio–Institutional | 33,827,787 | 33,827,787 | ||||||
Total Money Market Funds |
| 67,655,574 | ||||||
TOTAL INVESTMENTS–100.03% | 382,985,413 | |||||||
OTHER ASSETS LESS LIABILITIES–(0.03)% | (127,326 | ) | ||||||
NET ASSETS–100.00% | $ | 382,858,087 |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | The money market fund and the Fund are affiliated by having the same investment adviser. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $237,191,021) | $ | 315,329,839 | ||
Investments in affiliated money market funds, at value and cost | 67,655,574 | |||
Total investments, at value (Cost $304,846,595) | 382,985,413 | |||
Foreign currencies, at value (Cost $11,360) | 11,312 | |||
Receivable for: | ||||
Fund shares sold | 166,202 | |||
Dividends | 248,947 | |||
Investment for trustee deferred compensation and retirement plans | 112,265 | |||
Total assets | 383,524,139 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 184,808 | |||
Accrued fees to affiliates | 322,558 | |||
Accrued trustees’ and officers’ fees and benefits | 389 | |||
Accrued other operating expenses | 29,923 | |||
Trustee deferred compensation and retirement plans | 128,374 | |||
Total liabilities | 666,052 | |||
Net assets applicable to shares outstanding | $ | 382,858,087 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 271,467,401 | ||
Undistributed net investment income | 708,217 | |||
Undistributed net realized gain | 32,543,692 | |||
Net unrealized appreciation | 78,138,777 | |||
$ | 382,858,087 | |||
Net Assets: |
| |||
Series I | $ | 254,553,132 | ||
Series II | $ | 128,304,955 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 18,109,421 | |||
Series II | 9,271,794 | |||
Series I: | ||||
Net asset value per share | $ | 14.06 | ||
Series II: | ||||
Net asset value per share | $ | 13.84 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $31,809) | $ | 5,184,694 | ||
Dividends from affiliated money market funds | 29,324 | |||
Total investment income | 5,214,018 | |||
Expenses: |
| |||
Advisory fees | 2,906,723 | |||
Administrative services fees | 1,096,311 | |||
Custodian fees | 20,573 | |||
Distribution fees — Series II | 312,016 | |||
Transfer agent fees | 46,133 | |||
Trustees’ and officers’ fees and benefits | 30,410 | |||
Other | 65,259 | |||
Total expenses | 4,477,425 | |||
Less: Fees waived | (109,042 | ) | ||
Net expenses | 4,368,383 | |||
Net investment income | 845,635 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from: | ||||
Investment securities | 32,966,460 | |||
Foreign currencies | (10,074 | ) | ||
32,956,386 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (16,651,420 | ) | ||
Foreign currencies | (41 | ) | ||
(16,651,461 | ) | |||
Net realized and unrealized gain | 16,304,925 | |||
Net increase in net assets resulting from operations | $ | 17,150,560 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Core Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 845,635 | $ | 85,685 | ||||
Net realized gain | 32,956,386 | 44,561,331 | ||||||
Change in net unrealized appreciation (depreciation) | (16,651,461 | ) | 54,390,971 | |||||
Net increase in net assets resulting from operations | 17,150,560 | 99,037,987 | ||||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | (103,075 | ) | (2,003,552 | ) | ||||
Series ll | — | (528,944 | ) | |||||
Total distributions from net investment income | (103,075 | ) | (2,532,496 | ) | ||||
Distributions to shareholders from net realized gains: |
| |||||||
Series l | (29,565,808 | ) | (20,224,718 | ) | ||||
Series ll | (14,396,190 | ) | (7,352,936 | ) | ||||
Total distributions from net realized gains | (43,961,998 | ) | (27,577,654 | ) | ||||
Share transactions–net: |
| |||||||
Series l | (18,688,127 | ) | (47,972,492 | ) | ||||
Series ll | 20,690,882 | 9,558,731 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 2,002,755 | (38,413,761 | ) | |||||
Net increase (decrease) in net assets | (24,911,758 | ) | 30,514,076 | |||||
Net assets: |
| |||||||
Beginning of year | 407,769,845 | 377,255,769 | ||||||
End of year (includes undistributed net investment income of $708,217 and $(24,268), respectively) | $ | 382,858,087 | $ | 407,769,845 |
Notes to Financial Statements
December 31, 2014
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.
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. Mid Cap Core Equity Fund
appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, dividend rate (for unlisted equities), yield (for debt obligations), quality, type of issue, coupon rate (for debt obligations), maturity (for debt obligations), individual trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security 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 ask 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 net investment 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. Mid Cap Core Equity Fund
The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally, the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period.
F. | Expenses — Fees provided for under the Rule 12b-1 plan of a particular class of the Fund and which are directly attributable to that class are charged to the operations of such class. All other expenses are allocated among the classes based on relative net assets. |
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
J. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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 | .70% | ||||
Next $500 million | 0 | .675% | ||||
Over $1.5 billion | 0 | .65% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.73%.
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. Mid Cap Core Equity 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 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 year ended December 31, 2014, the Adviser waived advisory fees of $109,042.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $97,213 for accounting and fund administrative services and reimbursed $999,098 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $608 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 378,176,397 | $ | 4,809,016 | $ | — | $ | 382,985,413 |
Invesco V.I. Mid Cap Core Equity Fund
NOTE 4—Trustees’ and Officers’ Fees and Benefits
Trustees’ and Officers’ Fees and Benefits include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. Trustees have the option to defer compensation payable by the Fund, and Trustees’ and Officers’ Fees and Benefits also include amounts accrued by the Fund to fund such deferred compensation amounts. Those Trustees who defer compensation have the option to select various Invesco Funds in which their deferral accounts shall be deemed to be invested. Finally, certain current Trustees 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 12,133,140 | $ | 7,351,491 | ||||
Long-term capital gain | 31,931,933 | 22,758,659 | ||||||
Total distributions | $ | 44,065,073 | $ | 30,110,150 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 4,442,113 | ||
Undistributed long-term gain | 29,084,414 | |||
Net unrealized appreciation — investments | 77,986,727 | |||
Net unrealized appreciation (depreciation) — other investments | (41 | ) | ||
Temporary book/tax differences | (122,527 | ) | ||
Shares of beneficial interest | 271,467,401 | |||
Total net assets | $ | 382,858,087 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $123,411,975 and $144,013,064, 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 | $ | 86,755,154 | ||
Aggregate unrealized (depreciation) of investment securities | (8,768,427 | ) | ||
Net unrealized appreciation of investment securities | $ | 77,986,727 |
Cost of investments for tax purposes is $304,998,686.
Invesco V.I. Mid Cap Core Equity Fund
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions, on December 31, 2014, undistributed net investment income was decreased by $10,075 and undistributed net realized gain was increased by $10,075. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 728,130 | $ | 11,027,954 | 991,645 | $ | 14,071,664 | ||||||||||
Series II | 2,443,423 | 36,548,302 | 2,245,959 | 32,080,534 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 2,092,304 | 29,668,883 | 1,553,338 | 22,228,269 | ||||||||||||
Series II | 1,030,508 | 14,396,190 | 557,023 | 7,881,880 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,914,889 | ) | (59,384,964 | ) | (5,884,978 | ) | (84,272,425 | ) | ||||||||
Series II | (2,042,206 | ) | (30,253,610 | ) | (2,167,628 | ) | (30,403,683 | ) | ||||||||
Net increase (decrease) in share activity | 337,270 | $ | 2,002,755 | (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 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 10—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 15.13 | $ | 0.05 | $ | 0.64 | $ | 0.69 | $ | (0.01 | ) | $ | (1.75 | ) | $ | (1.76 | ) | $ | 14.06 | 4.43 | % | $ | 254,553 | 1.01 | %(d) | 1.04 | %(d) | 0.29 | %(d) | 38 | % | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 14.95 | 0.01 | 0.63 | 0.64 | — | (1.75 | ) | (1.75 | ) | 13.84 | 4.17 | 128,305 | 1.26 | (d) | 1.29 | (d) | 0.04 | (d) | 38 | |||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $276,121 and $124,806 for Series I and Series II shares, respectively. |
Invesco V.I. Mid Cap Core Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and Shareholders of Invesco V.I. Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Mid Cap Core Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Mid Cap Core Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 970.60 | $ | 5.02 | $ | 1,020.11 | $ | 5.14 | 1.01 | % | ||||||||||||
Series II | 1,000.00 | 969.10 | 6.25 | 1,018.85 | 6.41 | 1.26 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Core Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 31,931,933 | ||
Corporate Dividends Received Deduction* | 33.16 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Mid Cap Core Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Mid Cap Core Equity Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Mid Cap Growth Fund had strong positive returns, but underperformed its style-specific benchmark, the Russell Midcap Growth Index. The Fund outperformed its style-specific benchmark in several sectors including the health care sector, but underperformed in the industrials, consumer discretionary and energy sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 8.04 | % | |||
Series II Shares | 7.69 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell Midcap Growth Index‚ (Style-Specific Index) | 11.90 | ||||
Lipper VUF Mid-Cap Growth Funds Indexn (Peer Group Index) | 7.22 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a
sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
In this environment, the Fund had strong positive returns, but underperformed its style-specific index during the year. Relative outperformance in several sectors, especially in the health care sector was driven primarily by positive stock selection decisions. However, those sector gains were offset by underperformance in the industrials, consumer discretionary and energy sectors.
The Fund outperformed its style-specific benchmark by the widest margin in the health care sector driven by positive stock selection decisions. The Fund was a long-term holder of Shire based on the company’s strength in treating rare diseases and attention deficit disorders. The company’s chief executive officer had reemphasized drug development and simultaneously cut overhead, allowing the
company to deliver better-than-expected earnings through several quarters. The strength of the company’s products and organization led to an acquisition offer and it was positively reflected in its stock price. We sold our position in Shire for a substantial gain during the reporting period. Actavis was another contributor to performance. During the year, the company closed an acquisition, which increased the value of its drug portfolio and increased its exposure to branded drugs, where the company had previously received a majority of its revenues from generics. Additionally, the company’s stock price benefited from a flurry of consolidation activities among biotechnology companies, as the company was rumored to be both a potential target and acquirer. Medivation also contributed to Fund results as the company’s drug for prostate cancer generated better-than-expected sales and raised future estimates.
The Fund also outperformed its style-specific benchmark in the consumer staples sector due to solid stock selection decisions, despite an underweight exposure to this relatively strong performing sector. In addition, wine and spirits company Constellation Brands was a solid contributor to Fund results in this sector.
The area of greatest challenge during the year was the industrials sector, where the Fund trailed the style-specific index by the largest margin. Flowserv detracted from Fund results as it came under pressure during the middle of the year when the company’s expected large infrastructure projects did not materialize, and investors began to question the viability and size of the petrochemical build-out cycle from which the company would presumably benefit. Another detractor from Fund results was the engineering and construction company Mastec. Early in the year, all of the company’s business
Portfolio Composition | |||||
By sector | |||||
Consumer Discretionary | 21.4 | % | |||
Information Technology | 19.3 | ||||
Industrials | 17.0 | ||||
Health Care | 15.6 | ||||
Financials | 8.4 | ||||
Energy | 5.8 | ||||
Consumer Staples | 5.4 | ||||
Materials | 3.7 | ||||
Telecommunication Services | 1.7 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 1.7 |
Top 10 Equity Holdings* | |||||||||
1. | NXP Semiconductors N.V. | 2.4 | % | ||||||
2. | Palo Alto Networks, Inc. | 2.2 | |||||||
3. | PPG Industries, Inc. | 2.0 | |||||||
4. | Harman International Industries, Inc. | 2.0 | |||||||
5. | O’Reilly Automotive, Inc. | 1.9 | |||||||
6. | Illumina, Inc. | 1.9 | |||||||
7. | Mead Johnson Nutrition Co. | 1.9 | |||||||
8. | Constellation Brands, Inc.- Class A | 1.9 | |||||||
9. | Actavis PLC | 1.9 | |||||||
10. | Signet Jewelers Ltd. | 1.8 |
Top Five Industries* | ||||||||
1. | Semiconductors | 6.0 | % | |||||
2. | Oil & Gas Exploration & Production | 5.3 | ||||||
3. | Biotechnology | 4.1 | ||||||
4. | Specialty Stores | 3.5 | ||||||
5. | Pharmaceuticals | 3.5 |
Total Net Assets | $ | 268.7 million | |||||
Total Number of Holdings* | 81 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Mid Cap Growth Fund
lines were prospering, as the company was gaining market share in building telecommunications infrastructure and its energy pipeline business had a growing backlog. The company was significantly hit though, when US telecommunications providers dramatically reduced their near-term network expansion plans, reducing Mastec’s immediate revenue expectations. Then, the downturn in oil prices during the fall also hurt the company’s outlook for future energy projects. One of the more disappointing holdings for the Fund was KBR, which experienced the loss of a large project cancelled by its sponsor. However, much more troubling was an accounting weakness in the company’s financial statements that led to a significant revision of its earnings. This opened questions regarding management oversight, eroded confidence and led to our sale of the company’s stocks during the reporting period.
As we’ve discussed, the stock market experienced significant positive performance during the reporting period. However, stocks remained volatile and we caution investors against making investment decisions based on short-term performance.
We thank you for your commitment to Invesco V.I. Mid Cap Growth Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Jim Leach Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Mid Cap Growth Fund. He | ||
joined Invesco in 2011. Mr. Leach earned a BS in mechanical engineering from the University of California and an MBA from New York University Stern School of Business. |
Invesco V.I. Mid Cap Growth Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
10 Years | 8.09 | % | |||
5 Years | 13.83 | ||||
1 Year | 8.04 | ||||
Series II Shares | |||||
Inception (9/25/00) | 0.47 | % | |||
10 Years | 8.00 | ||||
5 Years | 13.63 | ||||
1 Year | 7.69 |
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
Invesco V.I. Mid Cap Growth Fund’s investment objective is to seek capital growth.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Growth investing risk. Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result they tend to be more sensitive to changes in their earnings and can be more volatile.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mid-capitalization risk. Stocks of mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell Midcap® Growth Index is an unmanaged index considered representative of mid-cap growth stocks. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Mid-Cap Growth Funds Index is an unmanaged index considered representative of mid-cap growth variable insurance underlying funds tracked by Lipper.
The Fund is not managed to track the performance of any particular index, including the index(es) 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Mid Cap Growth Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.25% |
| |||||||
Aerospace & Defense–2.54% | ||||||||
B/E Aerospace, Inc.(b) | 50,842 | $ | 2,949,853 | |||||
DigitalGlobe Inc.(b) | 124,895 | 3,867,998 | ||||||
KLX Inc.(b) | 1 | 21 | ||||||
6,817,872 | ||||||||
Airlines–2.24% | ||||||||
Delta Air Lines, Inc. | 72,389 | 3,560,815 | ||||||
United Continental Holdings Inc.(b) | 36,613 | 2,449,044 | ||||||
6,009,859 | ||||||||
Apparel Retail–1.07% | ||||||||
L Brands, Inc. | 33,196 | 2,873,114 | ||||||
Apparel, Accessories & Luxury Goods–1.83% | ||||||||
Michael Kors Holdings Ltd.(b) | 25,011 | 1,878,326 | ||||||
Under Armour, Inc.–Class A(b) | 44,885 | 3,047,692 | ||||||
4,926,018 | ||||||||
Application Software–2.24% | ||||||||
Cadence Design Systems, Inc.(b) | 213,581 | 4,051,631 | ||||||
SolarWinds, Inc.(b) | 39,254 | 1,956,027 | ||||||
6,007,658 | ||||||||
Asset Management & Custody Banks–2.80% | ||||||||
Affiliated Managers Group, Inc.(b) | 13,114 | 2,783,316 | ||||||
Ameriprise Financial, Inc. | 35,841 | 4,739,972 | ||||||
7,523,288 | ||||||||
Auto Parts & Equipment–1.04% | ||||||||
Gentherm Inc.(b) | 76,097 | 2,786,672 | ||||||
Automobile Manufacturers–1.13% | ||||||||
Tesla Motors, Inc.(b) | 13,709 | 3,049,019 | ||||||
Automotive Retail–1.93% | ||||||||
O’Reilly Automotive, Inc.(b) | 26,947 | 5,190,531 | ||||||
Biotechnology–4.14% | ||||||||
Alexion Pharmaceuticals, Inc.(b) | 22,253 | 4,117,473 | ||||||
Medivation Inc.(b) | 44,404 | 4,423,082 | ||||||
Synageva BioPharma Corp.(b)(c) | 27,979 | 2,596,171 | ||||||
11,136,726 | ||||||||
Building Products–3.53% | ||||||||
A.O. Smith Corp. | 72,037 | 4,063,607 | ||||||
Lennox International Inc. | 41,106 | 3,907,947 | ||||||
Owens Corning Inc. | 42,045 | 1,505,632 | ||||||
9,477,186 | ||||||||
Casinos & Gaming–0.76% | ||||||||
Wynn Resorts Ltd. | 13,736 | 2,043,367 | ||||||
Commodity Chemicals–0.62% | ||||||||
LyondellBasell Industries N.V.–Class A | 21,127 | 1,677,273 |
Shares | Value | |||||||
Communications Equipment–2.16% | ||||||||
Palo Alto Networks, Inc.(b) | 47,278 | $ | 5,794,864 | |||||
Computer & Electronics Retail–1.06% | ||||||||
Best Buy Co., Inc. | 72,993 | 2,845,267 | ||||||
Construction & Engineering–0.67% | ||||||||
MasTec Inc.(b) | 79,179 | 1,790,237 | ||||||
Construction Machinery & Heavy Trucks–0.77% | ||||||||
Manitowoc Co., Inc. (The) | 93,705 | 2,070,881 | ||||||
Consumer Electronics–1.95% | ||||||||
Harman International Industries, Inc. | 49,056 | 5,234,766 | ||||||
Consumer Finance–1.28% | ||||||||
Discover Financial Services | 52,426 | 3,433,379 | ||||||
Data Processing & Outsourced Services–1.09% | ||||||||
Alliance Data Systems Corp.(b) | 10,275 | 2,939,164 | ||||||
Distillers & Vintners–1.86% | ||||||||
Constellation Brands, Inc.–Class A(b) | 51,024 | 5,009,026 | ||||||
Diversified Support Services–1.03% | ||||||||
KAR Auction Services Inc. | 79,680 | 2,760,912 | ||||||
Electrical Components & Equipment–1.04% | ||||||||
AMETEK, Inc. | 26,707 | 1,405,589 | ||||||
Rockwell Automation, Inc. | 12,403 | 1,379,214 | ||||||
2,784,803 | ||||||||
Electronic Components–1.58% | ||||||||
Amphenol Corp.–Class A | 78,915 | 4,246,416 | ||||||
Electronic Equipment & Instruments–1.29% | ||||||||
Cognex Corp.(b) | 83,887 | 3,467,050 | ||||||
Food Retail–1.65% | ||||||||
Kroger Co. (The) | 69,188 | 4,442,561 | ||||||
Health Care Equipment–1.07% | ||||||||
Wright Medical Group, Inc.(b) | 107,366 | 2,884,924 | ||||||
Health Care Facilities–1.09% | ||||||||
Universal Health Services, Inc.–Class B | 26,292 | 2,925,248 | ||||||
Health Care Services–2.90% | ||||||||
Omnicare, Inc. | 63,450 | 4,627,408 | ||||||
Team Health Holdings, Inc.(b) | 55,218 | 3,176,692 | ||||||
7,804,100 | ||||||||
Home Entertainment Software–0.71% | ||||||||
Activision Blizzard, Inc. | 94,625 | 1,906,694 | ||||||
Hotels, Resorts & Cruise Lines–1.08% | ||||||||
Royal Caribbean Cruises Ltd. | 35,186 | 2,900,382 | ||||||
Household Appliances–0.96% | ||||||||
Whirlpool Corp. | 13,270 | 2,570,930 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Mid Cap Growth Fund
Shares | Value | |||||||
Housewares & Specialties–1.34% | ||||||||
Jarden Corp.(b) | 75,255 | $ | 3,603,209 | |||||
Industrial Conglomerates–1.23% | ||||||||
Carlisle Cos. Inc. | 36,635 | 3,305,942 | ||||||
Industrial Machinery–1.22% | ||||||||
Flowserve Corp. | 54,949 | 3,287,599 | ||||||
Internet Retail–0.52% | ||||||||
Netflix Inc.(b) | 4,089 | 1,396,843 | ||||||
Internet Software & Services–0.50% | ||||||||
LinkedIn Corp.–Class A(b) | 5,821 | 1,337,142 | ||||||
Investment Banking & Brokerage–1.22% | ||||||||
Lazard Ltd.–Class A | 65,672 | 3,285,570 | ||||||
IT Consulting & Other Services–0.77% | ||||||||
Gartner, Inc.(b) | 24,530 | 2,065,671 | ||||||
Leisure Products–1.58% | ||||||||
Brunswick Corp. | 82,649 | 4,236,588 | ||||||
Life Sciences Tools & Services–2.89% | ||||||||
Illumina, Inc.(b) | 27,715 | 5,115,634 | ||||||
VWR Corp.(b) | 102,725 | 2,657,496 | ||||||
7,773,130 | ||||||||
Movies & Entertainment–1.57% | ||||||||
Cinemark Holdings, Inc. | 118,373 | 4,211,711 | ||||||
Oil & Gas Equipment & Services–0.05% | ||||||||
Amec Foster Wheeler PLC–ADR (United Kingdom) | 9,890 | 127,977 | ||||||
Oil & Gas Exploration & Production–5.25% | ||||||||
Cimarex Energy Co. | 34,845 | 3,693,570 | ||||||
Concho Resources Inc.(b) | 37,025 | 3,693,244 | ||||||
EQT Corp. | 28,620 | 2,166,534 | ||||||
Laredo Petroleum Inc.(b)(c) | 150,170 | 1,554,260 | ||||||
Pioneer Natural Resources Co. | 20,070 | 2,987,419 | ||||||
14,095,027 | ||||||||
Oil & Gas Storage & Transportation–0.49% | ||||||||
Cheniere Energy, Inc.(b) | 18,886 | 1,329,574 | ||||||
Packaged Foods & Meats–1.89% | ||||||||
Mead Johnson Nutrition Co. | 50,454 | 5,072,645 | ||||||
Pharmaceuticals–3.53% | ||||||||
Actavis PLC(b) | 19,393 | 4,991,952 | ||||||
Pacira Pharmaceuticals, Inc.(b) | 50,703 | 4,495,328 | ||||||
9,487,280 | ||||||||
Regional Banks–1.48% | ||||||||
SVB Financial Group(b) | 34,358 | 3,987,933 | ||||||
Research & Consulting Services–0.81% | ||||||||
IHS Inc.–Class A(b) | 19,116 | 2,176,930 |
Shares | Value | |||||||
Semiconductor Equipment–1.37% | ||||||||
Applied Materials, Inc. | 147,305 | $ | 3,670,841 | |||||
Semiconductors–5.98% | ||||||||
Atmel Corp.(b) | 316,974 | 2,660,997 | ||||||
Cavium Inc.(b) | 65,418 | 4,044,141 | ||||||
Integrated Device Technology, Inc.(b) | 152,977 | 2,998,349 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 83,167 | 6,353,959 | ||||||
16,057,446 | ||||||||
Specialized Finance–1.58% | ||||||||
Intercontinental Exchange, Inc. | 19,415 | 4,257,515 | ||||||
Specialty Chemicals–3.09% | ||||||||
PPG Industries, Inc. | 23,227 | 5,368,921 | ||||||
Valspar Corp. (The) | 33,798 | 2,922,851 | ||||||
8,291,772 | ||||||||
Specialty Stores–3.54% | ||||||||
Signet Jewelers Ltd. | 36,371 | 4,785,333 | ||||||
Tractor Supply Co. | 59,942 | 4,724,628 | ||||||
9,509,961 | ||||||||
Systems Software–1.61% | ||||||||
ServiceNow, Inc.(b) | 63,719 | 4,323,334 | ||||||
Trading Companies & Distributors–1.17% | ||||||||
United Rentals, Inc.(b) | 30,882 | 3,150,273 | ||||||
Trucking–0.74% | ||||||||
Old Dominion Freight Line, Inc.(b) | 25,672 | 1,993,174 | ||||||
Wireless Telecommunication Services–1.72% | ||||||||
SBA Communications Corp.–Class A(b) | 41,678 | 4,616,255 | ||||||
Total Common Stocks & Other Equity Interests |
| 263,981,529 | ||||||
Money Market Funds–2.00% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 2,690,751 | 2,690,751 | ||||||
Premier Portfolio–Institutional Class(d) | 2,690,751 | 2,690,751 | ||||||
Total Money Market Funds |
| 5,381,502 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.25% |
| 269,363,031 | ||||||
Investments Purchased with Cash |
| |||||||
Money Market Funds–1.00% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,683,125)(d)(e) | 2,683,125 | 2,683,125 | ||||||
TOTAL INVESTMENTS–101.25% |
| 272,046,156 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.25)% |
| (3,356,678 | ) | |||||
NET ASSETS–100.00% |
| $ | 268,689,478 |
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 December 31, 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 December 31, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
Brown Brothers Harriman | $ | 2,626,525 | $ | (2,625,525 | ) | $ | — |
* | Amount does not include excess collateral received. |
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
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $189,124,103)* | $ | 263,981,529 | ||
Investments in affiliated money market funds, at value and cost | 8,064,627 | |||
Total investments, at value (Cost $197,188,730) | 272,046,156 | |||
Receivable for: | ||||
Investments sold | 46,217 | |||
Fund shares sold | 25,764 | |||
Dividends | 133,501 | |||
Investment for trustee deferred compensation and retirement plans | 119,728 | |||
Other assets | 34,661 | |||
Total assets | 272,406,027 | |||
Liabilities: |
| |||
Payable for: | ||||
Investments purchased | 232,620 | |||
Fund shares reacquired | 379,928 | |||
Collateral upon return of securities loaned | 2,683,125 | |||
Accrued fees to affiliates | 261,964 | |||
Accrued trustees’ and officers’ fees and benefits | 368 | |||
Accrued other operating expenses | 27,260 | |||
Trustee deferred compensation and retirement plans | 131,284 | |||
Total liabilities | 3,716,549 | |||
Net assets applicable to shares outstanding | $ | 268,689,478 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 176,165,393 | ||
Undistributed net investment income (loss) | (121,602 | ) | ||
Undistributed net realized gain | 17,788,261 | |||
Net unrealized appreciation | 74,857,426 | |||
$ | 268,689,478 | |||
Net Assets: |
| |||
Series I | $ | 106,390,484 | ||
Series II | $ | 162,298,994 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 18,404,074 | |||
Series II | 28,252,728 | |||
Series I: | ||||
Net asset value and offering price per share | $ | 5.78 | ||
Series II: | ||||
Net asset value per share | $ | 5.74 |
* | At December 31, 2014, securities with an aggregate value of $2,626,525 were on loan to brokers. |
Investment income: |
| |||
Dividends | $ | 1,961,654 | ||
Dividends from affiliated money market funds (includes securities lending income of $5,212) | 6,497 | |||
Total investment income | 1,968,151 | |||
Expenses: | ||||
Advisory fees | 2,065,516 | |||
Administrative services fees | 729,626 | |||
Custodian fees | 16,875 | |||
Distribution fees — Series II | 414,066 | |||
Transfer agent fees | 55,564 | |||
Trustees’ and officers’ fees and benefits | 27,886 | |||
Other | 62,464 | |||
Total expenses | 3,371,997 | |||
Less: Fees waived | (4,311 | ) | ||
Net expenses | 3,367,686 | |||
Net investment income (loss) | (1,399,535 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains (losses) from securities sold to affiliates of $(22,750)) | 36,941,281 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (15,377,922 | ) | ||
Net realized and unrealized gain | 21,563,359 | |||
Net increase in net assets resulting from operations | $ | 20,163,824 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (1,399,535 | ) | $ | (1,440,830 | ) | ||
Net realized gain | 36,941,281 | 33,231,759 | ||||||
Change in net unrealized appreciation (depreciation) | (15,377,922 | ) | 48,244,861 | |||||
Net increase in net assets resulting from operations | 20,163,824 | 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 | (17,038,304 | ) | (3,506,135 | ) | ||||
Series ll | (22,232,293 | ) | (19,663,937 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (39,270,597 | ) | (23,170,072 | ) | ||||
Net increase (decrease) in net assets | (19,106,773 | ) | 56,117,645 | |||||
Net assets: | ||||||||
Beginning of year | 287,796,251 | 231,678,606 | ||||||
End of year (includes undistributed net investment income (loss) of $(121,602) and $(115,576), respectively) | $ | 268,689,478 | $ | 287,796,251 |
Notes to Financial Statements
December 31, 2014
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 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. Mid Cap 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 ask 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 net investment 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. Mid Cap Growth Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | Securities Lending — The Fund may lend portfolio securities having a market value up to one-third of the Fund’s total assets. Such loans are secured by collateral equal to no less than the market value of the loaned securities determined daily by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Fund if, and to the extent that, the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.75%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $4,311.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $68,342 for accounting and fund administrative services and reimbursed $661,284 for services provided by insurance companies.
Invesco V.I. Mid Cap Growth Fund
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $3,102 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 December 31, 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 year ended December 31, 2014, the Fund engaged in securities sales of $184,028, which resulted in net realized gains (losses) of $(22,750).
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.
Invesco V.I. Mid Cap Growth Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | — | $ | 748,073 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed long-term gain | $ | 21,254,062 | ||
Net unrealized appreciation — investments | 74,483,581 | |||
Temporary book/tax differences | (121,602 | ) | ||
Capital loss carryforward | (3,091,956 | ) | ||
Shares of beneficial interest | 176,165,393 | |||
Total net assets | $ | 268,689,478 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation, retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $15,822,221 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund has a capital loss carryforward as of December 31, 2014, which expires as follows:
Capital Loss Carryforward* | ||||||||||||
Expiration | Short-Term | Long-Term | Total | |||||||||
December 31, 2015 | $ | 3,091,956 | $ | — | $ | 3,091,956 |
* | 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 year ended December 31, 2014 was $192,961,289 and $236,097,048, 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 | $ | 78,986,837 | ||
Aggregate unrealized (depreciation) of investment securities | (4,503,256 | ) | ||
Net unrealized appreciation of investment securities | $ | 74,483,581 |
Cost of investments for tax purposes is $197,562,575.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of net operating losses, on December 31, 2014, undistributed net investment income (loss) was increased by $1,393,509, undistributed net realized gain was increased by $8,463 and shares of beneficial interest was decreased by $1,401,972. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Mid Cap Growth Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 2,719,313 | $ | 15,046,775 | 4,453,038 | $ | 21,048,421 | ||||||||||
Series II | 3,222,420 | 17,657,513 | 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 | (5,866,476 | ) | (32,085,079 | ) | (5,431,033 | ) | (24,961,654 | ) | ||||||||
Series II | (7,324,414 | ) | (39,889,806 | ) | (7,695,456 | ) | (35,354,652 | ) | ||||||||
Net increase (decrease) in share activity | (7,249,157 | ) | $ | (39,270,597 | ) | (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. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 5.35 | $ | (0.02 | ) | $ | 0.45 | $ | 0.43 | $ | — | $ | — | $ | — | $ | 5.78 | 8.04 | % | $ | 106,390 | 1.07 | %(d) | 1.07 | %(d) | (0.36 | )%(d) | 71 | % | |||||||||||||||||||||||||||
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 |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 5.33 | (0.03 | ) | 0.44 | 0.41 | — | — | — | 5.74 | 7.69 | 162,299 | 1.32 | (d) | 1.32 | (d) | (0.61 | )(d) | 71 | ||||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. For the year ended December 31, 2012, the portfolio turnover calculation excludes the value of securities purchased of $158,450,343 and sold of $99,449,268 in the effort to realign the Fund’s portfolio holdings after the reorganization of Invesco V.I. Capital Development Fund into the Fund. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $109,776 and $165,626 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 includes 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
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Mid Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Mid Cap Growth Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,021.20 | $ | 5.45 | $ | 1,019.81 | $ | 5.45 | 1.07 | % | ||||||||||||
Series II | 1,000.00 | 1,019.50 | 6.72 | 1,018.55 | 6.72 | 1.32 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Mid Cap Growth Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Mid Cap Growth Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Mid Cap Growth Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion
Fund information
This annual report on Invesco V.I. Money Market Fund covers the year ended December 31, 2014.
As of December 31, 2014, the Fund’s net assets totaled $624.0 million. As of the same date, the Fund’s weighted average maturity was 33 days and the Fund’s weighted average life was 37 days.
Weighted average maturity (WAM) is an average of the maturities of all securities held in the portfolio, weighted by each security’s percentage of net assets. The days to maturity for WAM is the lower of the stated maturity date or next interest rate reset date. WAM reflects how a portfolio would react to interest rate changes.
Weighted average life (WAL) is an average of all the maturities of all securities held in the portfolio, weighted by each security’s percentage of net assets. The days to maturity for WAL is the lower of the stated maturity date or next demand feature date. WAL reflects how a portfolio would react to deteriorating credit (widening spreads) or tightening liquidity conditions.
Market conditions affecting money market funds
The US economy continued to expand, albeit slowly, in the year ended December 31, 2014. Gross domestic product, the broadest measure of overall US economic activity, continued to increase, hitting an annualized rate of 5% in the third quarter, the highest quarterly growth rate since the third quarter of 2003.1 Labor market conditions continued to improve and inflation remained subdued.
In January 2014, Ben Bernanke stepped down and Janet Yellen took over as Chair of the US Federal Reserve (the Fed). Despite this change in leadership, the Fed’s policy remained largely unchanged during the reporting period. Consistent with the guidance provided by Bernanke in late 2013, the Fed started withdrawing liquidity from the markets, by reducing, or “tapering,” its asset purchases beginning in January 2014. The Fed continued to taper its asset purchases throughout the reporting period, finally ending its asset purchase program in November 2014. Concerns that these policies would result in higher interest rates did not materialize as long-term interest rates largely fell throughout the reporting period. Money market rates remained low during the year as the Fed maintained a highly accommodative monetary policy, maintaining its “lower for longer” language, and keeping the target range for the federal funds rate between 0% and 0.25%.
Another important addition to the Fed’s policy during the reporting period was the expanded use of the Reverse Repo (Repurchase Agreement) Facility, which was first announced in late 2013. The facility, which allows the Fed to make collateralized overnight loans to counterparties, could serve as another important tool to help the Fed improve its ability to control short-term interest rates and the effectiveness of its monetary policy. Use of the facility continued to gain traction among money market investors who continued to face low and falling short-term interest rates during the reporting period. The Fed extended the facility, which was initially set to end on January 31, 2015, to January 29, 2016.
Given the Fed’s commitment to accommodative monetary policy, money market funds continued to operate in an ultra-low interest rate environment.
In an evolving and challenging environment for money market funds, Invesco Global Liquidity remains committed to the preservation of principal and providing daily liquidity, while seeking to deliver a competitive yield.
Thank you for investing with us.
1 | US Bureau of Economic Analysis |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Team managed by Invesco Advisers, Inc.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, you may lose money by investing in the Fund.
Portfolio Composition by Maturity | |||||
In days, as of 12/31/14 |
1 – 7 | 35.7 | % | |||
8 – 30 | 20.6 | ||||
31 – 60 | 21.9 | ||||
61 – 90 | 10.2 | ||||
91 – 180 | 10.7 | ||||
181+ | 0.9 |
The number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 of the Investment Company Act of 1940.
Invesco V.I. Money Market Fund |
Invesco V.I. Money Market Fund’s investment objective is to provide current income consistent with preservation of capital and liquidity.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Banking and financial services industry focus risk. From time to time, the Fund may invest more than 25% of its assets in unsecured bank instruments, including but not limited to certificates of deposit, time deposits and bankers acceptances. To the extent the Fund focuses its investments in these instruments or invests in securities issued or guaranteed by companies in the banking and financial services industries, the Fund’s performance will depend on the overall condition of those industries and the individual banks and financial institutions in which the Fund invests. Financial services companies may be dependent on the supply of short-term financing. The value of bank instruments and securities of issuers in the banking and financial services industry can be affected by and sensitive to changes in government regulation and interest rates and to economic downturns in the United States and abroad. The risk of holding bank instruments is also directly tied to the risk of insolvency or bankruptcy of the issuing banks, which risk may be higher for larger or more complex financial institutions that combine traditional, commercial and investment banking.
Cash/cash equivalents risk. Holding cash or cash equivalents may negatively affect performance.
Counterparty risk. Counterparty risk is the risk that the other party to the contract will not fulfill its contractual obligations, which may cause losses or additional costs to the Fund.
Credit risk. The issuer of instruments in which the Fund invests may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Foreign credit exposure risk. US dollar-denominated securities carrying foreign credit exposure may be affected by unfavorable political, economic or governmental developments that could affect payments of principal and interest.
Foreign securities risk. The Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations;
decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Interest rate risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise; conversely, bond prices generally rise as interest rates fall. Specific bonds differ in their sensitivity to changes in interest rates depending on their individual characteristics, including duration.
Liquidity risk. The Fund may hold illiquid securities that it is unable to sell at the preferred time or price and could lose its entire investment in such securities. Liquidity is also the risk that a Fund may not be able to pay redemption proceeds within an allowable amount of time.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and interest rate fluctuations.
Money market fund risk. Although the Fund seeks to preserve the value of your investment at $1.00 per share, you may lose money by investing in the Fund. The share price of money market funds can fall below the $1.00 share price. You should not rely on or expect the Fund’s adviser or its affiliates to enter into support agreements or take other actions to maintain the Fund’s $1.00 share price. The credit quality of the Fund’s holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the Fund’s share price. The Fund’s share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets. Furthermore, the SEC recently adopted amendments to money market fund regulations that, when implemented, could impact the Fund’s operations and possibly negatively impact its return.
Reinvestment risk. Reinvestment risk is the risk that a bond’s cash flows (coupon income and principal repayment) will be
reinvested at an interest rate below that on the original bond.
Repurchase agreement risk. If the seller of a repurchase agreement in which the Fund invests defaults on its obligation or declares bankruptcy, the Fund may experience delays in selling the securities underlying the repurchase agreement resulting in losses.
US government obligations risk. The Fund may invest in obligations issued by US government agencies and instrumentalities that may receive varying levels of support from the government, which could affect the Fund’s ability to recover should they default.
Variable-rate demand notes risk. The absence of an active secondary market for certain variable and floating rate notes could make it difficult to dispose of the instruments, and a portfolio could suffer a loss if the issuer defaults during periods in which a portfolio is not entitled to exercise its demand rights.
Yield risk. The Fund’s yield will vary as the short-term securities in its portfolio mature or are sold and the proceeds are reinvested in other securities. Additionally, inflation may outpace and diminish investment returns over time.
Invesco V.I. Money Market Fund |
Schedule of Investments
December 31, 2014
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Commercial Paper–62.53%(a) |
| |||||||||||||||
Asset-Backed Securities–Consumer Receivables–5.91% | ||||||||||||||||
Old Line Funding, LLC(b) | 0.17 | % | 02/18/15 | $ | 5,000 | $ | 4,998,866 | |||||||||
Old Line Funding, LLC(b) | 0.18 | % | 02/18/15 | 5,000 | 4,998,800 | |||||||||||
Old Line Funding, LLC(b) | 0.19 | % | 02/17/15 | 5,000 | 4,998,760 | |||||||||||
Old Line Funding, LLC(b) | 0.23 | % | 04/07/15 | 6,000 | 5,996,320 | |||||||||||
Sheffield Receivables Corp.(b) | 0.21 | % | 01/27/15 | 2,000 | 1,999,697 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.23 | % | 02/02/15 | 1,900 | 1,899,611 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.23 | % | 04/15/15 | 10,000 | 9,993,356 | |||||||||||
Thunder Bay Funding, LLC(b) | 0.27 | % | 06/09/15 | 2,000 | 1,997,615 | |||||||||||
36,883,025 | ||||||||||||||||
Asset-Backed Securities–Fully Supported–2.00% | ||||||||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(c) | 0.16 | % | 03/02/15 | 5,000 | 4,998,667 | |||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(c) | 0.21 | % | 04/14/15 | 2,500 | 2,498,498 | |||||||||||
Kells Funding LLC (CEP–FMS Wertmanagement)(b)(c)(d) | 0.24 | % | 01/15/15 | 5,000 | 5,000,140 | |||||||||||
12,497,305 | ||||||||||||||||
Asset-Backed Securities–Fully Supported Bank–16.74% | ||||||||||||||||
Atlantic Asset Securitization LLC (CEP–Credit Agricole Corporate & Investment Bank)(b)(c) | 0.14 | % | 01/21/15 | 15,000 | 14,998,833 | |||||||||||
Atlantic Asset Securitization LLC (CEP–Credit Agricole Corporate & Investment Bank)(b)(c)(d) | 0.20 | % | 03/27/15 | 1,000 | 1,000,000 | |||||||||||
Cancara Asset Securitization LLC (CEP–Lloyds Bank PLC)(b)(c) | 0.14 | % | 01/02/15 | 5,000 | 4,999,980 | |||||||||||
Cancara Asset Securitization LLC (CEP–Lloyds Bank PLC)(b)(c) | 0.15 | % | 01/02/15 | 1,500 | 1,499,994 | |||||||||||
Cancara Asset Securitization LLC (CEP–Lloyds Bank PLC)(b)(c) | 0.15 | % | 01/06/15 | 10,000 | 9,999,792 | |||||||||||
Cedar Springs Capital Co. (CEP–Guggenheim Treasury Services, LLC)(b)(c) | 0.30 | % | 03/06/15 | 500 | 499,733 | |||||||||||
Collateralized Commercial Paper Co., LLC (CEP–JPMorgan Chase & Co.) | 0.27 | % | 02/18/15 | 5,000 | 4,998,200 | |||||||||||
Collateralized Commercial Paper Co., LLC (CEP–JPMorgan Chase & Co.) | 0.27 | % | 03/02/15 | 2,000 | 1,999,100 | |||||||||||
Collateralized Commercial Paper Co., LLC (CEP–JPMorgan Chase & Co.) | 0.27 | % | 03/09/15 | 2,800 | 2,798,593 | |||||||||||
Collateralized Commercial Paper II Co., LLC (CEP–JPMorgan Chase & Co.)(b) | 0.21 | % | 01/05/15 | 1,000 | 999,977 | |||||||||||
Collateralized Commercial Paper II Co., LLC (CEP–JPMorgan Chase & Co.)(b) | 0.30 | % | 03/02/15 | 6,000 | 5,997,000 | |||||||||||
Gotham Funding Corp. (CEP–Bank of Tokyo-Mitsubishi UFJ, Ltd. (The))(b)(c) | 0.17 | % | 01/21/15 | 1,500 | 1,499,858 | |||||||||||
Govco LLC (CEP–Citibank NA)(b) | 0.18 | % | 02/10/15 | 5,000 | 4,999,000 | |||||||||||
Govco LLC (CEP–Citibank NA)(b) | 0.18 | % | 02/12/15 | 1,500 | 1,499,685 | |||||||||||
Liberty Street Funding LLC (CEP–Bank of Nova Scotia)(b)(c) | 0.17 | % | 02/18/15 | 3,000 | 2,999,320 | |||||||||||
LMA Americas LLC (CEP–Credit Agricole Corporate & Investment Bank)(b)(c) | 0.19 | % | 01/20/15 | 15,000 | 14,998,496 | |||||||||||
Manhattan Asset Funding Co. LLC (CEP–Sumitomo Mitsui Financial Group Inc.)(b)(c) | 0.18 | % | 01/08/15 | 5,000 | 4,999,825 | |||||||||||
Manhattan Asset Funding Co. LLC (CEP–Sumitomo Mitsui Financial Group Inc.)(b)(c) | 0.21 | % | 01/02/15 | 6,200 | 6,199,964 | |||||||||||
Manhattan Asset Funding Co. LLC (CEP–Sumitomo Mitsui Financial Group Inc.)(b)(c) | 0.22 | % | 01/27/15 | 2,500 | 2,499,603 | |||||||||||
Scaldis Capital LLC (CEP–BNP Paribas Fortis)(b)(c) | 0.22 | % | 02/13/15 | 5,000 | 4,998,686 | |||||||||||
Victory Receivables Corp. (CEP–Bank of Tokyo-Mitsubishi UFJ Ltd. (The))(b)(c) | 0.19 | % | 01/22/15 | 10,000 | 9,998,892 | |||||||||||
104,484,531 | ||||||||||||||||
Asset-Backed Securities–Multi-Purpose–11.53% | ||||||||||||||||
Chariot Funding, LLC(b) | 0.21 | % | 02/04/15 | 10,000 | 9,998,017 | |||||||||||
Chariot Funding, LLC(b) | 0.21 | % | 04/16/15 | 5,000 | 4,996,937 | |||||||||||
CRC Funding, LLC(b) | 0.20 | % | 03/18/15 | 15,000 | 14,993,667 | |||||||||||
Jupiter Securitization Co. LLC(b) | 0.25 | % | 06/09/15 | 5,000 | 4,994,479 | |||||||||||
Mont Blanc Capital Corp.(b)(c) | 0.19 | % | 01/08/15 | 5,000 | 4,999,815 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.18 | % | 02/06/15 | 5,000 | 4,999,100 | |||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.18 | % | 03/03/15 | 1,500 | 1,499,543 |
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) | ||||||||||||||||
Nieuw Amsterdam Receivables Corp.(b)(c) | 0.18 | % | 03/05/15 | $ | 2,500 | $ | 2,499,212 | |||||||||
Regency Markets No. 1 LLC(b)(c) | 0.14 | % | 01/02/15 | 10,000 | 9,999,961 | |||||||||||
Regency Markets No. 1 LLC(b)(c) | 0.16 | % | 01/15/15 | 10,000 | 9,999,378 | |||||||||||
Versailles Commercial Paper LLC(b)(d) | 0.24 | % | 01/21/15 | 1,000 | 1,000,000 | |||||||||||
Versailles Commercial Paper LLC(b)(d) | 0.24 | % | 01/21/15 | 1,000 | 1,000,000 | |||||||||||
Versailles Commercial Paper LLC(b)(d) | 0.24 | % | 01/21/15 | 1,000 | 1,000,000 | |||||||||||
71,980,109 | ||||||||||||||||
Diversified Banks–18.14% | ||||||||||||||||
ANZ New Zealand Int’l Ltd.(b)(c) | 0.20 | % | 01/07/15 | 1,300 | 1,299,957 | |||||||||||
BNP Paribas Finance, Inc.(c) | 0.22 | % | 01/15/15 | 2,500 | 2,499,786 | |||||||||||
BNP Paribas Finance, Inc.(c) | 0.24 | % | 03/16/15 | 8,500 | 8,495,807 | |||||||||||
BPCE S.A.(b)(c) | 0.20 | % | 02/06/15 | 15,000 | 14,997,000 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.15 | % | 02/24/15 | 2,300 | 2,299,483 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.21 | % | 05/19/15 | 1,500 | 1,500,000 | |||||||||||
Commonwealth Bank of Australia(b)(c)(d) | 0.22 | % | 06/04/15 | 2,200 | 2,199,948 | |||||||||||
Dexia Credit Local S.A.(c) | 0.25 | % | 04/09/15 | 5,000 | 4,996,597 | |||||||||||
Dexia Credit Local S.A.(c) | 0.25 | % | 06/19/15 | 3,000 | 2,996,479 | |||||||||||
Dexia Credit Local S.A.(c) | 0.30 | % | 04/20/15 | 2,000 | 1,998,183 | |||||||||||
ING (US) Funding LLC(c) | 0.18 | % | 02/03/15 | 2,000 | 1,999,670 | |||||||||||
JPMorgan Securities LLC(b) | 0.25 | % | 02/09/15 | 6,000 | 5,998,375 | |||||||||||
Mizuho Funding, LLC(b)(c) | 0.22 | % | 01/07/15 | 2,300 | 2,299,918 | |||||||||||
National Australia Funding Delaware Inc.(b)(c) | 0.19 | % | 01/15/15 | 2,100 | 2,099,845 | |||||||||||
Natixis(c) | 0.13 | % | 01/05/15 | 10,000 | 9,999,856 | |||||||||||
Oversea-Chinese Banking Corp. Ltd.(c) | 0.23 | % | 04/09/15 | 5,000 | 4,996,869 | |||||||||||
Rabobank (USA) Financial Corp.(c) | 0.21 | % | 01/20/15 | 2,000 | 1,999,778 | |||||||||||
Standard Chartered Bank(b)(c) | 0.21 | % | 01/05/15 | 1,000 | 999,977 | |||||||||||
Standard Chartered Bank(b)(c) | 0.21 | % | 02/17/15 | 5,000 | 4,998,629 | |||||||||||
Standard Chartered Bank(b)(c) | 0.22 | % | 04/02/15 | 4,400 | 4,397,553 | |||||||||||
Standard Chartered Bank(b)(c) | 0.28 | % | 05/21/15 | 5,000 | 4,994,556 | |||||||||||
Sumitomo Mitsui Banking Corp.(b)(c) | 0.25 | % | 04/10/15 | 5,000 | 4,996,562 | |||||||||||
Sumitomo Mitsui Trust Bank Ltd.(b)(c) | 0.16 | % | 01/12/15 | 2,500 | 2,499,878 | |||||||||||
Sumitomo Mitsui Trust Bank Ltd.(b)(c) | 0.17 | % | 01/30/15 | 5,000 | 4,999,315 | |||||||||||
Sumitomo Mitsui Trust Bank Ltd.(b)(c) | 0.19 | % | 01/12/15 | 10,000 | 9,999,419 | |||||||||||
Sumitomo Mitsui Trust Bank Ltd.(b)(c) | 0.21 | % | 03/16/15 | 2,600 | 2,598,878 | |||||||||||
113,162,318 | ||||||||||||||||
IT Consulting & Other Services–0.31% | ||||||||||||||||
International Business Machines Corp.(b) | 0.01 | % | 01/02/15 | 1,900 | 1,899,999 | |||||||||||
Life & Health Insurance–0.80% | ||||||||||||||||
MetLife Short Term Funding LLC(b) | 0.14 | % | 01/16/15 | 5,000 | 4,999,708 | |||||||||||
Other Diversified Financial Services–1.33% | ||||||||||||||||
General Electric Capital Corp. | 0.19 | % | 01/07/15 | 1,300 | 1,299,959 | |||||||||||
General Electric Capital Corp. | 0.20 | % | 02/04/15 | 7,000 | 6,998,678 | |||||||||||
8,298,637 | ||||||||||||||||
Regional Banks–2.26% | ||||||||||||||||
Abbey National North America LLC(c) | 0.11 | % | 01/16/15 | 5,000 | 4,999,771 | |||||||||||
Banque et Caisse d’Epargne de l’Etat(c) | 0.18 | % | 03/23/15 | 1,500 | 1,499,392 | |||||||||||
BNZ International Funding Ltd.(b)(c) | 0.16 | % | 02/26/15 | 5,000 | 4,998,756 |
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 | |||||||||||||
Regional Banks–(continued) | ||||||||||||||||
Macquarie Bank Ltd.(b)(c) | 0.23 | % | 02/06/15 | $ | 1,600 | $ | 1,599,632 | |||||||||
Macquarie Bank Ltd.(b)(c) | 0.26 | % | 03/13/15 | 1,000 | 999,487 | |||||||||||
14,097,038 | ||||||||||||||||
Soft Drinks–0.48% | ||||||||||||||||
Coca-Cola Co. (The)(b) | 0.17 | % | 02/10/15 | 1,500 | 1,499,717 | |||||||||||
Coca-Cola Co. (The)(b) | 0.20 | % | 03/10/15 | 1,500 | 1,499,433 | |||||||||||
2,999,150 | ||||||||||||||||
Specialized Finance–3.03% | ||||||||||||||||
Caisse des Depots et Consignations(b)(c) | 0.16 | % | 02/05/15 | 1,500 | 1,499,774 | |||||||||||
Caisse des Depots et Consignations(b)(c) | 0.16 | % | 02/18/15 | 1,500 | 1,499,690 | |||||||||||
Caisse des Depots et Consignations(b)(c) | 0.19 | % | 03/09/15 | 1,900 | 1,899,328 | |||||||||||
CDP Financial Inc.(b)(c) | 0.16 | % | 02/17/15 | 5,000 | 4,998,956 | |||||||||||
CDP Financial Inc.(b)(c) | 0.16 | % | 03/13/15 | 5,000 | 4,998,422 | |||||||||||
CDP Financial Inc.(b)(c) | 0.19 | % | 02/02/15 | 4,000 | 3,999,324 | |||||||||||
18,895,494 | ||||||||||||||||
Total Commercial Paper (Cost $390,197,314) | 390,197,314 | |||||||||||||||
Certificates of Deposit–23.86% | ||||||||||||||||
Australia & New Zealand Banking Group, Ltd.(c) | 0.17 | % | 02/02/15 | 1,000 | 1,000,000 | |||||||||||
Bank of Montreal(c) | 0.18 | % | 02/10/15 | 5,000 | 4,999,889 | |||||||||||
Bank of Montreal(c) | 0.21 | % | 02/09/15 | 1,800 | 1,800,000 | |||||||||||
Bank of Nova Scotia(c) | 0.17 | % | 01/15/15 | 5,000 | 5,000,000 | |||||||||||
Bank of Nova Scotia(c) | 0.20 | % | 02/02/15 | 1,500 | 1,500,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.33 | % | 04/01/15 | 4,000 | 4,000,000 | |||||||||||
Bank of Nova Scotia(c)(d) | 0.33 | % | 01/29/16 | 700 | 700,000 | |||||||||||
Bank of Tokyo-Mitsubishi UFJ, Ltd. (The)(c) | 0.14 | % | 01/06/15 | 5,000 | 5,000,000 | |||||||||||
Citibank N.A. | 0.18 | % | 02/09/15 | 1,600 | 1,600,000 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(c) | 0.16 | % | 01/05/15 | 5,000 | 5,000,000 | |||||||||||
Mitsubishi UFJ Trust & Banking Corp.(c) | 0.18 | % | 02/04/15 | 10,000 | 10,000,000 | |||||||||||
Mizuho Bank Ltd.(c) | 0.22 | % | 03/17/15 | 5,000 | 5,000,000 | |||||||||||
Nordea Bank Finland PLC(c) | 0.15 | % | 01/05/15 | 5,000 | 5,000,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.17 | % | 01/30/15 | 5,000 | 5,000,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.20 | % | 01/13/15 | 1,400 | 1,400,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.20 | % | 01/13/15 | 1,900 | 1,900,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.26 | % | 01/06/15 | 1,300 | 1,300,000 | |||||||||||
Norinchukin Bank (The)(c) | 0.26 | % | 02/02/15 | 1,000 | 1,000,000 | |||||||||||
Oversea-Chinese Banking Corp. Ltd.(c) | 0.17 | % | 01/06/15 | 1,400 | 1,400,000 | |||||||||||
Oversea-Chinese Banking Corp. Ltd.(c) | 0.17 | % | 02/12/15 | 1,200 | 1,200,000 | |||||||||||
Royal Bank of Canada(c)(d) | 0.35 | % | 01/04/16 | 2,000 | 2,000,000 | |||||||||||
Skandinaviska Enskilda Banken AB(c) | 0.04 | % | 01/02/15 | 31,000 | 31,000,000 | |||||||||||
Sumitomo Mitsui Banking Corp. (c) | 0.20 | % | 01/06/15 | 5,000 | 5,000,000 | |||||||||||
Svenska Handelsbanken AB(c) | 0.05 | % | 01/02/15 | 31,000 | 31,000,000 | |||||||||||
Swedbank AB(c) | 0.08 | % | 01/07/15 | 10,000 | 10,000,000 | |||||||||||
Toronto-Dominion Bank (The)(c) | 0.15 | % | 02/03/15 | 5,000 | 5,000,000 | |||||||||||
Toronto-Dominion Bank (The)(c) | 0.17 | % | 01/08/15 | 1,100 | 1,100,000 | |||||||||||
Total Certificates of Deposit (Cost $148,899,889) | 148,899,889 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Interest Rate | Maturity Date | Principal Amount (000) | Value | |||||||||||||
Variable Rate Demand Notes–4.32%(e) | ||||||||||||||||
Credit Enhanced–4.32% | ||||||||||||||||
Atlanticare Health Services, Inc.; Series 2003, VRD Taxable Bonds (LOC–Wells Fargo Bank, N.A.)(f) | 0.16 | % | 10/01/33 | $ | 4,500 | $ | 4,500,000 | |||||||||
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) | 0.09 | % | 10/01/25 | 1,000 | 1,000,000 | |||||||||||
Gary Chicago International Airport Authority (Gary Jet Center); Series 2011, Multi-Modal Special Purpose Facility, VRD RB (LOC–BMO Harris Bank NA)(f) | 0.12 | % | 05/01/36 | 7,510 | 7,510,000 | |||||||||||
Hamilton (County of), Ohio (Children’s Hospital Medical Center); Series 1997 A, VRD Hospital Facilities RB (LOC–PNC Bank, N.A.)(f) | 0.04 | % | 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) | 0.23 | % | 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 | |||||||||||
Ogden (City of), Utah Redevelopment Agency; Series 2009 B-1, Ref. VRD Taxable RB (LOC–Wells Fargo Bank, N.A.)(f) | 0.16 | % | 12/01/27 | 2,190 | 2,190,000 | |||||||||||
Rock Island (County of), Illinois Metropolitan Airport Authority (Quad City International Airport Air Freight); Series 1998 A, VRD Priority RB (LOC–U.S. Bank, N.A.)(f) | 0.11 | % | 12/01/18 | 230 | 230,000 | |||||||||||
St. Jean Industries, Inc.; Series 2006, VRD Taxable Notes (LOC–General Electric Capital Corp.)(b)(f) | 0.13 | % | 10/01/21 | 280 | 280,000 | |||||||||||
Total Variable Rate Demand Notes (Cost $26,990,000) | 26,990,000 | |||||||||||||||
Bonds & Notes–1.93% | ||||||||||||||||
Commonwealth Bank of Australia, Sr. Unsec. Notes(b)(c) | 3.50 | % | 03/19/15 | 2,000 | 2,013,746 | |||||||||||
General Electric Capital Corp., Sr. Unsec. Floating Rate Medium-Term Notes(d) | 0.61 | % | 01/09/15 | 7,000 | 7,000,622 | |||||||||||
Wells Fargo Bank, N.A., Unsec. Floating Rate Medium-Term Notes(d) | 0.37 | % | 01/20/16 | 3,000 | 3,000,000 | |||||||||||
Total Bonds & Notes (Cost $12,014,368) | 12,014,368 | |||||||||||||||
U.S. Government Sponsored Agency Securities–0.80% | ||||||||||||||||
Overseas Private Investment Corp. (OPIC)–0.80% | ||||||||||||||||
Unsec. Gtd. VRD Bonds(e) (Cost $5,000,000) | 0.11 | % | 09/15/20 | 5,000 | 5,000,000 | |||||||||||
TOTAL INVESTMENTS (excluding Repurchase Agreements)–93.44% (Cost $583,101,571) | 583,101,571 | |||||||||||||||
Repurchase Amount | ||||||||||||||||
Repurchase Agreements–7.27%(g) | ||||||||||||||||
Credit Agricole Corporate & Investment Bank, Joint agreement dated 12/31/14, aggregate maturing value of $175,000,583 (collateralized by U.S. Treasury obligations valued at $178,500,082; 0.13%, 04/15/19) | 0.06 | % | 01/02/15 | 20,000,067 | 20,000,000 | |||||||||||
Merrill Lynch Pierce Fenner & Smith, Inc., Term agreement dated 12/29/14, maturing value of $10,007,500 (collateralized by Domestic Non-Agency Asset-backed and Mortgage-backed securities valued at $10,998,540; 0%-5.82%, 04/25/35-09/08/46)(h) | 0.45 | % | 02/27/15 | 10,007,500 | 10,000,000 | |||||||||||
RBC Capital Markets Corp., Term agreement dated 12/30/14, maturing value of $5,003,250 (collateralized by Domestic and Foreign Corporate obligations valued at $5,250,001; 0%-6.88%, 03/01/16-10/10/36)(c)(h) | 0.26 | % | 03/30/15 | 5,003,250 | 5,000,000 | |||||||||||
Wells Fargo Securities, LLC, Joint agreement dated 12/31/14, aggregate maturing value of $550,002,444 (collateralized by Agency Mortgage-backed securities valued at $561,000,000; 0.46%-8.50%, 01/25/18-01/01/45) | 0.08 | % | 01/02/15 | 10,390,334 | 10,390,288 | |||||||||||
Total Repurchase Agreements (Cost $45,390,288) | 45,390,288 | |||||||||||||||
TOTAL INVESTMENTS(i)(j)–100.71% (Cost $628,491,859) | 628,491,859 | |||||||||||||||
OTHER ASSETS LESS LIABILITIES–(0.71)% | (4,442,979 | ) | ||||||||||||||
NET ASSETS–100.00% | $ | 624,048,880 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Investment Abbreviations:
CEP | – Credit Enhancement Provider | |
IDR | – Industrial Development Revenue Bonds | |
Gtd. | – Guaranteed | |
LOC | – Letter of Credit | |
Ref. | – Refunding | |
RB | – Revenue Bonds | |
RN | – Revenue Notes | |
Sr. | – Senior | |
Unsec. | – Unsecured | |
VRD | – Variable Rate Demand |
Notes to Schedule of Investments:
(a) | Security may be traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. |
(b) | 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, 2014 was $330,014,342, which represented 52.88% of the Fund’s Net Assets. |
(c) | The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: Japan: 14.9%; Sweden: 12.3%; France: 12.3%; United Kingdom: 9.1%; Canada: 7.7% other countries less than 5% each: 11.2%. |
(d) | Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on December 31, 2014. |
(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 December 31, 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) | This table provides a listing of those entities that have either issued, guaranteed, backed or otherwise enhanced the credit quality of more than 5% of the securities held in the portfolio. In instances where the entity has guaranteed, backed or otherwise enhanced the credit quality of a security, it is not primarily responsible for the issuer’s obligations but may be called upon to satisfy the issuer’s obligations. |
Entity | Percentage | |||
Mitsubishi UFJ Financial Group, Inc. | 5.0 | % |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, excluding repurchase agreements, at value and cost | $ | 583,101,571 | ||
Repurchase agreements, at value and cost | 45,390,288 | |||
Total investments, at value and cost | 628,491,859 | |||
Receivable for: | ||||
Fund shares sold | 362,034 | |||
Interest | 62,952 | |||
Fund expenses absorbed | 78,796 | |||
Investment for trustee deferred compensation and retirement plans | 58,690 | |||
Total assets | 629,054,331 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares reacquired | 4,775,447 | |||
Dividends | 104 | |||
Accrued fees to affiliates | 163,225 | |||
Accrued trustees’ and officers’ fees and benefits | 645 | |||
Accrued other operating expenses | 1,793 | |||
Trustee deferred compensation and retirement plans | 64,237 | |||
Total liabilities | 5,005,451 | |||
Net assets applicable to shares outstanding | $ | 624,048,880 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 624,058,128 | ||
Undistributed net investment income | (9,539 | ) | ||
Undistributed net realized gain | 291 | |||
$ | 624,048,880 | |||
Net Assets: |
| |||
Series I | $ | 606,552,836 | ||
Series II | $ | 17,496,044 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 606,551,168 | |||
Series II | 17,495,995 | |||
Series I: | ||||
Net asset value per share | $ | 1.00 | ||
Series II: | ||||
Net asset value per share | $ | 1.00 |
Investment income: |
| |||
Interest | $ | 913,972 | ||
Expenses: | ||||
Advisory fees | 1,974,665 | |||
Administrative services fees | 545,982 | |||
Custodian fees | 12,305 | |||
Distribution fees — Series II | 45,476 | |||
Transfer agent fees | 8,210 | |||
Trustees’ and officers’ fees and benefits | 30,079 | |||
Other | 50,859 | |||
Total expenses | 2,667,576 | |||
Less: Fees waived and expenses reimbursed | (1,823,313 | ) | ||
Net expenses | 844,263 | |||
Net investment income | 69,709 | |||
Net realized gain from investment securities | 1,738 | |||
Net increase in net assets resulting from operations | $ | 71,447 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Money Market Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income | $ | 69,709 | $ | 90,966 | ||||
Net realized gain (loss) | 1,738 | (702 | ) | |||||
Net increase in net assets resulting from operations | 71,447 | 90,264 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (67,296 | ) | (89,711 | ) | ||||
Series ll | (2,413 | ) | (1,255 | ) | ||||
Total distributions from net investment income | (69,709 | ) | (90,966 | ) | ||||
Share transactions–net: | ||||||||
Series l | 184,059,944 | 265,560,533 | ||||||
Series ll | 1,613,097 | 15,137,429 | ||||||
Net increase in net assets resulting from share transactions | 185,673,041 | 280,697,962 | ||||||
Net increase in net assets | 185,674,779 | 280,697,260 | ||||||
Net assets: | ||||||||
Beginning of year | 438,374,101 | 157,676,841 | ||||||
End of year (includes undistributed net investment income of $(9,539) and $(2,496), respectively) | $ | 624,048,880 | $ | 438,374,101 |
Notes to Financial Statements
December 31, 2014
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 (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
Invesco V.I. Money Market Fund
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 net investment income, if any, are declared 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 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 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
Invesco V.I. Money Market Fund
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 year ended December 31, 2014, Invesco voluntarily waived advisory fees of $1,777,837 and reimbursed class level expenses of $45,476 for Series II shares in order to increase the Fund’s yield.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $126,549 for accounting and fund administrative services and reimbursed $419,433 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 year ended December 31, 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 year ended December 31, 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 December 31, 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 69,709 | $ | 90,966 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 49,982 | ||
Temporary book/tax differences | (59,230 | ) | ||
Shares of beneficial interest | 624,058,128 | |||
Total net assets | $ | 624,048,880 |
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund utilized $1,447 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 7—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of taxable income, on December 31, 2014, undistributed net investment income was decreased by $7,043 and shares of beneficial interest was increased by $7,043. This reclassification had no effect on the net assets of the Fund.
NOTE 8—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,289,451,981 | $ | 1,289,451,981 | 1,037,143,323 | $ | 1,037,143,323 | ||||||||||
Series II | 40,068,335 | 40,068,335 | 29,306,348 | 29,306,348 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 64,806 | 64,806 | 82,613 | 82,613 | ||||||||||||
Series II | 2,413 | 2,413 | 1,255 | 1,255 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,105,456,843 | ) | (1,105,456,843 | ) | (771,665,403 | ) | (771,665,403 | ) | ||||||||
Series II | (38,457,651 | ) | (38,457,651 | ) | (14,170,174 | ) | (14,170,174 | ) | ||||||||
Net increase in share activity | 185,673,041 | $ | 185,673,041 | 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 96% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. Money Market Fund
NOTE 9—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net realized gains (losses) on securities | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of assets without | Ratio of net investment income to average net assets | ||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 1.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | 1.00 | 0.01 | % | $ | 606,553 | 0.16 | %(c) | 0.50 | %(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 | |||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 1.00 | 0.00 | 0.00 | 0.00 | (0.00 | ) | 1.00 | 0.01 | 17,496 | 0.16 | (c) | 0.75 | (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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Ratios are based on average daily net assets (000’s omitted) of $510,285 and $18,190 for Series I and Series II shares, respectively. |
Invesco V.I. Money Market Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Money Market Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Money Market Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Money Market Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,000.10 | $ | 0.80 | $ | 1,024.40 | $ | 0.81 | 0.16 | % | ||||||||||||
Series II | 1,000.00 | 1,000.10 | 0.80 | 1,024.40 | 0.81 | 0.16 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Money Market Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 0 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Money Market Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Money Market Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian Bank of New York Mellon 2 Hanson Place Brooklyn, NY 11217-1431 |
Invesco V.I. Money Market Fund
| ||||
Annual Report to Shareholders
| December 31, 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-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. S&P 500 Index Fund slightly underperformed its broad market/style-specific index, the S&P 500 Index. The Fund seeks to provide investment results that, before expenses, correspond to the total return of the S&P 500 Index.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 13.32 | % | |||
Series II Shares | 12.96 | ||||
S&P 500 Index‚ (Broad Market/Style-Specific Index) | 13.69 | ||||
Lipper VUF S&P 500 Funds Indexn (Peer Group Index) | 13.30 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
For the reporting period, nine of the 10 sectors of the S&P 500 Index had positive returns with the energy sector being the exception. The Fund stayed true to its process by investing in all components of the S&P 500 Index. Sectors that contributed the most to overall Fund performance were the information technology (IT), health care and financials sectors. While telecommunication services and materials both posted positive returns, they contributed the least to the Fund’s relative performance. The energy sector,
which posted negative returns, was the largest detractor from relative performance. The Fund’s allocation to S&P 500 futures contracts was a slight contributor to Fund performance.
Within the IT sector, Apple and Microsoft were top contributors to Fund performance. In September, Apple launched its new iPhone 6 and iPhone 6 Plus. Shares rose to an all-time high in November on smartphone sales data. In October, Microsoft stock rallied after its fiscal first quarter earnings came in above analyst expectations due to cloud and hardware sales. Intel was also a key contributor within the IT sector due to strong PC and server chip sales.
Also contributing to the Fund’s performance were Berkshire Hathaway and Wells Fargo, both delivered strong double-digit returns for the fiscal year. Throughout the reporting period, Berkshire Hathaway completed successful acquisitions and expanded its insurance business. Also contributing to the company’s performance was the purchase of Duracell battery from Procter & Gamble.
Several stocks declined during the reporting period, including Amazon and Exxon Mobil. Amazon launched its much hyped first smartphone, the Amazon Fire phone, in June. The phone saw less than expected sales causing Amazon to report a $170 million write-down in October.1 While the energy sector struggled due to falling oil prices from a supply glut and decreasing demand, Exxon Mobil weighed on Fund performance as it is one of two heaviest weighted energy stocks in the S&P 500 Index.
Portfolio Composition | |||||
By sector | |||||
Information Technology | 19.5 | % | |||
Financials | 16.4 | ||||
Health Care | 14.1 | ||||
Consumer Discretionary | 12.3 | ||||
Industrials | 10.3 | ||||
Consumer Staples | 9.7 | ||||
Energy | 8.3 | ||||
Utilities | 3.3 | ||||
Materials | 3.1 | ||||
Telecommunication Services | 2.3 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 0.7 |
Top 10 Equity Holdings* | ||||||||
1. | Apple Inc. | 3.5 | % | |||||
2. | Exxon Mobil Corp. | 2.1 | ||||||
3. | Microsoft Corp. | 2.1 | ||||||
4. | Johnson & Johnson | 1.6 | ||||||
5. | Berkshire Hathaway Inc.- Class B | 1.5 | ||||||
6. | Wells Fargo & Co. | 1.4 | ||||||
7. | General Electric Co. | 1.4 | ||||||
8. | Procter & Gamble Co. (The) | 1.3 | ||||||
9. | JPMorgan Chase & Co. | 1.3 | ||||||
10. | Chevron Corp. | 1.2 |
Top Five Industries* | ||||||||
1. | Pharmaceuticals | 6.4 | % | |||||
2. | Diversified Banks | 5.1 | ||||||
3. | Technology Hardware, Storage & Peripherals | 4.7 | ||||||
4. | Integrated Oil & Gas | 3.7 | ||||||
5. | Internet Software & Services | 3.2 |
Total Net Assets | $ | 101.4 million | |||||
Total Number of Holdings* | 503 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. S&P 500 Index Fund
Other holdings that struggled during the reporting period included IBM, General Electric and Chevron. General Electric, one of the largest suppliers of oil and gas drilling machinery and Chevron, a multinational energy company, were both hit by declining oil prices during the reporting period. We sold out of our position in IBM during the reporting period.
We welcome new investors who joined the Fund during the year and thank all of our shareholders for your investment in Invesco V.I. S&P 500 Index Fund.
1 | Source: Reuters |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Anthony Munchak Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Index Fund. He | ||
joined Invesco in 2000. Mr. Munchak earned a BS and an MS in finance from Boston College and an MBA from Bentley College. | ||
Glen Murphy Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Fund. He joined | ||
Invesco in 1995. Mr. Murphy earned a BA in business administration from the University of Massachusetts Amherst and an MS in finance from Boston College. | ||
Francis Orlando Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Fund. He joined | ||
Invesco in 1987. Mr. Orlando earned a BA in business administration from Merrimack College and an MBA from Boston University. | ||
Daniel Tsai Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. S&P 500 Fund. He joined | ||
Invesco in 2000. Mr. Tsai earned a BS in mechanical engineering from National Taiwan University, an MS in mechanical engineering from the University of Michigan and an MS in computer science from Wayne State University. | ||
Anne Unflat Portfolio Manager, is manager of Invesco V.I. S&P 500 Fund. She joined Invesco in 1988. Ms. Unflat | ||
earned a BA in economics from Queens College and an MBA in finance from St. John’s University. | ||
Invesco V.I. S&P 500 Index Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/18/98) | 5.42 | % | |||
10 Years | 7.42 | ||||
5 Years | 15.13 | ||||
1 Year | 13.32 | ||||
Series II Shares | |||||
Inception (6/5/00) | 3.77 | % | |||
10 Years | 7.15 | ||||
5 Years | 14.84 | ||||
1 Year | 12.96 |
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
Invesco V.I. S&P 500 Index Fund’s investment objective is to provide investment results that, before expenses, correspond to the total return (i.e., the combination of capital changes and income) of the Standard & Poor’s® 500 Composite Stock Price Index.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Indexing risk. The Fund is operated as a passively managed index fund. As such, the adverse performance of a particular stock ordinarily will not result in the elimination of the stock from the Fund’s portfolio. The Fund will remain invested in common stocks even when stock prices are generally falling. Ordinarily, the Adviser will not sell the Fund’s portfolio securities except to reflect additions or deletions of the stocks that comprise the S&P 500 Index, or as may be necessary to raise cash to pay Fund shareholders who sell Fund shares. The Fund’s ability to correlate its performance, before expenses, with the S&P 500 Index may be affected by, among other things, changes in securities markets, the manner in which the S&P 500 Index is calculated and the timing of purchases and sales, and also depends to some extent on the size of the Fund’s portfolio, the size of cash flows into and out of the Fund and differences between how and when the Fund and the Index are valued.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
About indexes used in this report The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Lipper VUF S&P 500 Funds Index is an unmanaged index considered representative of S&P 500 variable insurance underlying funds tracked by Lipper.
A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of the peer group, if applicable, reflects fund expenses; performance of a market index does not.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. S&P 500 Index Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–99.34% |
| |||||||
Advertising–0.15% |
| |||||||
Interpublic Group of Cos., Inc.(The) | 2,261 | $ | 46,961 | |||||
Omnicom Group Inc. | 1,368 | 105,979 | ||||||
152,940 | ||||||||
Aerospace & Defense–2.66% |
| |||||||
Boeing Co.(The) | 3,658 | 475,467 | ||||||
General Dynamics Corp. | 1,742 | 239,734 | ||||||
Honeywell International Inc. | 4,319 | 431,555 | ||||||
L-3 Communications Holdings, Inc. | 477 | 60,202 | ||||||
Lockheed Martin Corp. | 1,479 | 284,811 | ||||||
Northrop Grumman Corp. | 1,113 | 164,045 | ||||||
Precision Castparts Corp. | 786 | 189,332 | ||||||
Raytheon Co. | 1,704 | 184,322 | ||||||
Rockwell Collins, Inc. | 732 | 61,839 | ||||||
Textron Inc. | 1,531 | 64,470 | ||||||
United Technologies Corp. | 4,678 | 537,970 | ||||||
2,693,747 | ||||||||
Agricultural & Farm Machinery–0.17% |
| |||||||
Deere & Co. | 1,977 | 174,905 | ||||||
Agricultural Products–0.18% |
| |||||||
Archer-Daniels-Midland Co. | 3,540 | 184,080 | ||||||
Air Freight & Logistics–0.78% |
| |||||||
C.H. Robinson Worldwide, Inc. | 821 | 61,485 | ||||||
Expeditors International of Washington, Inc. | 1,064 | 47,465 | ||||||
FedEx Corp. | 1,455 | 252,675 | ||||||
United Parcel Service, Inc.–Class B | 3,846 | 427,560 | ||||||
789,185 | ||||||||
Airlines–0.38% |
| |||||||
Delta Air Lines, Inc. | 4,624 | 227,454 | ||||||
Southwest Airlines Co. | 3,758 | 159,039 | ||||||
386,493 | ||||||||
Alternative Carriers–0.07% |
| |||||||
Level 3 Communications, Inc.(b) | 1,524 | 75,255 | ||||||
Aluminum–0.10% |
| |||||||
Alcoa Inc. | 6,497 | 102,588 | ||||||
Apparel Retail–0.56% |
| |||||||
Gap, Inc. (The) | 1,471 | 61,944 | ||||||
L Brands, Inc. | 1,358 | 117,535 | ||||||
Ross Stores, Inc. | 1,150 | 108,399 | ||||||
TJX Cos., Inc. (The) | 3,801 | 260,673 | ||||||
Urban Outfitters, Inc.(b) | 581 | 20,410 | ||||||
568,961 | ||||||||
Apparel, Accessories & Luxury Goods–0.49% |
| |||||||
Coach, Inc. | 1,506 | 56,565 | ||||||
Fossil Group, Inc.(b) | 257 | 28,460 |
Shares | Value | |||||||
Apparel, Accessories & Luxury Goods–(continued) | ||||||||
Michael Kors Holdings Ltd.(b) | 1,131 | $ | 84,938 | |||||
PVH Corp. | 451 | 57,805 | ||||||
Ralph Lauren Corp. | 335 | 62,029 | ||||||
Under Armour, Inc.–Class A(b) | 921 | 62,536 | ||||||
VF Corp. | 1,907 | 142,834 | ||||||
495,167 | ||||||||
Application Software–0.65% |
| |||||||
Adobe Systems Inc.(b) | 2,614 | 190,038 | ||||||
Autodesk, Inc.(b) | 1,262 | 75,796 | ||||||
Citrix Systems, Inc.(b) | 887 | 56,591 | ||||||
Intuit Inc. | 1,574 | 145,107 | ||||||
salesforce.com, inc.(b) | 3,237 | 191,986 | ||||||
659,518 | ||||||||
Asset Management & Custody Banks–1.32% |
| |||||||
Affiliated Managers Group, Inc.(b) | 305 | 64,733 | ||||||
Ameriprise Financial, Inc. | 1,026 | 135,689 | ||||||
Bank of New York Mellon Corp. (The) | 6,193 | 251,250 | ||||||
BlackRock, Inc. | 702 | 251,007 | ||||||
Franklin Resources, Inc. | 2,160 | 119,599 | ||||||
Invesco Ltd.(c) | 2,397 | 94,729 | ||||||
Legg Mason, Inc. | 564 | 30,101 | ||||||
Northern Trust Corp. | 1,231 | 82,969 | ||||||
State Street Corp. | 2,303 | 180,786 | ||||||
T. Rowe Price Group Inc. | 1,430 | 122,780 | ||||||
1,333,643 | ||||||||
Auto Parts & Equipment–0.36% |
| |||||||
BorgWarner, Inc. | 1,266 | 69,567 | ||||||
Delphi Automotive PLC (United Kingdom) | 1,643 | 119,479 | ||||||
Johnson Controls, Inc. | 3,675 | 177,649 | ||||||
366,695 | ||||||||
Automobile Manufacturers–0.58% |
| |||||||
Ford Motor Co. | 21,276 | 329,778 | ||||||
General Motors Co. | 7,467 | 260,673 | ||||||
590,451 | ||||||||
Automotive Retail–0.32% |
| |||||||
AutoNation, Inc.(b) | 428 | 25,856 | ||||||
AutoZone, Inc.(b) | 175 | 108,344 | ||||||
CarMax, Inc.(b) | 1,187 | 79,030 | ||||||
O’Reilly Automotive, Inc.(b) | 558 | 107,482 | ||||||
320,712 | ||||||||
Biotechnology–2.88% |
| |||||||
Alexion Pharmaceuticals, Inc.(b) | 1,093 | 202,238 | ||||||
Amgen Inc. | 4,197 | 668,540 | ||||||
Biogen Idec Inc.(b) | 1,302 | 441,964 | ||||||
Celgene Corp.(b) | 4,407 | 492,967 | ||||||
Gilead Sciences, Inc.(b) | 8,325 | 784,714 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Biotechnology–(continued) | ||||||||
Regeneron Pharmaceuticals, Inc.(b) | 408 | $ | 167,382 | |||||
Vertex Pharmaceuticals Inc.(b) | 1,326 | 157,529 | ||||||
2,915,334 | ||||||||
Brewers–0.06% |
| |||||||
Molson Coors Brewing Co.–Class B | 879 | 65,503 | ||||||
Broadcasting–0.26% |
| |||||||
CBS Corp.–Class B | 2,630 | 145,544 | ||||||
Discovery Communications, Inc.–Class A(b) | 819 | 28,215 | ||||||
Discovery Communications, Inc.–Class C(b) | 1,514 | 51,052 | ||||||
Scripps Networks Interactive Inc.–Class A | 559 | 42,076 | ||||||
266,887 | ||||||||
Building Products–0.08% |
| |||||||
Allegion PLC | 531 | 29,449 | ||||||
Masco Corp. | 1,994 | 50,249 | ||||||
79,698 | ||||||||
Cable & Satellite–1.31% |
| |||||||
Cablevision Systems Corp.–Class A | 1,229 | 25,366 | ||||||
Comcast Corp.–Class A | 14,218 | 824,786 | ||||||
DIRECTV(b) | 2,771 | 240,246 | ||||||
Time Warner Cable Inc. | 1,547 | 235,237 | ||||||
1,325,635 | ||||||||
Casinos & Gaming–0.07% |
| |||||||
Wynn Resorts Ltd. | 448 | 66,644 | ||||||
Coal & Consumable Fuels–0.04% |
| |||||||
CONSOL Energy Inc. | 1,261 | 42,634 | ||||||
Commodity Chemicals–0.18% |
| |||||||
LyondellBasell Industries N.V. Class A | 2,292 | 181,962 | ||||||
Communications Equipment–1.66% |
| |||||||
Cisco Systems, Inc. | 28,222 | 784,995 | ||||||
F5 Networks, Inc.(b) | 405 | 52,838 | ||||||
Harris Corp. | 580 | 41,656 | ||||||
Juniper Networks, Inc. | 2,123 | 47,385 | ||||||
Motorola Solutions, Inc. | 1,168 | 78,349 | ||||||
QUALCOMM, Inc. | 9,184 | 682,647 | ||||||
1,687,870 | ||||||||
Computer & Electronics Retail–0.08% |
| |||||||
Best Buy Co., Inc. | 1,608 | 62,680 | ||||||
GameStop Corp.–Class A | 623 | 21,057 | ||||||
83,737 | ||||||||
Construction & Engineering–0.12% |
| |||||||
Fluor Corp. | 872 | 52,870 | ||||||
Jacobs Engineering Group, Inc.(b) | 719 | 32,132 | ||||||
Quanta Services, Inc.(b) | 1,206 | 34,238 | ||||||
119,240 | ||||||||
Construction Machinery & Heavy Trucks–0.59% | ||||||||
Caterpillar Inc. | 3,340 | 305,710 | ||||||
Cummins Inc. | 938 | 135,232 |
Shares | Value | |||||||
Construction Machinery & Heavy Trucks–(continued) | ||||||||
Joy Global Inc. | 538 | $ | 25,028 | |||||
PACCAR Inc. | 1,946 | 132,347 | ||||||
598,317 | ||||||||
Construction Materials–0.08% |
| |||||||
Martin Marietta Materials, Inc. | 335 | 36,957 | ||||||
Vulcan Materials Co. | 717 | 47,129 | ||||||
84,086 | ||||||||
Consumer Electronics–0.07% |
| |||||||
Garmin Ltd. | 672 | 35,502 | ||||||
Harman International Industries, Inc. | 372 | 39,696 | ||||||
75,198 | ||||||||
Consumer Finance–0.91% |
| |||||||
American Express Co. | 4,910 | 456,826 | ||||||
Capital One Financial Corp. | 3,078 | 254,089 | ||||||
Discover Financial Services | 2,501 | 163,791 | ||||||
Navient Corp. | 2,220 | 47,974 | ||||||
922,680 | ||||||||
Data Processing & Outsourced Services–1.96% |
| |||||||
Alliance Data Systems Corp.(b) | 354 | 101,262 | ||||||
Automatic Data Processing, Inc. | 2,659 | 221,681 | ||||||
Computer Sciences Corp. | 774 | 48,809 | ||||||
Fidelity National Information Services, Inc. | 1,565 | 97,343 | ||||||
Fiserv, Inc.(b) | 1,345 | 95,454 | ||||||
MasterCard, Inc.–Class A | 5,399 | 465,178 | ||||||
Paychex, Inc. | 1,793 | 82,783 | ||||||
Total System Services, Inc. | 906 | 30,768 | ||||||
Visa Inc.–Class A | 2,694 | 706,367 | ||||||
Western Union Co. (The) | 2,857 | 51,169 | ||||||
Xerox Corp. | 5,910 | 81,912 | ||||||
1,982,726 | ||||||||
Department Stores–0.25% |
| |||||||
Kohl’s Corp. | 1,113 | 67,938 | ||||||
Macy’s, Inc. | 1,904 | 125,188 | ||||||
Nordstrom, Inc. | 790 | 62,718 | ||||||
255,844 | ||||||||
Distillers & Vintners–0.16% |
| |||||||
Brown-Forman Corp.–Class B | 862 | 75,718 | ||||||
Constellation Brands, Inc.–Class A(b) | 919 | 90,218 | ||||||
165,936 | ||||||||
Distributors–0.09% |
| |||||||
Genuine Parts Co. | 850 | 90,584 | ||||||
Diversified Banks–5.09% | ||||||||
Bank of America Corp. | 58,042 | 1,038,371 | ||||||
Citigroup Inc. | 16,732 | 905,369 | ||||||
Comerica Inc. | 1,006 | 47,121 | ||||||
JPMorgan Chase & Co. | 20,634 | 1,291,276 | ||||||
U.S. Bancorp | 9,883 | 444,241 | ||||||
Wells Fargo & Co. | 26,060 | 1,428,609 | ||||||
5,154,987 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Diversified Chemicals–0.74% | ||||||||
Dow Chemical Co. (The) | 6,113 | $ | 278,814 | |||||
E. I. du Pont de Nemours and Co. | 4,999 | 369,626 | ||||||
Eastman Chemical Co. | 826 | 62,660 | ||||||
FMC Corp. | 730 | 41,632 | ||||||
752,732 | ||||||||
Diversified Metals & Mining–0.13% |
| |||||||
Freeport-McMoRan Inc. | 5,739 | 134,063 | ||||||
Diversified REIT’s–0.11% |
| |||||||
Vornado Realty Trust | 965 | 113,590 | ||||||
Diversified Support Services–0.04% |
| |||||||
Cintas Corp. | 534 | 41,887 | ||||||
Drug Retail–0.96% |
| |||||||
CVS Health Corp. | 6,326 | 609,257 | ||||||
Walgreens Boots Alliance, Inc. | 4,800 | 365,760 | ||||||
975,017 | ||||||||
Electric Utilities–1.84% |
| |||||||
American Electric Power Co., Inc. | 2,699 | 163,883 | ||||||
Duke Energy Corp. | 3,902 | 325,973 | ||||||
Edison International | 1,787 | 117,013 | ||||||
Entergy Corp. | 993 | 86,868 | ||||||
Exelon Corp. | 4,742 | 175,833 | ||||||
FirstEnergy Corp. | 2,326 | 90,691 | ||||||
NextEra Energy, Inc. | 2,408 | 255,946 | ||||||
Northeast Utilities | 1,750 | 93,660 | ||||||
Pepco Holdings, Inc. | 1,376 | 37,056 | ||||||
Pinnacle West Capital Corp. | 605 | 41,328 | ||||||
PPL Corp. | 3,644 | 132,386 | ||||||
Southern Co. (The) | 4,965 | 243,831 | ||||||
Xcel Energy, Inc. | 2,781 | 99,894 | ||||||
1,864,362 | ||||||||
Electrical Components & Equipment–0.56% |
| |||||||
AMETEK, Inc. | 1,358 | 71,471 | ||||||
Eaton Corp. PLC(b) | 2,610 | 177,376 | ||||||
Emerson Electric Co. | 3,828 | 236,302 | ||||||
Rockwell Automation, Inc. | 748 | 83,178 | ||||||
568,327 | ||||||||
Electronic Components–0.25% | ||||||||
Amphenol Corp.–Class A | 1,707 | 91,854 | ||||||
Corning Inc. | 7,119 | 163,238 | ||||||
255,092 | ||||||||
Electronic Equipment & Instruments–0.02% |
| |||||||
FLIR Systems, Inc. | 784 | 25,331 | ||||||
Electronic Manufacturing Services–0.14% |
| |||||||
TE Connectivity Ltd. (Switzerland) | 2,244 | 141,933 | ||||||
Environmental & Facilities Services–0.23% |
| |||||||
Republic Services, Inc. | 1,399 | 56,310 | ||||||
Stericycle, Inc.(b) | 468 | 61,345 |
Shares | Value | |||||||
Environmental & Facilities Services–(continued) | ||||||||
Waste Management, Inc. | 2,349 | $ | 120,551 | |||||
238,206 | ||||||||
Fertilizers & Agricultural Chemicals–0.47% |
| |||||||
CF Industries Holdings, Inc. | 274 | 74,676 | ||||||
Monsanto Co. | 2,670 | 318,985 | ||||||
Mosaic Co. (The) | 1,741 | 79,477 | ||||||
473,138 | ||||||||
Food Distributors–0.13% |
| |||||||
Sysco Corp. | 3,239 | 128,556 | ||||||
Food Retail–0.32% |
| |||||||
Kroger Co. (The) | 2,709 | 173,945 | ||||||
Safeway Inc. | 1,294 | 45,445 | ||||||
Whole Foods Market, Inc. | 2,002 | 100,941 | ||||||
320,331 | ||||||||
Footwear–0.37% |
| |||||||
NIKE, Inc.–Class B | 3,858 | 370,947 | ||||||
Gas Utilities–0.04% |
| |||||||
AGL Resources Inc. | 674 | 36,740 | ||||||
General Merchandise Stores–0.50% |
| |||||||
Dollar General Corp.(b) | 1,680 | 118,776 | ||||||
Dollar Tree, Inc.(b) | 1,127 | 79,318 | ||||||
Family Dollar Stores, Inc. | 524 | 41,506 | ||||||
Target Corp. | 3,514 | 266,748 | ||||||
506,348 | ||||||||
Gold–0.05% |
| |||||||
Newmont Mining Corp. | 2,725 | 51,503 | ||||||
Health Care Distributors–0.53% |
| |||||||
AmerisourceBergen Corp. | 1,145 | 103,233 | ||||||
Cardinal Health, Inc. | 1,825 | 147,332 | ||||||
McKesson Corp. | 1,278 | 265,287 | ||||||
Patterson Cos. Inc. | 466 | 22,415 | ||||||
538,267 | ||||||||
Health Care Equipment–2.18% | ||||||||
Abbott Laboratories | 8,309 | 374,071 | ||||||
Baxter International Inc. | 2,990 | 219,137 | ||||||
Becton, Dickinson and Co. | 1,058 | 147,231 | ||||||
Boston Scientific Corp.(b) | 7,309 | 96,844 | ||||||
C.R. Bard, Inc. | 412 | 68,648 | ||||||
CareFusion Corp.(b) | 1,124 | 66,698 | ||||||
Covidien PLC | 2,498 | 255,496 | ||||||
Edwards Lifesciences Corp.(b) | 589 | 75,027 | ||||||
Intuitive Surgical, Inc.(b) | 199 | 105,259 | ||||||
Medtronic, Inc. | 5,431 | 392,118 | ||||||
St. Jude Medical, Inc. | 1,574 | 102,357 | ||||||
Stryker Corp. | 1,640 | 154,701 | ||||||
Varian Medical Systems, Inc.(b) | 550 | 47,581 | ||||||
Zimmer Holdings, Inc. | 929 | 105,367 | ||||||
2,210,535 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Health Care Facilities–0.08% | ||||||||
Tenet Healthcare Corp.(b) | 548 | $ | 27,767 | |||||
Universal Health Services, Inc.–Class B | 504 | 56,075 | ||||||
83,842 | ||||||||
Health Care REIT’s–0.36% | ||||||||
HCP, Inc. | 2,539 | 111,792 | ||||||
Health Care REIT, Inc. | 1,807 | 136,736 | ||||||
Ventas, Inc. | 1,630 | 116,871 | ||||||
365,399 | ||||||||
Health Care Services–0.51% | ||||||||
DaVita HealthCare Partners Inc.(b) | 951 | 72,029 | ||||||
Express Scripts Holding Co.(b) | 4,049 | 342,829 | ||||||
Laboratory Corp. of America Holdings(b) | 469 | 50,605 | ||||||
Quest Diagnostics Inc. | 799 | 53,581 | ||||||
519,044 | ||||||||
Health Care Supplies–0.04% | ||||||||
DENTSPLY International Inc. | 777 | 41,391 | ||||||
Health Care Technology–0.11% | ||||||||
Cerner Corp.(b) | 1,682 | 108,758 | ||||||
Home Entertainment Software–0.08% | ||||||||
Electronic Arts Inc.(b) | 1,714 | 80,584 | ||||||
Home Furnishings–0.08% | ||||||||
Leggett & Platt, Inc. | 752 | 32,043 | ||||||
Mohawk Industries, Inc.(b) | 343 | 53,288 | ||||||
85,331 | ||||||||
Home Improvement Retail–1.12% | ||||||||
Home Depot, Inc. (The) | 7,272 | 763,342 | ||||||
Lowe’s Cos., Inc. | 5,368 | 369,318 | ||||||
1,132,660 | ||||||||
Homebuilding–0.13% | ||||||||
D.R. Horton, Inc. | 1,803 | 45,598 | ||||||
Lennar Corp.–Class A | 997 | 44,675 | ||||||
PulteGroup Inc. | 1,793 | 38,478 | ||||||
128,751 | ||||||||
Homefurnishing Retail–0.08% | ||||||||
Bed Bath & Beyond Inc.(b) | 1,015 | 77,313 | ||||||
Hotel and Resort REIT’s–0.10% | ||||||||
Host Hotels & Resorts Inc. | 4,187 | 99,525 | ||||||
Hotels, Resorts & Cruise Lines–0.41% | ||||||||
Carnival Corp. | 2,470 | 111,965 | ||||||
Marriott International Inc.–Class A | 1,171 | 91,373 | ||||||
Royal Caribbean Cruises Ltd. | 925 | 76,248 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 979 | 79,368 | ||||||
Wyndham Worldwide Corp. | 686 | 58,831 | ||||||
417,785 | ||||||||
Household Appliances–0.08% | ||||||||
Whirlpool Corp. | 429 | 83,114 |
Shares | Value | |||||||
Household Products–1.97% | ||||||||
Clorox Co. (The) | 706 | $ | 73,572 | |||||
Colgate-Palmolive Co. | 4,727 | 327,061 | ||||||
Kimberly-Clark Corp. | 2,050 | 236,857 | ||||||
Procter & Gamble Co. (The) | 14,912 | 1,358,334 | ||||||
1,995,824 | ||||||||
Housewares & Specialties–0.06% | ||||||||
Newell Rubbermaid Inc. | 1,495 | 56,945 | ||||||
Human Resource & Employment Services–0.04% | ||||||||
Robert Half International, Inc. | 754 | 44,019 | ||||||
Hypermarkets & Super Centers–1.08% | ||||||||
Costco Wholesale Corp. | 2,415 | 342,326 | ||||||
Wal-Mart Stores, Inc. | 8,716 | 748,530 | ||||||
1,090,856 | ||||||||
Independent Power Producers & Energy Traders–0.10% | ||||||||
AES Corp. (The) | 3,634 | 50,040 | ||||||
NRG Energy, Inc. | 1,852 | 49,912 | ||||||
99,952 | ||||||||
Industrial Conglomerates–2.32% | ||||||||
3M Co. | 3,535 | 580,871 | ||||||
Danaher Corp. | 3,373 | 289,100 | ||||||
General Electric Co.(d) | 55,425 | 1,400,590 | ||||||
Roper Industries, Inc. | 552 | 86,305 | ||||||
2,356,866 | ||||||||
Industrial Gases–0.40% | ||||||||
Air Products and Chemicals, Inc. | 1,060 | 152,884 | ||||||
Airgas, Inc. | 369 | 42,501 | ||||||
Praxair, Inc. | 1,601 | 207,426 | ||||||
402,811 | ||||||||
Industrial Machinery–0.78% | ||||||||
Dover Corp. | 921 | 66,054 | ||||||
Flowserve Corp. | 760 | 45,471 | ||||||
Illinois Tool Works Inc. | 1,984 | 187,885 | ||||||
Ingersoll-Rand PLC | 1,467 | 92,993 | ||||||
Pall Corp. | 591 | 59,815 | ||||||
Parker Hannifin Corp. | 824 | 106,255 | ||||||
Pentair PLC (United Kingdom) | 1,029 | 68,346 | ||||||
Snap-on Inc. | 326 | 44,577 | ||||||
Stanley Black & Decker Inc. | 864 | 83,013 | ||||||
Xylem, Inc. | 1,017 | 38,717 | ||||||
793,126 | ||||||||
Industrial REIT’s–0.12% | ||||||||
Prologis, Inc. | 2,769 | 119,150 | ||||||
Insurance Brokers–0.32% | ||||||||
Aon PLC | 1,572 | 149,073 | ||||||
Marsh & McLennan Cos., Inc. | 2,985 | 170,861 | ||||||
319,934 |
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 Oil & Gas–3.73% | ||||||||
Chevron Corp. | 10,432 | $ | 1,170,262 | |||||
Exxon Mobil Corp. | 23,370 | 2,160,556 | ||||||
Hess Corp. | 1,401 | 103,422 | ||||||
Occidental Petroleum Corp. | 4,276 | 344,688 | ||||||
3,778,928 | ||||||||
Integrated Telecommunication Services–2.19% | ||||||||
AT&T Inc. | 28,627 | 961,581 | ||||||
CenturyLink Inc. | 3,127 | 123,767 | ||||||
Frontier Communications Corp. | 5,549 | 37,012 | ||||||
Verizon Communications Inc. | 22,902 | 1,071,355 | ||||||
Windstream Holdings Inc. | 3,360 | 27,686 | ||||||
2,221,401 | ||||||||
Internet Retail–1.17% | ||||||||
Amazon.com, Inc.(b) | 2,097 | 650,804 | ||||||
Expedia, Inc. | 549 | 46,863 | ||||||
Netflix Inc.(b) | 331 | 113,073 | ||||||
Priceline Group Inc. (The)(b) | 287 | 327,240 | ||||||
TripAdvisor Inc.(b) | 615 | 45,916 | ||||||
1,183,896 | ||||||||
Internet Software & Services–3.21% | ||||||||
Akamai Technologies, Inc.(b) | 985 | 62,016 | ||||||
eBay Inc.(b) | 6,238 | 350,077 | ||||||
Facebook Inc.–Class A(b) | 11,539 | 900,273 | ||||||
Google Inc.–Class A(b) | 1,572 | 834,197 | ||||||
Google Inc.–Class C(b) | 1,570 | 826,448 | ||||||
VeriSign, Inc.(b) | 600 | 34,200 | ||||||
Yahoo! Inc.(b) | 4,861 | 245,529 | ||||||
3,252,740 | ||||||||
Investment Banking & Brokerage–0.98% | ||||||||
Charles Schwab Corp. (The) | 6,360 | 192,009 | ||||||
E*TRADE Financial Corp.(b) | 1,617 | 39,220 | ||||||
Goldman Sachs Group, Inc. (The) | 2,234 | 433,016 | ||||||
Morgan Stanley | 8,425 | 326,890 | ||||||
991,135 | ||||||||
IT Consulting & Other Services–1.32% | ||||||||
Accenture PLC–Class A | 3,462 | 309,191 | ||||||
Cognizant Technology Solutions Corp.–Class A(b) | 3,359 | 176,885 | ||||||
International Business Machines Corp. | 5,078 | 814,714 | ||||||
Teradata Corp.(b) | 858 | 37,478 | ||||||
1,338,268 | ||||||||
Leisure Products–0.09% | ||||||||
Hasbro, Inc. | 639 | 35,138 | ||||||
Mattel, Inc. | 1,879 | 58,146 | ||||||
93,284 | ||||||||
Life & Health Insurance–0.95% | ||||||||
Aflac, Inc. | 2,484 | 151,747 | ||||||
Lincoln National Corp. | 1,431 | 82,526 |
Shares | Value | |||||||
Life & Health Insurance–(continued) | ||||||||
MetLife, Inc. | 6,269 | $ | 339,090 | |||||
Principal Financial Group, Inc. | 1,515 | 78,689 | ||||||
Prudential Financial, Inc. | 2,523 | 228,231 | ||||||
Torchmark Corp. | 716 | 38,786 | ||||||
Unum Group | 1,389 | 48,448 | ||||||
967,517 | ||||||||
Life Sciences Tools & Services–0.43% | ||||||||
Agilent Technologies, Inc. | 1,846 | 75,575 | ||||||
PerkinElmer, Inc. | 626 | 27,375 | ||||||
Thermo Fisher Scientific, Inc. | 2,206 | 276,390 | ||||||
Waters Corp.(b) | 464 | 52,302 | ||||||
431,642 | ||||||||
Managed Health Care–1.15% | ||||||||
Aetna Inc. | 1,945 | 172,774 | ||||||
Anthem, Inc. | 1,488 | 186,997 | ||||||
Cigna Corp. | 1,446 | 148,808 | ||||||
Humana Inc. | 846 | 121,511 | ||||||
UnitedHealth Group Inc. | 5,296 | 535,373 | ||||||
1,165,463 | ||||||||
Metal & Glass Containers–0.08% | ||||||||
Ball Corp. | 754 | 51,400 | ||||||
Owens-Illinois, Inc.(b) | 935 | 25,236 | ||||||
76,636 | ||||||||
Motorcycle Manufacturers–0.08% | ||||||||
Harley-Davidson, Inc. | 1,181 | 77,840 | ||||||
Movies & Entertainment–1.73% | ||||||||
Time Warner Inc. | 4,626 | 395,153 | ||||||
Twenty-First Century Fox, Inc.–Class A | 10,230 | 392,883 | ||||||
Viacom Inc.–Class B | 2,037 | 153,284 | ||||||
Walt Disney Co. (The) | 8,609 | 810,882 | ||||||
1,752,202 | ||||||||
Multi-Line Insurance–0.64% | ||||||||
American International Group, Inc. | 7,712 | 431,949 | ||||||
Assurant, Inc. | 402 | 27,509 | ||||||
Genworth Financial Inc.–Class A(b) | 2,726 | 23,171 | ||||||
Hartford Financial Services Group, Inc. (The) | 2,380 | 99,222 | ||||||
Loews Corp. | 1,651 | 69,375 | ||||||
651,226 | ||||||||
Multi-Sector Holdings–1.53% | ||||||||
Berkshire Hathaway Inc.–Class B(b) | 10,063 | 1,510,960 | ||||||
Leucadia National Corp. | 1,782 | 39,952 | ||||||
1,550,912 | ||||||||
Multi-Utilities–1.24% | ||||||||
Ameren Corp. | 1,344 | 61,999 | ||||||
CenterPoint Energy, Inc. | 2,381 | 55,787 | ||||||
CMS Energy Corp. | 1,514 | 52,612 | ||||||
Consolidated Edison, Inc. | 1,622 | 107,068 | ||||||
Dominion Resources, Inc. | 3,221 | 247,695 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Multi-Utilities–(continued) | ||||||||
DTE Energy Co. | 980 | $ | 84,643 | |||||
Integrys Energy Group, Inc. | 438 | 34,098 | ||||||
NiSource Inc. | 1,744 | 73,980 | ||||||
PG&E Corp. | 2,621 | 139,542 | ||||||
Public Service Enterprise Group Inc. | 2,775 | 114,913 | ||||||
SCANA Corp. | 779 | 47,052 | ||||||
Sempra Energy | 1,267 | 141,093 | ||||||
TECO Energy, Inc. | 1,311 | 26,862 | ||||||
Wisconsin Energy Corp. | 1,249 | 65,872 | ||||||
1,253,216 | ||||||||
Office REIT’s–0.11% | ||||||||
Boston Properties, Inc. | 847 | 109,000 | ||||||
Office Services & Supplies–0.03% | ||||||||
Pitney Bowes Inc. | 1,122 | 27,343 | ||||||
Oil & Gas Drilling–0.17% | ||||||||
Diamond Offshore Drilling, Inc. | 390 | 14,317 | ||||||
Ensco PLC–Class A | 1,294 | 38,755 | ||||||
Helmerich & Payne, Inc. | 598 | 40,317 | ||||||
Nabors Industries Ltd. | 1,603 | 20,807 | ||||||
Noble Corp. PLC | 1,429 | 23,679 | ||||||
Transocean Ltd. | 1,885 | 34,552 | ||||||
172,427 | ||||||||
Oil & Gas Equipment & Services–1.18% | ||||||||
Baker Hughes Inc. | 2,386 | 133,783 | ||||||
Cameron International Corp.(b) | 1,088 | 54,346 | ||||||
FMC Technologies, Inc.(b) | 1,302 | 60,986 | ||||||
Halliburton Co. | 4,665 | 183,474 | ||||||
National Oilwell Varco Inc. | 2,377 | 155,765 | ||||||
Schlumberger Ltd. | 7,111 | 607,350 | ||||||
1,195,704 | ||||||||
Oil & Gas Exploration & Production–1.98% | ||||||||
Anadarko Petroleum Corp. | 2,794 | 230,505 | ||||||
Apache Corp. | 2,076 | 130,103 | ||||||
Cabot Oil & Gas Corp. | 2,278 | 67,452 | ||||||
Chesapeake Energy Corp. | 2,902 | 56,792 | ||||||
Cimarex Energy Co. | 481 | 50,986 | ||||||
ConocoPhillips | 6,792 | 469,056 | ||||||
Denbury Resources Inc. | 1,950 | 15,853 | ||||||
Devon Energy Corp. | 2,124 | 130,010 | ||||||
EOG Resources, Inc. | 3,023 | 278,328 | ||||||
EQT Corp. | 840 | 63,588 | ||||||
Marathon Oil Corp. | 3,699 | 104,645 | ||||||
Murphy Oil Corp. | 924 | 46,680 | ||||||
Newfield Exploration Co.(b) | 754 | 20,448 | ||||||
Noble Energy, Inc. | 1,990 | 94,386 | ||||||
Pioneer Natural Resources Co. | 820 | 122,057 | ||||||
QEP Resources Inc. | 917 | 18,542 | ||||||
Range Resources Corp. | 933 | 49,869 | ||||||
Southwestern Energy Co.(b) | 1,956 | 53,379 | ||||||
2,002,679 |
Shares | Value | |||||||
Oil & Gas Refining & Marketing–0.55% | ||||||||
Marathon Petroleum Corp. | 1,553 | $ | 140,174 | |||||
Phillips 66 | 3,065 | 219,760 | ||||||
Tesoro Corp. | 703 | 52,268 | ||||||
Valero Energy Corp. | 2,896 | 143,352 | ||||||
555,554 | ||||||||
Oil & Gas Storage & Transportation–0.74% | ||||||||
Kinder Morgan Inc. | 9,377 | 396,741 | ||||||
ONEOK, Inc. | 1,151 | 57,308 | ||||||
Spectra Energy Corp. | 3,680 | 133,584 | ||||||
Williams Cos., Inc. (The) | 3,711 | 166,772 | ||||||
754,405 | ||||||||
Packaged Foods & Meats–1.42% | ||||||||
Campbell Soup Co. | 990 | 43,560 | ||||||
ConAgra Foods, Inc. | 2,333 | 84,641 | ||||||
General Mills, Inc. | 3,331 | 177,642 | ||||||
Hershey Co. (The) | 826 | 85,846 | ||||||
Hormel Foods Corp. | 736 | 38,346 | ||||||
JM Smucker Co. (The) | 558 | 56,347 | ||||||
Kellogg Co. | 1,390 | 90,962 | ||||||
Keurig Green Mountain Inc. | 674 | 89,234 | ||||||
Kraft Foods Group, Inc. | 3,257 | 204,084 | ||||||
McCormick & Co., Inc. | 722 | 53,645 | ||||||
Mead Johnson Nutrition Co. | 1,119 | 112,504 | ||||||
Mondelez International Inc.–Class A | 9,248 | 335,933 | ||||||
Tyson Foods, Inc.–Class A | 1,629 | 65,307 | ||||||
1,438,051 | ||||||||
Paper Packaging–0.12% | ||||||||
Avery Dennison Corp. | 501 | 25,992 | ||||||
MeadWestvaco Corp. | 929 | 41,238 | ||||||
Sealed Air Corp. | 1,176 | 49,898 | ||||||
117,128 | ||||||||
Paper Products–0.12% | ||||||||
International Paper Co. | 2,341 | 125,431 | ||||||
Personal Products–0.12% | ||||||||
Avon Products, Inc. | 2,409 | 22,621 | ||||||
Estee Lauder Cos. Inc. (The)–Class A | 1,246 | 94,945 | ||||||
117,566 | ||||||||
Pharmaceuticals–6.21% | ||||||||
AbbVie Inc. | 8,792 | 575,349 | ||||||
Actavis PLC(b) | 1,461 | 376,076 | ||||||
Allergan, Inc. | 1,643 | 349,285 | ||||||
Bristol-Myers Squibb Co. | 9,154 | 540,361 | ||||||
Eli Lilly and Co. | 5,393 | 372,063 | ||||||
Hospira, Inc.(b) | 925 | 56,656 | ||||||
Johnson & Johnson | 15,448 | 1,615,397 | ||||||
Mallinckrodt PLC(b) | 640 | 63,379 | ||||||
Merck & Co., Inc. | 15,724 | 892,966 | ||||||
Mylan Inc.(b) | 2,070 | 116,686 | ||||||
Perrigo Co. PLC | 775 | 129,549 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Pharmaceuticals–(continued) | ||||||||
Pfizer Inc. | 34,784 | $ | 1,083,522 | |||||
Zoetis Inc. | 2,749 | 118,289 | ||||||
6,289,578 | ||||||||
Property & Casualty Insurance–0.86% | ||||||||
ACE Ltd. | 1,829 | $ | 210,116 | |||||
Allstate Corp. (The) | 2,313 | 162,488 | ||||||
Chubb Corp. (The) | 1,300 | 134,511 | ||||||
Cincinnati Financial Corp. | 807 | 41,827 | ||||||
Progressive Corp. (The) | 2,951 | 79,647 | ||||||
Travelers Cos., Inc. (The) | 1,828 | 193,494 | ||||||
XL Group PLC | 1,423 | 48,908 | ||||||
870,991 | ||||||||
Publishing–0.08% | ||||||||
Gannett Co., Inc. | 1,256 | 40,104 | ||||||
News Corp.–Class A(b) | 2,750 | 43,148 | ||||||
83,252 | ||||||||
Railroads–1.03% | ||||||||
CSX Corp. | 5,492 | 198,975 | ||||||
Kansas City Southern | 610 | 74,438 | ||||||
Norfolk Southern Corp. | 1,706 | 186,995 | ||||||
Union Pacific Corp. | 4,906 | 584,452 | ||||||
1,044,860 | ||||||||
Real Estate Services–0.05% | ||||||||
CBRE Group, Inc.–Class A(b) | 1,530 | 52,402 | ||||||
Regional Banks–0.94% | ||||||||
BB&T Corp. | 3,974 | 154,549 | ||||||
Fifth Third Bancorp | 4,511 | 91,912 | ||||||
Huntington Bancshares Inc. | 4,467 | 46,993 | ||||||
KeyCorp | 4,828 | 67,109 | ||||||
M&T Bank Corp. | 727 | 91,326 | ||||||
PNC Financial Services Group, Inc. (The) | 2,903 | 264,841 | ||||||
Regions Financial Corp. | 7,635 | 80,625 | ||||||
SunTrust Banks, Inc. | 2,877 | 120,546 | ||||||
Zions Bancorp. | 1,149 | 32,758 | ||||||
950,659 | ||||||||
Research & Consulting Services–0.16% | ||||||||
Dun & Bradstreet Corp. (The) | 200 | 24,192 | ||||||
Equifax Inc. | 667 | 53,940 | ||||||
Nielsen N.V. | 1,786 | 79,888 | ||||||
158,020 | ||||||||
Residential REIT’s–0.36% | ||||||||
Apartment Investment & Management Co.–Class A | 829 | 30,797 | ||||||
AvalonBay Communities, Inc. | 726 | 118,621 | ||||||
Equity Residential | 1,999 | 143,608 | ||||||
Essex Property Trust, Inc. | 351 | 72,517 | ||||||
365,543 |
Shares | Value | |||||||
Restaurants–1.16% | ||||||||
Chipotle Mexican Grill, Inc.(b) | 171 | $ | 117,051 | |||||
Darden Restaurants, Inc. | 725 | 42,507 | ||||||
McDonald’s Corp. | 5,370 | 503,169 | ||||||
Starbucks Corp. | 4,120 | 338,046 | ||||||
Yum! Brands, Inc. | 2,411 | 175,641 | ||||||
1,176,414 | ||||||||
Retail REIT’s–0.52% | ||||||||
General Growth Properties, Inc. | 3,479 | 97,864 | ||||||
Kimco Realty Corp. | 2,247 | 56,490 | ||||||
Macerich Co. (The) | 778 | 64,893 | ||||||
Simon Property Group, Inc. | 1,714 | 312,136 | ||||||
531,383 | ||||||||
Security & Alarm Services–0.13% | ||||||||
ADT Corp. (The) | 964 | 34,926 | ||||||
Tyco International PLC | 2,295 | 100,670 | ||||||
135,596 | ||||||||
Semiconductor Equipment–0.30% | ||||||||
Applied Materials, Inc. | 6,745 | 168,085 | ||||||
KLA-Tencor Corp. | 918 | 64,554 | ||||||
Lam Research Corp. | 876 | 69,502 | ||||||
302,141 | ||||||||
Semiconductors–2.13% | ||||||||
Altera Corp. | 1,681 | 62,096 | ||||||
Analog Devices, Inc. | 1,716 | 95,272 | ||||||
Avago Technologies Ltd. (Singapore) | 1,394 | 140,222 | ||||||
Broadcom Corp.–Class A | 2,950 | 127,824 | ||||||
First Solar, Inc.(b) | 415 | 18,507 | ||||||
Intel Corp. | 26,684 | 968,362 | ||||||
Linear Technology Corp. | 1,310 | 59,736 | ||||||
Microchip Technology Inc.(b) | 1,098 | 49,531 | ||||||
Micron Technology, Inc.(b) | 5,923 | 207,364 | ||||||
NVIDIA Corp. | 2,854 | 57,223 | ||||||
Texas Instruments Inc. | 5,829 | 311,648 | ||||||
Xilinx, Inc. | 1,458 | 63,117 | ||||||
2,160,902 | ||||||||
Soft Drinks–1.89% | ||||||||
Coca-Cola Co. (The) | 21,756 | 918,538 | ||||||
Coca-Cola Enterprises, Inc. | 1,226 | 54,214 | ||||||
Dr Pepper Snapple Group, Inc. | 1,069 | 76,626 | ||||||
Monster Beverage Corp.(b) | 796 | 86,247 | ||||||
PepsiCo, Inc. | 8,256 | 780,687 | ||||||
1,916,312 | ||||||||
Specialized Consumer Services–0.05% | ||||||||
H&R Block, Inc. | 1,541 | 51,901 | ||||||
Specialized Finance–0.54% | ||||||||
CME Group Inc.–Class A | 1,746 | 154,783 | ||||||
Intercontinental Exchange, Inc. | 621 | 136,179 | ||||||
McGraw Hill Financial, Inc. | 1,497 | 133,203 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Shares | Value | |||||||
Specialized Finance–(continued) | ||||||||
Moody’s Corp. | 1,018 | $ | 97,535 | |||||
NASDAQ OMX Group, Inc. (The) | 651 | 31,222 | ||||||
552,922 | ||||||||
Specialized REIT’s–0.68% | ||||||||
American Tower Corp. | 2,187 | 216,185 | ||||||
Crown Castle International Crop. | 1,831 | 144,099 | ||||||
Iron Mountain Inc. | 1,036 | 40,052 | ||||||
Plum Creek Timber Co., Inc. | 995 | 42,576 | ||||||
Public Storage | 795 | 146,956 | ||||||
Weyerhaeuser Co. | 2,917 | 104,691 | ||||||
694,559 | ||||||||
Specialty Chemicals–0.58% | ||||||||
Ecolab Inc. | 1,489 | 155,630 | ||||||
International Flavors & Fragrances Inc. | 444 | 45,004 | ||||||
PPG Industries, Inc. | 755 | 174,518 | ||||||
Sherwin-Williams Co. (The) | 449 | 118,105 | ||||||
Sigma-Aldrich Corp. | 657 | 90,187 | ||||||
583,444 | ||||||||
Specialty Stores–0.23% | ||||||||
PetSmart, Inc. | 548 | 44,550 | ||||||
Staples, Inc. | 3,562 | 64,543 | ||||||
Tiffany & Co. | 625 | 66,788 | ||||||
Tractor Supply Co. | 749 | 59,036 | ||||||
234,917 | ||||||||
Steel–0.11% | ||||||||
Allegheny Technologies, Inc. | 612 | 21,279 | ||||||
Nucor Corp. | 1,764 | 86,524 | ||||||
107,803 | ||||||||
Systems Software–3.10% | ||||||||
CA, Inc. | 1,766 | 53,775 | ||||||
Microsoft Corp. | 45,494 | 2,113,196 | ||||||
Oracle Corp. | 17,840 | 802,265 | ||||||
Red Hat, Inc.(b) | 1,048 | 72,459 | ||||||
Symantec Corp. | 3,822 | 98,053 | ||||||
3,139,748 | ||||||||
Technology Hardware, Storage & Peripherals–4.70% | ||||||||
Apple Inc. | 32,368 | 3,572,780 | ||||||
EMC Corp. | 11,230 | 333,980 |
Shares | Value | |||||||
Technology Hardware, Storage & Peripherals–(continued) | ||||||||
Hewlett-Packard Co. | 10,299 | $ | 413,299 | |||||
NetApp, Inc. | 1,719 | 71,253 | ||||||
SanDisk Corp. | 1,216 | 119,144 | ||||||
Seagate Technology PLC | 1,809 | 120,298 | ||||||
Western Digital Corp. | 1,205 | 133,393 | ||||||
4,764,147 | ||||||||
Thrifts & Mortgage Finance–0.05% | ||||||||
Hudson City Bancorp, Inc. | 2,625 | 26,565 | ||||||
People’s United Financial Inc. | 1,687 | 25,609 | ||||||
52,174 | ||||||||
Tires & Rubber–0.04% | ||||||||
Goodyear Tire & Rubber Co. (The) | 1,509 | 43,112 | ||||||
Tobacco–1.45% | ||||||||
Altria Group, Inc. | 10,907 | 537,388 | ||||||
Lorillard, Inc. | 1,975 | 124,307 | ||||||
Philip Morris International Inc. | 8,563 | 697,456 | ||||||
Reynolds American Inc. | 1,690 | 108,616 | ||||||
1,467,767 | ||||||||
Trading Companies & Distributors–0.21% | ||||||||
Fastenal Co. | 1,512 | 71,911 | ||||||
United Rentals, Inc.(b) | 549 | 56,003 | ||||||
W.W. Grainger, Inc. | 336 | 85,643 | ||||||
213,557 | ||||||||
Trucking–0.03% | ||||||||
Ryder System, Inc. | 293 | 27,205 | ||||||
Total Common Stocks & Other Equity Interests |
| 100,682,630 | ||||||
Money Market Funds–0.67% |
| |||||||
Liquid Assets Portfolio–Institutional Class(e) | 341,184 | 341,184 | ||||||
Premier Portfolio–Institutional Class(e) | 341,185 | 341,185 | ||||||
Total Money Market Funds |
| 682,369 | ||||||
TOTAL INVESTMENTS–100.01% |
| 101,364,999 | ||||||
OTHER ASSETS LESS LIABILITIES–(0.01)% |
| (13,103 | ) | |||||
NET ASSETS–100.00% |
| $ | 101,351,896 |
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. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $38,296,782) | $ | 100,587,901 | ||
Investments in affiliates, at value (Cost $741,211) | 777,098 | |||
Total investments, at value (Cost $39,037,993) | 101,364,999 | |||
Receivable for: | ||||
Investments sold | 1,415 | |||
Dividends | 135,215 | |||
Investment for trustee deferred compensation and retirement plans | 28,905 | |||
Other assets | 608 | |||
Total assets | 101,531,142 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 33,276 | |||
Variation margin — futures | 9,403 | |||
Accrued fees to affiliates | 66,874 | |||
Accrued trustees’ and officers’ fees and benefits | 515 | |||
Accrued other operating expenses | 32,990 | |||
Trustee deferred compensation and retirement plans | 36,188 | |||
Total liabilities | 179,246 | |||
Net assets applicable to shares outstanding | $ | 101,351,896 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 33,265,697 | ||
Undistributed net investment income | 1,302,221 | |||
Undistributed net realized gain | 4,464,411 | |||
Net unrealized appreciation | 62,319,567 | |||
$ | 101,351,896 | |||
Net Assets: |
| |||
Series I | $ | 37,685,265 | ||
Series II | $ | 63,666,631 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 2,034,897 | |||
Series II | 3,455,098 | |||
Series I: | ||||
Net asset value per share | $ | 18.52 | ||
Series II: | ||||
Net asset value per share | $ | 18.43 |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $347) | $ | 2,035,723 | ||
Dividends from affiliates | 2,818 | |||
Total investment income | 2,038,541 | |||
Expenses: |
| |||
Advisory fees | 120,311 | |||
Administrative services fees | 155,672 | |||
Custodian fees | 28,067 | |||
Distribution fees — Series II | 159,678 | |||
Transfer agent fees | 4,336 | |||
Trustees’ and officers’ fees and benefits | 24,514 | |||
Professional services fees | 41,525 | |||
Other | 40,116 | |||
Total expenses | 574,219 | |||
Less: Fees waived | (1,366 | ) | ||
Net expenses | 572,853 | |||
Net investment income | 1,465,688 | |||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain from: | ||||
Investment securities | 8,911,972 | |||
Futures contracts | 206,212 | |||
9,118,184 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 1,664,372 | |||
Futures contracts | (10,194 | ) | ||
1,654,178 | ||||
Net realized and unrealized gain | 10,772,362 | |||
Net increase in net assets resulting from operations | $ | 12,238,050 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. S&P 500 Index Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,465,688 | $ | 1,494,942 | ||||
Net realized gain | 9,118,184 | 9,659,017 | ||||||
Change in net unrealized appreciation | 1,654,178 | 16,800,311 | ||||||
Net increase in net assets resulting from operations | 12,238,050 | 27,954,270 | ||||||
Distributions to shareholders from net investment income: |
| |||||||
Series I | (686,694 | ) | (706,162 | ) | ||||
Series ll | (1,015,390 | ) | (1,145,321 | ) | ||||
Total distributions from net investment income | (1,702,084 | ) | (1,851,483 | ) | ||||
Share transactions–net: |
| |||||||
Series l | (3,051,108 | ) | (4,736,982 | ) | ||||
Series ll | (10,779,798 | ) | (14,010,408 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (13,830,906 | ) | (18,747,390 | ) | ||||
Net increase (decrease) in net assets | (3,294,940 | ) | 7,355,397 | |||||
Net assets: |
| |||||||
Beginning of year | 104,646,836 | 97,291,439 | ||||||
End of year (includes undistributed net investment income of $1,302,221 and $1,520,936, respectively) | $ | 101,351,896 | $ | 104,646,836 |
Notes to Financial Statements
December 31, 2014
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 trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. S&P 500 Index Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security 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 ask 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 net investment 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. S&P 500 Index Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.12%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $1,366.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $105,672 for services provided by insurance companies.
Invesco V.I. S&P 500 Index Fund
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 | $ | 101,364,999 | $ | — | $ | — | $ | 101,364,999 | ||||||||
Futures* | (7,439 | ) | — | — | (7,439 | ) | ||||||||||
Total Investments | $ | 101,357,560 | $ | — | $ | — | $ | 101,357,560 |
* | 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 December 31, 2014:
Value | ||||||||
Risk Exposure/Derivative Type | Assets | Liabilities | ||||||
Equity risk: | ||||||||
Futures contracts(a) | $ | — | $ | (7,439 | ) |
(a) | Includes cumulative appreciation (depreciation) of futures contracts. Only current day’s variation margin receivable (payable) is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Investments for the year ended December 31, 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 | $ | 206,212 | ||
Change in Unrealized Appreciation (Depreciation): | ||||
Equity risk | (10,194 | ) | ||
Total | $ | 196,018 |
Invesco V.I. S&P 500 Index Fund
The table below summarizes the average notional value of futures contracts outstanding during the period.
Futures Contracts | ||||
Average notional value | $ | 1,050,800 |
Open Futures Contracts | ||||||||||||||||||||
Futures Contracts | Type of Contract | Number of Contracts | Expiration Month | Notional Value | Unrealized Appreciation (Depreciation) | |||||||||||||||
E-Mini S&P 500 Index | Long | 7 | March-2015 | $ | 718,340 | $ | (7,439 | ) |
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 year ended December 31, 2014.
Value 12/31/13 | Purchases at Cost | Proceeds from Sales | Change in Unrealized Appreciation | Realized Gain | Value 12/31/14 | Dividend Income | ||||||||||||||||||||||
Invesco Ltd. | $ | 101,410 | $ | — | $ | (13,827 | ) | $ | 3,333 | $ | 3,813 | $ | 94,729 | $ | 2,446 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 1,702,084 | $ | 1,851,483 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 1,330,413 | ||
Undistributed long-term gain | 8,296,593 | |||
Net unrealized appreciation — investments | 58,492,594 | |||
Temporary book/tax differences | (33,401 | ) | ||
Shares of beneficial interest | 33,265,697 | |||
Total net assets | $ | 101,351,896 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. S&P 500 Index Fund
The Fund utilized $454,992 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 9—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $3,317,446 and $16,992,249, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 59,119,288 | ||
Aggregate unrealized (depreciation) of investment securities | (626,694 | ) | ||
Net unrealized appreciation of investment securities | $ | 58,492,594 |
Cost of investments for tax purposes is $42,872,405.
NOTE 10—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trust distributions, on December 31, 2014, undistributed net investment income was increased by $17,681 and undistributed net realized gain was decreased by $17,681. This reclassification had no effect on the net assets of the Fund.
NOTE 11—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 94,973 | $ | 1,667,562 | 48,401 | $ | 717,236 | ||||||||||
Series II | 336,901 | 5,906,132 | 324,206 | 4,648,129 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 39,005 | 686,494 | 46,336 | 706,162 | ||||||||||||
Series II | 57,956 | 1,015,390 | 75,449 | 1,145,321 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (310,830 | ) | (5,405,164 | ) | (414,240 | ) | (6,160,380 | ) | ||||||||
Series II | (1,029,367 | ) | (17,701,320 | ) | (1,351,173 | ) | (19,803,858 | ) | ||||||||
Net increase (decrease) in share activity | (811,362 | ) | $ | (13,830,906 | ) | (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 88% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Fund has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. |
Invesco V.I. S&P 500 Index Fund
NOTE 12—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 16.66 | $ | 0.28 | $ | 1.92 | $ | 2.20 | $ | (0.34 | ) | $ | 18.52 | 13.32 | % | $ | 37,685 | 0.41 | %(d) | 0.41 | %(d) | 1.62 | %(d) | 3 | % | |||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 16.58 | 0.24 | 1.90 | 2.14 | (0.29 | ) | 18.43 | 13.02 | 63,667 | 0.66 | (d) | 0.66 | (d) | 1.37 | (d) | 3 | ||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable, and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $36,388 and $63,871 for Series I and Series II shares, respectively. |
Invesco V.I. S&P 500 Index Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and Shareholders of Invesco V.I. S&P 500 Index Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. S&P 500 Index Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. S&P 500 Index Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,059.40 | $ | 2.13 | $ | 1,023.14 | $ | 2.09 | 0.41 | % | ||||||||||||
Series II | 1,000.00 | 1,057.50 | 3.42 | 1,021.88 | 3.36 | 0.66 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. S&P 500 Index Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 100 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. S&P 500 Index Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. S&P 500 Index Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. S&P 500 Index Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. S&P 500 Index Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. S&P 500 Index Fund
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Annual Report to Shareholders
| December 31, 2014 | |||
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Invesco V.I. Small Cap Equity Fund
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VISCE-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Small Cap Equity Fund had positive returns, but underperformed its style-specific benchmark, the Russell 2000 Index. The Fund outperformed its style-specific benchmark in the energy, materials and information technology (IT) sectors, but underperformed in the health care, financials and industrials sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower.
Series I Shares | 2.36 | % | |||
Series II Shares | 2.08 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 2000 Index‚ (Style-Specific Index) | 4.89 | ||||
Lipper VUF Small-Cap Core Funds Indexn (Peer Group Index) | 4.07 |
Source(s): ‚FactSet Research Systems Inc.; nLipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in
mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
During the reporting period, the Fund navigated this environment well, posting a positive return, though it trailed its style-specific benchmark. The Fund outperformed its style-specific benchmark in several sectors due to positive stock selection decisions, including the energy, materials and IT sectors. These contributions to the Fund were offset by underperformance in other areas, especially in the health care, financials and industrials sectors.
The area of greatest challenge for the Fund was the health care sector. Many small-cap biotechnology companies own unproven drugs which have yet to make a profit. Based on drug trials that are impossible to forecast and the market’s ever-changing appetite for riskier stocks,
prices for small-cap biotechnology stocks can be significantly impacted in a positive or negative way. The Fund targets higher quality companies, so in order to prudently manage these volatile stocks, we set very high hurdles before investing in bio-technology companies, which often leads to a modest underweight position in these companies relative to the Fund’s style-specific index. During the reporting period, biotechnology stocks generally outperformed, so our underweight position hurt the Fund’s relative performance. The sector’s holdings that underperformed included Medicines Company. In early February, an FDA panel voted not to approve one of the company’s new drugs, and shortly afterwards a patent trial opened the door for an eventual generic competition to its primary drug. We sold our position in the company during the reporting period. Additionally, PharMerica pulled back as litigation with the company’s largest supplier cast uncertainty over its future earnings.
The Fund also modestly under-performed its style-specific benchmark in the financials sector, due mostly to an underweight exposure to real estate investment trusts, which outperformed during the year as the economy continued to recover and interest rates remained favorable throughout the year.
The Fund outperformed its style-specific benchmark by the widest margin in the energy sector. In the fall, the impact of unexpected new oil supply and decreased global demand hit oil markets simultaneously. As commodity prices tumbled, energy stocks fell and energy was the worst-performing sector of the style-specific index by a wide margin. Despite modest overweight exposure to this troubled sector, the Fund was able to outperform as the Fund’s energy stocks held up better than
Portfolio Composition | |||||
By sector
| |||||
Information Technology | 19.4 | % | |||
Industrials | 18.9 | ||||
Financials | 16.9 | ||||
Consumer Discretionary | 15.6 | ||||
Health Care | 15.1 | ||||
Materials | 5.6 | ||||
Energy | 4.4 | ||||
Consumer Staples | 1.8 | ||||
Utilities | 1.2 | ||||
Money Market Funds | |||||
Plus Other Assets Less Liabilities | 1.1 |
Top 10 Equity Holdings*
| |||||
1. Cray, Inc. | 1.6 | % | |||
2. Graphic Packaging Holding Co. | 1.5 | ||||
3. Old Dominion Freight Line, Inc. | 1.5 | ||||
4. Papa John’s International, Inc. | 1.4 | ||||
5. Jones Lang LaSalle Inc. | 1.3 | ||||
6. Integrated Device Technology, Inc. | 1.3 | ||||
7. Heartland Express, Inc. | 1.3 | ||||
8. SS&C Technologies Holdings, Inc. | 1.3 | ||||
9. Sonic Corp. | 1.3 | ||||
10. Impax Laboratories, Inc. | 1.3 |
Top Five Industries*
| |||||
1. Regional Banks | 6.3 | % | |||
2. Restaurants | 6.1 | ||||
3. Application Software | 5.4 | ||||
4. Trucking | 5.0 | ||||
5. Semiconductors | 4.1 |
Total Net Assets | $349.5 million | |||||||||
Total Number of Holdings* | 101 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Small Cap Equity Fund
those of the style-specific index. Additionally, significant contributors to the Fund included Targa Resources, which was sold during the year after it appreciated on strong earnings and unconfirmed acquisition rumors. Dresser Rand Group also benefited performance and was sold for substantial gains during the year.
Fund positioning did not change significantly during the year, and is based on a disciplined investment process, which keeps the portfolio diversified across industry groups and uses rigorous fundamental research to identify attractive individual stocks.
As we’ve discussed, the stock market experienced positive performance during the reporting period. However, stocks remained volatile and we caution investors against making investment decisions based on short-term performance.
We thank you for your commitment to Invesco V.I. Small Cap Equity Fund.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Juliet Ellis Chartered Financial Analyst, Portfolio Manager and chief investment officer of Invesco’s domestic | ||
growth investments team, is lead manager of Invesco V.I. Small Cap Equity Fund. She joined Invesco in 2004. Ms. Ellis earned a BA in economics and political science from Indiana University. | ||
Juan Hartsfield Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Small Cap Equity Fund. He | ||
joined Invesco in 2004. Mr. Hartsfield earned a BS in petroleum engineering from The University of Texas at Austin and an MBA from the University of Michigan. |
Invesco V.I. Small Cap Equity Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (8/29/03) | 9.63 | % | |||
10 Years | 8.57 | ||||
5 Years | 15.38 | ||||
1 Year | 2.36 | ||||
Series II Shares | |||||
Inception (8/29/03) | 9.37 | % | |||
10 Years | 8.30 | ||||
5 Years | 15.09 | ||||
1 Year | 2.08 |
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
Invesco V.I. Small Cap Equity Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks. The Russell 2000 Index is a trademark/service mark of the Frank Russell Co. Russell® is a trademark of the Frank Russell Co.
The Lipper VUF Small-Cap Core Funds Index is an unmanaged index considered representative of small-cap core variable insurance underlying funds tracked by Lipper.
The 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Small Cap Equity Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.89% |
| |||||||
Apparel Retail–0.90% | ||||||||
ANN Inc.(b) | 86,523 | $ | 3,156,359 | |||||
Apparel, Accessories & Luxury Goods–1.24% | ||||||||
Columbia Sportswear Co. | 97,603 | 4,347,238 | ||||||
Application Software–5.41% | ||||||||
Bottomline Technologies (de), Inc.(b) | 103,714 | 2,621,890 | ||||||
Cadence Design Systems, Inc.(b) | 208,457 | 3,954,429 | ||||||
MicroStrategy Inc.–Class A(b) | 25,893 | 4,205,023 | ||||||
SS&C Technologies Holdings, Inc. | 78,193 | 4,573,509 | ||||||
Verint Systems Inc.(b) | 60,906 | 3,549,602 | ||||||
18,904,453 | ||||||||
Asset Management & Custody Banks–1.23% | ||||||||
Janus Capital Group Inc. | 266,800 | 4,303,484 | ||||||
Automobile Manufacturers–1.01% | ||||||||
Thor Industries, Inc. | 63,130 | 3,527,073 | ||||||
Automotive Retail–1.16% | ||||||||
Penske Automotive Group, Inc. | 82,213 | 4,034,192 | ||||||
Biotechnology–0.85% | ||||||||
AMAG Pharmaceuticals, Inc.(b) | 69,600 | 2,966,352 | ||||||
Broadcasting–0.95% | ||||||||
Nexstar Broadcasting Group, Inc.– | 64,334 | 3,331,858 | ||||||
Building Products–2.20% | ||||||||
Apogee Enterprises, Inc. | 99,203 | 4,203,231 | ||||||
Trex Co., Inc.(b) | 81,832 | 3,484,407 | ||||||
7,687,638 | ||||||||
Communications Equipment–1.77% | ||||||||
ARRIS Group Inc.(b) | 121,997 | 3,683,089 | ||||||
Finisar Corp.(b) | 129,663 | 2,516,759 | ||||||
6,199,848 | ||||||||
Construction & Engineering–1.92% | ||||||||
Dycom Industries, Inc.(b) | 109,452 | 3,840,671 | ||||||
Primoris Services Corp. | 123,615 | 2,872,812 | ||||||
6,713,483 | ||||||||
Construction Materials–0.92% | ||||||||
Eagle Materials Inc. | 42,340 | 3,219,110 | ||||||
Data Processing & Outsourced Services–1.13% | ||||||||
Jack Henry & Associates, Inc. | 63,526 | 3,947,506 | ||||||
Diversified REIT’s–0.87% | ||||||||
Cousins Properties, Inc. | 267,300 | 3,052,566 | ||||||
Diversified Support Services–1.07% | ||||||||
Mobile Mini, Inc. | 92,146 | 3,732,834 |
Shares | Value | |||||||
Electrical Components & Equipment–1.17% | ||||||||
EnerSys | 66,474 | $ | 4,102,775 | |||||
Electronic Components–1.01% | ||||||||
Belden Inc. | 44,934 | 3,541,249 | ||||||
Electronic Equipment & Instruments–1.55% | ||||||||
Coherent, Inc.(b) | 46,858 | 2,845,218 | ||||||
FEI Co. | 28,526 | 2,577,324 | ||||||
5,422,542 | ||||||||
Electronic Manufacturing Services–0.28% | ||||||||
Sanmina Corp.(b) | 41,644 | 979,883 | ||||||
Environmental & Facilities Services–1.91% | ||||||||
Team, Inc.(b) | 78,791 | 3,187,884 | ||||||
Waste Connections, Inc. | 79,057 | 3,477,717 | ||||||
6,665,601 | ||||||||
Food Distributors–0.92% | ||||||||
United Natural Foods, Inc.(b) | 41,343 | 3,196,848 | ||||||
Gas Utilities–1.23% | ||||||||
UGI Corp. | 112,961 | 4,290,259 | ||||||
Health Care Distributors–0.44% | ||||||||
PharMerica Corp.(b) | 74,700 | 1,547,037 | ||||||
Health Care Equipment–2.85% | ||||||||
Globus Medical, Inc.–Class A(b) | 146,295 | 3,477,432 | ||||||
Hill-Rom Holdings, Inc. | 78,266 | 3,570,495 | ||||||
Wright Medical Group, Inc.(b) | 108,135 | 2,905,588 | ||||||
9,953,515 | ||||||||
Health Care Facilities–2.15% | ||||||||
Community Health Systems Inc.(b) | 59,044 | 3,183,652 | ||||||
LifePoint Hospitals, Inc.(b) | 60,356 | 4,340,200 | ||||||
7,523,852 | ||||||||
Health Care Services–1.01% | ||||||||
Team Health Holdings, Inc.(b) | 61,299 | 3,526,531 | ||||||
Health Care Supplies–1.76% | ||||||||
Alere, Inc.(b) | 101,210 | 3,845,980 | ||||||
Haemonetics Corp.(b) | 61,924 | 2,317,196 | ||||||
6,163,176 | ||||||||
Health Care Technology–0.97% | ||||||||
HMS Holdings Corp.(b) | 160,481 | 3,392,568 | ||||||
Home Furnishings–0.93% | ||||||||
La-Z-Boy Inc. | 121,156 | 3,251,827 | ||||||
Homebuilding–0.93% | ||||||||
Beazer Homes USA, Inc.(b) | 168,035 | 3,253,158 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Homefurnishing Retail–0.54% | ||||||||
Pier 1 Imports, Inc. | 121,821 | $ | 1,876,043 | |||||
Hotel and Resort REIT’s–1.02% | ||||||||
LaSalle Hotel Properties | 87,788 | 3,552,780 | ||||||
Industrial Machinery–3.97% | ||||||||
Albany International Corp.–Class A | 98,269 | 3,733,239 | ||||||
Rexnord Corp.(b) | 118,483 | 3,342,405 | ||||||
TriMas Corp.(b) | 95,330 | 2,982,876 | ||||||
Watts Water Technologies, Inc.–Class A | 60,104 | 3,812,998 | ||||||
13,871,518 | ||||||||
Internet Software & Services–0.34% | ||||||||
SciQuest, Inc.(b) | 81,621 | 1,179,423 | ||||||
Investment Banking & Brokerage–2.17% | ||||||||
E*TRADE Financial Corp.(b) | 175,785 | 4,263,665 | ||||||
Evercore Partners Inc.–Class A | 63,180 | 3,308,737 | ||||||
7,572,402 | ||||||||
IT Consulting & Other Services–1.19% | ||||||||
CACI International Inc.–Class A(b) | 48,284 | 4,161,115 | ||||||
Life & Health Insurance–1.03% | ||||||||
StanCorp Financial Group, Inc. | 51,263 | 3,581,233 | ||||||
Life Sciences Tools & Services–3.06% | ||||||||
Affymetrix, Inc.(b) | 168,381 | 1,661,921 | ||||||
Bio-Techne Corp. | 38,261 | 3,535,316 | ||||||
Charles River Laboratories International, Inc.(b) | 55,650 | 3,541,566 | ||||||
ICON PLC (Ireland)(b) | 38,508 | 1,963,523 | ||||||
10,702,326 | ||||||||
Multi-Line Insurance–1.03% | ||||||||
American Financial Group, Inc. | 59,419 | 3,607,922 | ||||||
Office Services & Supplies–0.60% | ||||||||
Pitney Bowes Inc. | 86,140 | 2,099,232 | ||||||
Oil & Gas Drilling–0.24% | ||||||||
Precision Drilling Corp. (Canada) | 139,291 | 844,103 | ||||||
Oil & Gas Equipment & Services–1.41% | ||||||||
Forum Energy Technologies Inc.(b) | 102,414 | 2,123,042 | ||||||
Helix Energy Solutions Group Inc.(b) | 129,058 | 2,800,559 | ||||||
4,923,601 | ||||||||
Oil & Gas Exploration & Production–0.88% | ||||||||
Rosetta Resources, Inc.(b) | 52,882 | 1,179,797 | ||||||
Ultra Petroleum Corp.(b)(c) | 145,212 | 1,910,990 | ||||||
3,090,787 | ||||||||
Oil & Gas Storage & Transportation–1.86% | ||||||||
Scorpio Tankers Inc. (Monaco) | 375,473 | 3,262,860 | ||||||
SemGroup Corp.–Class A | 47,066 | 3,218,844 | ||||||
6,481,704 |
Shares | Value | |||||||
Packaged Foods & Meats–0.83% | ||||||||
TreeHouse Foods, Inc.(b) | 33,882 | $ | 2,897,927 | |||||
Paper Packaging–1.52% | ||||||||
Graphic Packaging Holding Co.(b) | 390,388 | 5,317,085 | ||||||
Pharmaceuticals–2.00% | ||||||||
Endo International PLC(b) | 36,338 | 2,620,696 | ||||||
Impax Laboratories, Inc.(b) | 137,995 | 4,371,682 | ||||||
6,992,378 | ||||||||
Real Estate Services–2.34% | ||||||||
Jones Lang LaSalle Inc. | 31,370 | 4,703,304 | ||||||
Kennedy-Wilson Holdings Inc. | 137,919 | 3,489,351 | ||||||
8,192,655 | ||||||||
Regional Banks–6.27% | ||||||||
CVB Financial Corp. | 218,515 | 3,500,611 | ||||||
East West Bancorp, Inc. | 98,566 | 3,815,490 | ||||||
Glacier Bancorp, Inc. | 132,856 | 3,689,411 | ||||||
IBERIABANK Corp. | 52,839 | 3,426,609 | ||||||
PacWest Bancorp | 76,172 | 3,462,779 | ||||||
Western Alliance Bancorp(b) | 144,599 | 4,019,852 | ||||||
21,914,752 | ||||||||
Restaurants–6.07% | ||||||||
Brinker International, Inc. | 64,712 | 3,797,947 | ||||||
Cracker Barrel Old Country Store, Inc. | 30,227 | 4,254,753 | ||||||
Papa John’s International, Inc. | 84,921 | 4,738,592 | ||||||
Red Robin Gourmet Burgers Inc.(b) | 52,228 | 4,020,250 | ||||||
Sonic Corp. | 161,706 | 4,403,254 | ||||||
21,214,796 | ||||||||
Semiconductor Equipment–1.00% | ||||||||
Entegris Inc.(b) | 263,243 | 3,477,440 | ||||||
Semiconductors–4.05% | ||||||||
Fairchild Semiconductor International, Inc.(b) | 178,241 | 3,008,708 | ||||||
Integrated Device Technology, Inc.(b) | 238,766 | 4,679,814 | ||||||
Intersil Corp.–Class A | 240,148 | 3,474,942 | ||||||
Power Integrations, Inc. | 57,726 | 2,986,743 | ||||||
14,150,207 | ||||||||
Specialized REIT’s–0.96% | ||||||||
Geo Group Inc. (The) | 82,885 | 3,345,239 | ||||||
Specialty Chemicals–2.22% | ||||||||
Minerals Technologies Inc. | 61,009 | 4,237,075 | ||||||
PolyOne Corp. | 93,256 | 3,535,335 | ||||||
7,772,410 | ||||||||
Specialty Stores–1.91% | ||||||||
GNC Holdings, Inc.–Class A | 61,324 | 2,879,775 | ||||||
Michaels Cos., Inc. (The)(b) | 152,752 | 3,777,557 | ||||||
6,657,332 | ||||||||
Steel–0.97% | ||||||||
Haynes International, Inc. | 69,647 | 3,377,880 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Shares | Value | |||||||
Technology Distributors–1.04% | ||||||||
Tech Data Corp.(b) | 57,197 | $ | 3,616,566 | |||||
Technology Hardware, Storage & Peripherals–1.62% | ||||||||
Cray, Inc.(b) | 164,561 | 5,674,063 | ||||||
Trucking–5.01% | ||||||||
Celadon Group, Inc. | 155,640 | 3,531,472 | ||||||
Heartland Express, Inc. | 169,396 | 4,575,386 | ||||||
Landstar System, Inc. | 59,173 | 4,291,818 | ||||||
Old Dominion Freight Line, Inc.(b) | 65,665 | 5,098,230 | ||||||
17,496,906 | ||||||||
Total Common Stocks & Other Equity Interests |
| 345,576,640 | ||||||
Money Market Funds–0.42% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 735,738 | 735,738 | ||||||
Premier Portfolio–Institutional Class(d) | 735,737 | 735,737 | ||||||
Total Money Market Funds |
| 1,471,475 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.31% (Cost $271,465,898) |
| 347,048,115 |
Shares | Value | |||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–0.59% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $2,060,790)(d)(e) | 2,060,790 | $ | 2,060,790 | |||||
TOTAL INVESTMENTS–99.90% |
| 349,108,905 | ||||||
OTHER ASSETS LESS LIABILITIES–0.10% |
| 359,605 | ||||||
NET ASSETS–100.00% |
| $ | 349,468,510 |
Investment Abbreviations:
REIT | – Real Estate Investment Trust |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at December 31, 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 December 31, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
Brown Brothers Harriman | $ | 2,007,993 | $ | (2,007,993 | ) | $ | — |
* | Amount does not include excess collateral received. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $269,994,423)* | $ | 345,576,640 | ||
Investments in affiliated money market funds, at value and cost | 3,532,265 | |||
Total investments, at value (Cost $273,526,688) | 349,108,905 | |||
Receivable for: | ||||
Investments sold | 3,023,456 | |||
Fund shares sold | 141,838 | |||
Dividends | 163,377 | |||
Investment for trustee deferred compensation and retirement plans | 73,135 | |||
Other assets | 863 | |||
Total assets | 352,511,574 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 240,050 | |||
Fund shares reacquired | 318,115 | |||
Collateral upon return of securities loaned | 2,060,790 | |||
Accrued fees to affiliates | 302,846 | |||
Accrued trustees’ and officers’ fees and benefits | 540 | |||
Accrued other operating expenses | 39,480 | |||
Trustee deferred compensation and retirement plans | 81,243 | |||
Total liabilities | 3,043,064 | |||
Net assets applicable to shares outstanding | $ | 349,468,510 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 209,911,328 | ||
Undistributed net investment income (loss) | (75,503 | ) | ||
Undistributed net realized gain | 64,050,468 | |||
Net unrealized appreciation | 75,582,217 | |||
$ | 349,468,510 | |||
Net Assets: |
| |||
Series I | $ | 203,963,430 | ||
Series II | $ | 145,505,080 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 8,628,974 | |||
Series II | 6,334,008 | |||
Series I: | ||||
Net asset value per share | $ | 23.64 | ||
Series II: | ||||
Net asset value per share | $ | 22.97 |
* | At December 31, 2014, securities with an aggregate value of $2,007,993 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $8,420) | $ | 3,124,251 | ||
Dividends from affiliated money market funds (includes securities lending income of $47,844) | 49,372 | |||
Total investment income | 3,173,623 | |||
Expenses: | ||||
Advisory fees | 2,671,091 | |||
Administrative services fees | 952,818 | |||
Custodian fees | 27,611 | |||
Distribution fees — Series II | 339,931 | |||
Transfer agent fees | 44,057 | |||
Trustees’ and officers’ fees and benefits | 28,235 | |||
Other | 72,645 | |||
Total expenses | 4,136,388 | |||
Less: Fees waived | (5,899 | ) | ||
Net expenses | 4,130,489 | |||
Net investment income (loss) | (956,866 | ) | ||
Realized and unrealized gain (loss) from: | ||||
Net realized gain from investment securities (includes net gains from securities sold to affiliates of $1,601,885) | 64,529,783 | |||
Change in net unrealized appreciation (depreciation) of investment securities | (57,506,374 | ) | ||
Net realized and unrealized gain | 7,023,409 | |||
Net increase in net assets resulting from operations | $ | 6,066,543 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Small Cap Equity Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: |
| |||||||
Net investment income (loss) | $ | (956,866 | ) | $ | (839,814 | ) | ||
Net realized gain | 64,529,783 | 32,663,306 | ||||||
Change in net unrealized appreciation (depreciation) | (57,506,374 | ) | 73,797,391 | |||||
Net increase in net assets resulting from operations | 6,066,543 | 105,620,883 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | — | (18,704 | ) | |||||
Distributions to shareholders from net realized gains: | ||||||||
Series l | (18,790,735 | ) | (2,245,454 | ) | ||||
Series ll | (12,734,891 | ) | (1,170,993 | ) | ||||
Total distributions from net realized gains | (31,525,626 | ) | (3,416,447 | ) | ||||
Share transactions–net: | ||||||||
Series l | (42,863,057 | ) | (13,141,327 | ) | ||||
Series ll | 21,003,451 | 19,081,654 | ||||||
Net increase (decrease) in net assets resulting from share transactions | (21,859,606 | ) | 5,940,327 | |||||
Net increase (decrease) in net assets | (47,318,689 | ) | 108,126,059 | |||||
Net assets: | ||||||||
Beginning of year | 396,787,199 | 288,661,140 | ||||||
End of year (includes undistributed net investment income (loss) of $(75,503) and $(69,251), respectively) | $ | 349,468,510 | $ | 396,787,199 |
Notes to Financial Statements
December 31, 2014
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 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. Small Cap 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 ask 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 net investment 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. Small Cap 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. |
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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.74%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $5,899.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by
Invesco V.I. Small Cap Equity Fund
the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $87,976 for accounting and fund administrative services and reimbursed $864,842 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 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 December 31, 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 year ended December 31, 2014, the Fund engaged in securities sales of $9,715,599, which resulted in net realized gains of $1,601,885.
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.
Invesco V.I. Small Cap Equity Fund
NOTE 7—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 1,316,012 | $ | 18,704 | ||||
Long-term capital gain | 30,209,614 | 3,416,447 | ||||||
Total distributions | $ | 31,525,626 | $ | 3,435,151 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed long-term gain | 64,405,109 | |||
Net unrealized appreciation — investments | 75,227,576 | |||
Temporary book/tax differences | (75,503 | ) | ||
Shares of beneficial interest | 209,911,328 | |||
Total net assets | $ | 349,468,510 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $159,886,900 and $212,436,352, 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 | $ | 89,311,366 | ||
Aggregate unrealized (depreciation) of investment securities | (14,083,790 | ) | ||
Net unrealized appreciation of investment securities | $ | 75,227,576 |
Cost of investments for tax purposes is $273,881,329.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of Real Estate Investment Trust distributions and net operating losses, on December 31, 2014, undistributed net investment income (loss) was increased by $950,614, undistributed net realized gain was increased by $212,253 and shares of beneficial interest was decreased by $1,162,867. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Small Cap Equity Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 1,165,408 | $ | 28,150,006 | 2,964,453 | $ | 66,823,332 | ||||||||||
Series II | 1,811,699 | 42,473,210 | 1,547,577 | 33,492,296 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 855,680 | 18,790,735 | 97,551 | 2,264,158 | ||||||||||||
Series II | 596,203 | 12,734,891 | 51,608 | 1,170,993 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,700,234 | ) | (89,803,798 | ) | (3,750,878 | ) | (82,228,817 | ) | ||||||||
Series II | (1,486,845 | ) | (34,204,650 | ) | (725,014 | ) | (15,581,635 | ) | ||||||||
Net increase (decrease) in share activity | (758,089 | ) | $ | (21,859,606 | ) | 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 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. |
NOTE 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 25.44 | $ | (0.04 | ) | $ | 0.47 | $ | 0.43 | $ | — | $ | (2.23 | ) | $ | (2.23 | ) | $ | 23.64 | 2.36 | % | $ | 203,963 | 1.05 | %(d) | 1.05 | %(d) | (0.17 | )%(d) | 45 | % | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 24.85 | (0.10 | ) | 0.45 | 0.35 | — | (2.23 | ) | (2.23 | ) | 22.97 | 2.08 | 145,505 | 1.30 | (d) | 1.30 | (d) | (0.42 | )(d) | 45 | ||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $224,794 and $135,972 for Series I and Series II shares, respectively. |
Invesco V.I. Small Cap Equity Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
and Shareholders of Invesco V.I. Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Small Cap Equity Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Small Cap Equity Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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.
The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return.
The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
Class | Beginning Account Value (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,023.20 | $ | 5.35 | $ | 1,019.91 | $ | 5.35 | 1.05 | % | ||||||||||||
Series II | 1,000.00 | 1,021.70 | 6.62 | 1,018.65 | 6.61 | 1.30 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Small Cap Equity Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 30,209,614 | ||
Corporate Dividends Received Deduction* | 0 | % | ||
U.S. Treasury Obligations* | 0 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Small Cap Equity Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Small Cap Equity Fund
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Annual Report to Shareholders
| December 31, 2014 | |||
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Invesco V.I. Technology Fund
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The Fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the lists appear in the Fund’s semiannual and annual reports to shareholders. For the first and third quarters, the Fund files the lists with the Securities and Exchange Commission (SEC) on Form N-Q. The Fund’s Form N-Q filings are available on the SEC website, sec.gov. Copies of the Fund’s Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C. You can obtain information on the operation of the Public Reference Room, including information about duplicating fee charges, by calling 202 551 8090 or 800 732 0330, or by electronic request at the following email address: publicinfo@sec.gov. The SEC file numbers for the Fund are 811-07452 and 033-57340. The Fund’s most recent portfolio holdings, as filed on Form N-Q, have also been made available to insurance companies issuing variable annuity contracts and variable life insurance policies (“variable products”) that invest in the Fund. A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, from our Client Services department at 800 959 4246 or at invesco.com/proxyguidelines. The information is also available on the SEC website, sec.gov. Information regarding how the Fund voted proxies related to its portfolio securities during the most recent 12-month period ended June 30 is available at invesco.com/ proxysearch. The information is also available on the SEC website, sec.gov. Invesco Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. I-VITEC-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Technology Fund outperformed the Bank of America Merrill Lynch 100 Technology Index (price only), the Fund’s style-specific index, primarily as a result of security selection in the technology hardware, storage and peripherals industry, along with the semiconductors and communications equipment industries. An allocation to the biotechnology industry was another key contributor to Fund performance.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 11.05 | % | |||
Series II Shares | 10.82 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Bank of America Merrill Lynch 100 Technology Index (price only)¢ | |||||
(Style-Specific Index) | 10.73 | ||||
Lipper VUF Science and Technology Funds Classification Average¿ (Peer Group) | 12.22 | ||||
Source(s): ‚FactSet Research Systems Inc.; ¢Bloomberg LP; ¿Lipper Inc. |
Market conditions and your Fund
Broad US equity markets enjoyed strong returns for the year ended December 31, 2014, buoyed by strong economic growth in the US and worldwide investor demand for US equities. The information technology (IT) sector was among the leading sectors during the year. Diverging trends in economic growth and monetary policy prospects across the globe became more established in 2014. The US and UK remained on their generally positive trajectory, with further improvements noted in labor markets and domestic demand. Towards the end of the year, US gross domestic product growth surpassed expectations, posting the highest level of growth in five years. Conversely, weakness in Continental Europe, the return of recessionary conditions in Japan, moderating growth in Australia and concerns over the growth path for China provided evidence of more challenging conditions. The deflationary impact from
lower oil prices offered the US Federal Reserve (Fed) scope to suggest that the zero rate for Fed funds will continue for a longer period. US bond yields moved lower during the year. Additionally, more deliberate guidance from the European Central Bank regarding the prospects for quantitative easing in 2015 had the same effect on European bond yields.
During the reporting period, the S&P 500 Index rose to new heights, delivering strong returns for broad equity markets. Volatility in the market was fairly low for the year, however, spiked in October and December given steep declines in crude oil prices and the resulting selloff in energy equities. The energy sector was the only sector to produce losses for the year. The telecommunications services, materials, consumer discretionary and industrials sectors were also market laggards, yet produced positive returns. Market leading sectors included the utilities, health care and IT sectors.
On an absolute basis, the Fund experienced the greatest benefit from holdings in the following industries: semiconductors, biotechnology, communications equipment and technology hardware, storage and peripherals. Holdings in the software and wireless telecommunication services industries, however, detracted from Fund performance during the year.
On a relative basis, the Fund outperformed its style-specific index primarily as a result of security selection decisions. Specifically, security selection was a contributor to performance in the following industries: semiconductors, communications equipment and technology hardware, storage and peripherals. The Fund also benefited from allocation in the biotechnology industry, which the style-specific benchmark lacked. Relative detractors from performance included security selection in the software and an out-of-index allocation in the wireless telecommunication services industries.
Top contributors to absolute performance for the year were Apple and Facebook. Apple benefited from its recent product launch of the iPhone 6 and iPhone 6S, while Facebook benefited from increased mobile users and, correspondingly, increased mobile advertising revenues.
Top detractors from absolute performance for the year were Sprint and Monitise. Sprint came under pressure as investor hopes for a strategic merger were put on hold and news of a pricing restructure threatened to impact near-term revenues. Monitise, a world leader in banking and money transactions with a mobile device, failed to meet its internal targets during the year, but made progress with strategic partnerships which could pave the way for potential future growth.
Portfolio Composition By sector
| |||||
Information Technology | 66.6 | % | |||
Health Care | 19.8 | ||||
Consumer Discretionary | 10.7 | ||||
Telecommunication Services | 1.1 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 1.8 |
Top 10 Equity Holdings*
| |||||
1. Apple Inc. | 6.2 | % | |||
2. Facebook Inc.-Class A | 6.2 | ||||
3. NXP Semiconductors N.V. | 4.4 | ||||
4. MasterCard, Inc.-Class A | 4.3 | ||||
5. salesforce.com, inc. | 4.2 | ||||
6. Micron Technology, Inc. | 4.0 | ||||
7. Celgene Corp. | 3.8 | ||||
8. DISH Network Corp.-Class A | 3.6 | ||||
9. Google Inc.-Class A | 3.2 | ||||
10. Amgen Inc. | 2.9 |
Top Five Industries*
| |||||
1. Semiconductors | 15.7 | % | |||
2. Internet Software & Services | 14.6 | ||||
3. Biotechnology | 12.4 | ||||
4. Data Processing & Outsourced Services | 8.6 | ||||
5. Communications Equipment | 7.1 |
Total Net Assets | $109.3 million | ||||
Total Number of Holdings* | 42 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Technology Fund
Please note that the Fund had a portfolio management change during the reporting period. Erik Voss was named lead portfolio manager and Janet Luby was named portfolio manager effective February 28, 2014. Fund changes during the year were primarily due to the portfolio manager change, as well as a desire to reduce the number of Fund holdings and expand the breadth of investments somewhat.
Previously, the Fund held 65 to 70 individual stocks. However, we intend to reduce that number eventually to approximately 40 to 50 as opportunities arise. Additionally, the qualified universe expanded to include stocks in the areas of health care technology, telecommunications and consumer technology, which gives the Fund an opportunity to participate in a wider range of long-term secular themes that are poised to shape technology today and in the future. For example, recently added health care investments, particularly biotechnology stocks, have exposure to the increased pace of innovation in the health care sector. This acceleration has benefited from technology advancements such as the successful mapping of the human genome and life sciences/analytical tools innovation, which allows for faster and more targeted approaches to drug discovery and development.
While the previous management team had a free cash flow valuation bias, we are taking a more holistic approach by using a variety of techniques to value stocks two to three years from now. We believe this will allow us to select market leaders that are best able to capitalize on the secular themes we have identified.
We attempt to harness multi-year secular trends, which we believe may benefit long-term investors regardless of near-term economic strength. We see modest but resilient US growth, a more advanced recovery and competitive advantages for industrial development when compared to the rest of the world.
Even with the market’s significant rise during the reporting period, at the close of the year, valuations appeared to be in line with previous market recovery cycles, and we believed investors were finally developing confidence in longer-term growth opportunities. Though we are optimistic that economic growth and investment in growth prospects appeared solid, we balanced the dynamic growth opportunities with exposure to more durable and defensive growth opportunities.
At the close of the reporting period, we remained optimistic about IT spending in general, which is
40%1 reliant on US trends. We believed that business confidence was poised to improve with expanding hiring and increased investment. Companies with strong balance sheets started to invest in new disruptive technologies such as cloud, mobile, security and new data architectures, which we believed were likely to continue to drive spending. At the same time, many categories reached maturity and may be in low growth or declining revenue-harvest mode. Substitution, cord cutting and tech deflation represent risks to many of these companies. We’re focused on identifying what we believe are category leaders and companies poised to take market share.
As always, we thank you for your continued investment in Invesco V.I. Technology Fund.
1 | International Strategy & Investment |
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Erik Voss Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Technology Fund. | ||
He joined Invesco in 2010. Mr. Voss earned a BS in mathematics and an MS in finance from the University of Wisconsin. |
Janet Luby Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Technology Fund. | ||
She joined Invesco in 2011. Ms. Luby earned a BBA in finance from Texas A&M University. She is also a Certified Public Accountant. |
Invesco V.I. Technology Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment — Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (5/20/97) | 5.02 | % | |||
10 Years | 6.58 | ||||
5 Years | 12.24 | ||||
1 Year | 11.05 | ||||
Series II Shares | |||||
Inception (4/30/04) | 7.00 | % | |||
10 Years | 6.32 | ||||
5 Years | 11.97 | ||||
1 Year | 10.82 |
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
Invesco V.I. Technology Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs,
delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Growth investing risk. Growth stocks tend to be more expensive relative to their earnings or assets compared with other types of stock. As a result they tend to be more sensitive to changes in their earnings and can be more volatile.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Mid-capitalization risk. Stocks of mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Sector fund risk. The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile than non-concentrated funds.
Technology sector risk. The Fund will concentrate its investments in the securities of issuers primarily engaged in technology-related industries. 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.
About indexes used in this report
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 and Technology Funds Classification Average represents an average of all variable insurance underlying funds in the Lipper Science and 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.
Other information
CPA® and Certified Public Accountant® are trademarks owned by the American Institute of Certified Public Accountants.
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Technology Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–98.21% |
| |||||||
Application Software–6.12% |
| |||||||
Monitise PLC (United Kingdom)(b)(c) | 3,497,707 | $ | 1,359,737 | |||||
salesforce.com, inc.(b) | 77,317 | 4,585,671 | ||||||
Splunk Inc.(b) | 12,713 | 749,431 | ||||||
6,694,839 | ||||||||
Biotechnology–12.43% |
| |||||||
Alkermes PLC(b) | 49,298 | 2,886,891 | ||||||
Amgen Inc. | 19,986 | 3,183,570 | ||||||
Biogen Idec Inc.(b) | 5,057 | 1,716,599 | ||||||
Celgene Corp.(b) | 36,804 | 4,116,895 | ||||||
Gilead Sciences, Inc.(b) | 17,906 | 1,687,819 | ||||||
13,591,774 | ||||||||
Cable & Satellite–5.23% |
| |||||||
DISH Network Corp.–Class A(b) | 53,673 | 3,912,225 | ||||||
Time Warner Cable Inc. | 11,893 | 1,808,450 | ||||||
5,720,675 | ||||||||
Communications Equipment–7.13% |
| |||||||
F5 Networks, Inc.(b) | 17,800 | 2,322,277 | ||||||
Palo Alto Networks, Inc.(b) | 21,207 | 2,599,342 | ||||||
QUALCOMM, Inc. | 38,650 | 2,872,855 | ||||||
7,794,474 | ||||||||
Consumer Electronics–2.11% |
| |||||||
Harman International Industries, Inc. | 21,638 | 2,308,991 | ||||||
Data Processing & Outsourced Services–8.60% |
| |||||||
Alliance Data Systems Corp.(b) | 9,582 | 2,740,931 | ||||||
MasterCard, Inc.–Class A | 54,051 | 4,657,034 | ||||||
Visa Inc.–Class A | 7,629 | 2,000,324 | ||||||
9,398,289 | ||||||||
Home Entertainment Software–0.87% |
| |||||||
Activision Blizzard, Inc. | 47,368 | 954,465 | ||||||
Internet Retail–3.38% |
| |||||||
Amazon.com, Inc.(b) | 5,132 | 1,592,716 | ||||||
Priceline Group Inc. (The)(b) | 1,841 | 2,099,127 | ||||||
3,691,843 | ||||||||
Internet Software & Services–14.57% |
| |||||||
Alibaba Group Holding Ltd.–ADR | 20,689 | 2,150,415 | ||||||
Facebook Inc.–Class A(b) | 86,398 | 6,740,772 | ||||||
Google Inc.–Class A(b) | 6,608 | 3,506,601 | ||||||
Google Inc.–Class C(b) | 4,101 | 2,158,767 | ||||||
Yelp Inc.(b) | 25,010 | 1,368,797 | ||||||
15,925,352 | ||||||||
Life Sciences Tools & Services–1.82% |
| |||||||
Thermo Fisher Scientific, Inc. | 15,881 | 1,989,730 |
Shares | Value | |||||||
Pharmaceuticals–5.55% |
| |||||||
AbbVie Inc. | 21,236 | $ | 1,389,684 | |||||
Actavis PLC(b) | 10,488 | 2,699,716 | ||||||
Bristol-Myers Squibb Co. | 33,548 | 1,980,338 | ||||||
6,069,738 | ||||||||
Semiconductor Equipment–1.54% |
| |||||||
Applied Materials, Inc. | 67,375 | 1,678,985 | ||||||
Semiconductors–15.73% |
| |||||||
ARM Holdings PLC–ADR (United Kingdom) | 11,732 | 543,192 | ||||||
Avago Technologies Ltd. (Singapore) | 29,548 | 2,972,233 | ||||||
Micron Technology, Inc.(b) | 124,810 | 4,369,598 | ||||||
NXP Semiconductors N.V. (Netherlands)(b) | 62,407 | 4,767,895 | ||||||
ON Semiconductor Corp.(b) | 109,215 | 1,106,348 | ||||||
Skyworks Solutions, Inc. | 29,916 | 2,175,192 | ||||||
Texas Instruments Inc. | 23,638 | 1,263,806 | ||||||
17,198,264 | ||||||||
Systems Software–5.78% |
| |||||||
Check Point Software Technologies Ltd. (Israel)(b) | 13,899 | 1,092,044 | ||||||
ServiceNow, Inc.(b) | 44,555 | 3,023,057 | ||||||
VMware, Inc.–Class A(b) | 26,757 | 2,207,988 | ||||||
6,323,089 | ||||||||
Technology Hardware, Storage & Peripherals–6.21% |
| |||||||
Apple Inc. | 61,532 | 6,791,902 | ||||||
Wireless Telecommunication Services–1.14% |
| |||||||
Sprint Corp.(b) | 299,466 | 1,242,784 | ||||||
Total Common Stocks & Other Equity Interests |
| 107,375,194 | ||||||
Money Market Funds–1.97% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 1,078,808 | 1,078,808 | ||||||
Premier Portfolio–Institutional | 1,078,808 | 1,078,808 | ||||||
Total Money Market Funds |
| 2,157,616 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–100.18% |
| 109,532,810 | ||||||
Investments Purchased with Cash Collateral from Securities on Loan |
| |||||||
Money Market Funds–1.08% | ||||||||
Liquid Assets Portfolio–Institutional Class | 1,180,476 | 1,180,476 | ||||||
TOTAL INVESTMENTS–101.26% |
| 110,713,286 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.26)% |
| (1,382,078 | ) | |||||
NET ASSETS–100.00% |
| $ | 109,331,208 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology 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 December 31, 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 December 31, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 1,032,515 | $ | (1,032,515 | ) | $ | — |
* | Amount does not include excess collateral received. |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Assets and Liabilities
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: | ||||
Investments, at value (Cost $75,465,194)* | $ | 107,375,194 | ||
Investments in affiliated money market funds, at value and cost | 3,338,092 | |||
Total investments, at value (Cost $78,803,286) | 110,713,286 | |||
Foreign currencies, at value (Cost $1,495) | 1,474 | |||
Receivable for: | ||||
Fund shares sold | 12,000 | |||
Dividends | 14,877 | |||
Investment for trustee deferred compensation and retirement plans | 65,801 | |||
Total assets | 110,807,438 | |||
Liabilities: |
| |||
Payable for: | ||||
Fund shares reacquired | 119,203 | |||
Collateral upon return of securities loaned | 1,180,476 | |||
Accrued fees to affiliates | 72,235 | |||
Accrued trustees’ and officers’ fees and benefits | 445 | |||
Accrued other operating expenses | 32,415 | |||
Trustee deferred compensation and retirement plans | 71,456 | |||
Total liabilities | 1,476,230 | |||
Net assets applicable to shares outstanding | $ | 109,331,208 | ||
Net assets consist of: |
| |||
Shares of beneficial interest | $ | 66,421,533 | ||
Undistributed net investment income (loss) | (65,409 | ) | ||
Undistributed net realized gain | 11,065,105 | |||
Net unrealized appreciation | 31,909,979 | |||
$ | 109,331,208 | |||
Net Assets: |
| |||
Series I | $ | 104,556,295 | ||
Series II | $ | 4,774,913 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 5,293,777 | |||
Series II | 249,650 | |||
Series I: | ||||
Net asset value per share | $ | 19.75 | ||
Series II: | ||||
Net asset value per share | $ | 19.13 |
* | At December 31, 2014, securities with an aggregate value of $1,032,515 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $1,217) | $ | 515,536 | ||
Dividends from affiliated money market funds (includes securities lending income of $23,521) | 24,372 | |||
Total investment income | 539,908 | |||
Expenses: |
| |||
Advisory fees | 800,864 | |||
Administrative services fees | 312,289 | |||
Custodian fees | 12,254 | |||
Distribution fees — Series II | 9,633 | |||
Transfer agent fees | 29,515 | |||
Trustees’ and officers’ fees and benefits | 24,563 | |||
Other | 57,929 | |||
Total expenses | 1,247,047 | |||
Less: Fees waived | (3,071 | ) | ||
Net expenses | 1,243,976 | |||
Net investment income (loss) | (704,068 | ) | ||
Realized and unrealized gain (loss) from: |
| |||
Net realized gain (loss) from investment securities: | ||||
Investment securities (includes net gains from securities sold to affiliates of $22,336) | 9,615,530 | |||
Foreign currencies | (4,027 | ) | ||
9,611,503 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | 2,192,851 | |||
Foreign currencies | (21 | ) | ||
2,192,830 | ||||
Net realized and unrealized gain | 11,804,333 | |||
Net increase in net assets resulting from operations | $ | 11,100,265 |
See accompanying Notes to Financial Statements which are an integral part of the financial statements.
Invesco V.I. Technology Fund
Statement of Changes in Net Assets
For the years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income (loss) | $ | (704,068 | ) | $ | (401,721 | ) | ||
Net realized gain | 9,611,503 | 9,373,941 | ||||||
Change in net unrealized appreciation | 2,192,830 | 13,198,790 | ||||||
Net increase in net assets resulting from operations | 11,100,265 | 22,171,010 | ||||||
Distributions to shareholders from net realized gains: |
| |||||||
Series l | (8,529,977 | ) | (7,820,860 | ) | ||||
Series ll | (353,110 | ) | (230,772 | ) | ||||
Total distributions from net realized gains | (8,883,087 | ) | (8,051,632 | ) | ||||
Share transactions–net: |
| |||||||
Series l | (755,417 | ) | (5,971,175 | ) | ||||
Series ll | 1,518,646 | 713,763 | ||||||
Net increase (decrease) in net assets resulting from share transactions | 763,229 | (5,257,412 | ) | |||||
Net increase in net assets | 2,980,407 | 8,861,966 | ||||||
Net assets: |
| |||||||
Beginning of year | 106,350,801 | 97,488,835 | ||||||
End of year (includes undistributed net investment income (loss) of $(65,409) and $2,102,537, respectively) | $ | 109,331,208 | $ | 106,350,801 |
Notes to Financial Statements
December 31, 2014
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 trading characteristics and other market data. Debt obligations are subject to interest rate and credit risks. In addition, all debt obligations involve some risk of default with respect to interest and/or principal payments.
Invesco V.I. Technology Fund
Foreign securities’ (including foreign exchange contracts) prices are converted into U.S. dollar amounts using the applicable exchange rates as of the close of the NYSE. If market quotations are available and reliable for foreign exchange-traded equity securities, the securities will be valued at the market quotations. Because trading hours for certain foreign securities end before the close of the NYSE, closing market quotations may become unreliable. If between the time trading ends on a particular security and the close of the customary trading session on the NYSE, events occur that the Adviser determines are significant and make the closing price unreliable, the Fund may fair value the security. If the event is likely to have affected the closing price of the security, the security will be valued at fair value in good faith using procedures approved by the Board of Trustees. Adjustments to closing prices to reflect fair value may also be based on a screening process of an independent pricing service to indicate the degree of certainty, based on historical data, that the closing price in the principal market where a foreign security 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 ask 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 net investment 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. Technology Fund
G. | Accounting Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period including estimates and assumptions related to taxation. Actual results could differ from those estimates by a significant amount. In addition, the Fund monitors for material events or transactions that may occur or become known after the period-end date and before the date the financial statements are released to print. |
H. | Indemnifications — Under the Trust’s organizational documents, each Trustee, officer, employee or other agent of the Trust is indemnified against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts, including the Fund’s servicing agreements, that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote. |
I. | 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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.
Invesco V.I. Technology 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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.75%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $3,071.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $50,000 for accounting and fund administrative services and reimbursed $262,289 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $3,972 in brokerage commissions with Invesco Capital Markets, Inc., an affiliate of the Adviser and IDI, for portfolio transactions executed on behalf of the Fund.
Certain officers and trustees of the Trust are officers and directors of the Adviser, IIS and/or IDI.
Invesco V.I. Technology Fund
NOTE 3—Additional Valuation Information
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under current market conditions. GAAP establishes a hierarchy that prioritizes the inputs to valuation methods, giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (Level 1) and the lowest priority to significant unobservable inputs (Level 3), generally when market prices are not readily available or are unreliable. Based on the valuation inputs, the securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 109,353,549 | $ | 1,359,737 | $ | — | $ | 110,713,286 |
NOTE 4—Security Transactions with Affiliated Funds
The Fund is permitted to purchase or sell securities from or to certain other Invesco Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the year ended December 31, 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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 364,534 | $ | — | ||||
Long-term capital gain | 8,518,553 | 8,051,632 | ||||||
Total distributions | $ | 8,883,087 | $ | 8,051,632 |
Invesco V.I. Technology Fund
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 42,785 | ||
Undistributed long-term gain | 11,189,757 | |||
Net unrealized appreciation — investments | 31,742,563 | |||
Net unrealized appreciation (depreciation) — other investments | (21 | ) | ||
Temporary book/tax differences | (65,409 | ) | ||
Shares of beneficial interest | 66,421,533 | |||
Total net assets | $ | 109,331,208 |
The difference between book-basis and tax-basis unrealized appreciation is (depreciation) due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 8—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $80,836,344 and $90,085,079, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed federal income tax reporting period-end.
Unrealized Appreciation (Depreciation) of Investment Securities on a Tax Basis | ||||
Aggregate unrealized appreciation of investment securities | $ | 35,476,874 | ||
Aggregate unrealized (depreciation) of investment securities | (3,734,311 | ) | ||
Net unrealized appreciation of investment securities | $ | 31,742,563 |
Cost of investments for tax purposes is $78,970,723.
NOTE 9—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of partnerships and net operating losses, on December 31, 2014, undistributed net investment income (loss) was decreased by $1,463,878 and undistributed net realized gain was increased by $1,463,878. This reclassification had no effect on the net assets of the Fund.
Invesco V.I. Technology Fund
NOTE 10—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 661,326 | $ | 13,151,750 | 448,059 | $ | 8,062,294 | ||||||||||
Series II | 100,308 | 1,917,074 | 51,711 | 908,329 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 450,844 | 8,529,977 | 434,492 | 7,820,860 | ||||||||||||
Series II | 19,264 | 353,110 | 13,157 | 230,772 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (1,131,140 | ) | (22,437,144 | ) | (1,221,518 | ) | (21,854,329 | ) | ||||||||
Series II | (39,211 | ) | (751,538 | ) | (23,922 | ) | (425,338 | ) | ||||||||
Net increase (decrease) in share activity | 61,391 | $ | 763,229 | (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 11—Financial Highlights
The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
Net asset value, beginning of period | Net investment income (loss)(a) | Net gains (losses) on securities (both realized and unrealized) | Total from investment operations | Dividends from net investment income | Distributions from net realized gains | Total distributions | Net asset value, end of period | Total return(b) | Net assets, end of period (000’s omitted) | Ratio of expenses to average net assets with fee waivers and/or expenses absorbed | Ratio of expenses to average net assets without fee waivers and/or expenses absorbed | Ratio of net investment income (loss) to average net assets | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||||||||
Series I |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 19.42 | $ | (0.13 | ) | $ | 2.20 | $ | 2.07 | $ | — | $ | (1.74 | ) | $ | (1.74 | ) | $ | 19.75 | 11.05 | % | $ | 104,556 | 1.16 | %(d) | 1.16 | %(d) | (0.65 | )%(d) | 77 | % | |||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||
Series II |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 18.90 | (0.17 | ) | 2.14 | 1.97 | — | (1.74 | ) | (1.74 | ) | 19.13 | 10.82 | 4,775 | 1.41 | (d) | 1.41 | (d) | (0.90 | )(d) | 77 | ||||||||||||||||||||||||||||||||||||
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 |
(a) | Calculated using average shares outstanding. |
(b) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year, if applicable and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. |
(c) | Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year, if applicable. |
(d) | Ratios are based on average daily net assets (000’s omitted) of $102,929 and $3,853 for Series I and Series II shares, respectively. |
Invesco V.I. Technology Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and
Shareholders of Invesco V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Technology Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
Invesco V.I. Technology Fund
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before expenses) | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,044.90 | $ | 5.98 | $ | 1,019.36 | $ | 5.90 | 1.16 | % | ||||||||||||
Series II | 1,000.00 | 1,043.70 | 7.26 | 1,018.10 | 7.17 | 1.41 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Technology Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Long-Term Capital Gain Distributions | $ | 8,518,553 | ||
Corporate Dividends Received Deduction* | 100 | % | ||
U.S. Treasury Obligations* | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Technology Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Technology Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Technology Fund
| ||||
Annual Report to Shareholders
| December 31, 2014 | |||
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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 Advisers, Inc. is an investment adviser; it provides investment advisory services to individual and institutional clients and does not sell securities. Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail mutual funds, exchange-traded funds and institutional money market funds. Both are wholly owned, indirect subsidiaries of Invesco Ltd.
This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing.
Invesco Distributors, Inc. VK-VIVOPP-AR-1
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE |
Management’s Discussion of Fund Performance
Performance summary
For the year ended December 31, 2014, Invesco V.I. Value Opportunities Fund underperformed its style-specific benchmark, the Russell 3000 Value Index. Stock selection in the energy sector, combined with overweight exposure to the energy sector, detracted the most from the Fund’s relative performance. Alternatively, the Fund’s relative performance benefited from stock selection in the information technology (IT) and consumer discretionary sectors.
Your Fund’s long-term performance appears later in this report.
Fund vs. Indexes
Total returns, 12/31/13 to 12/31/14, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares | 6.62 | % | |||
Series II Shares | 6.39 | ||||
S&P 500 Index‚ (Broad Market Index) | 13.69 | ||||
Russell 3000 Value Index‚ (Style-Specific Index) | 12.70 | ||||
Lipper VUF Multi-Cap Value Funds Index ¢ (Peer Group Index) | 12.16 |
Source(s): ‚FactSet Research Systems Inc.; ¢Lipper Inc.
Market conditions and your Fund
Slow and steady improvement in the US economy and historically low interest rates led the US equity market higher during the year ended December 31, 2014. As the US economy continued along a slow growth path, the US Federal Reserve reduced its asset purchase program throughout 2014, finally ending all purchases in October. In the early months of 2014, the stock market turned volatile, pulling back as investors began to worry that stocks may have risen too far, too fast in 2013. Unusually cold winter weather also impacted consumers, but only briefly. Relatively quickly, corporate earnings bounced back and remained generally strong through the rest of the year. Stocks rallied through the summer despite political upheaval in Ukraine and signs of economic sluggishness in China.
As investors wrestled with evidence that US growth appeared to be on stronger footing than the rest of the world, in
mid-September the price of oil began a sharp decline, along with US equities. Despite the unknown economic impact of significantly lower oil prices for an extended period, the US equity market stabilized and recovered, ending the year in positive territory.
During the year, we continued to try to capitalize on market inefficiencies by investing in companies that appeared undervalued relative to the market in general. We focused on what we believe are the four key drivers to finding attractive stocks:
n | Valuation – We used different measures of valuation for different sectors. |
We used more stable measures of value such as price/book, price/cash flow and price/sales in more cyclical parts of the market. We used more cash flow- and earnings-based measures in more growth-oriented parts of the market.
n | Fundamentals – We rigorously analyzed the fundamentals and risks of a company and its industry. |
n | Accounting – We focused on the quality of a company’s accounting including all four financial statements (balance sheet, income statement, statement of cash flows and statement of changes in financial position). |
n | Psychology – We believe that psychology is one reason that companies become undervalued. |
Ultimately, we believe that the market will recognize the value in these companies and we will sell them as their stock price begins to reflect their intrinsic value.
The Fund’s investments in the financials sector contributed the most to the Fund’s absolute return during the year. Wells Fargo and Allstate were among the Fund’s top performers. One of the items benefiting Wells Fargo was the improved housing market. An improving housing market lowered Wells Fargo’s credit costs and expenses (such as expenses for foreclosed houses). An increase in short-term interest rates may also benefit the company’s earnings. Additionally, Wells Fargo may benefit when loan demand picks up from relatively low current levels.
Stock selection in the IT sector also contributed to absolute Fund returns and helped performance versus the Russell 3000 Value Index. Hewlett-Packard was a strong contributor as the stock posted a double-digit return. The company’s relatively new chief executive officer, Meg Whitman, has gradually been improving the company’s operations in several important areas.
Strong stock selection in the consumer discretionary sector also helped our relative results. Department store chain Macy’s performed particularly well as the company continued to focus on localization, omni-channel selling and training. In addition, Macy’s continued to reduce its expenses during the year.
Portfolio Composition | |||||
By sector | |||||
Financials | 39.9 | % | |||
Energy | 14.3 | ||||
Information Technology | 11.6 | ||||
Consumer Discretionary | 10.4 | ||||
Health Care | 8.9 | ||||
Industrials | 4.9 | ||||
Consumer Staples | 2.9 | ||||
Materials | 2.3 | ||||
Telecommunication Services | 1.7 | ||||
Money Market Funds Plus Other Assets Less Liabilities | 3.1 |
Top 10 Equity Holdings*
| |||||
1. JPMorgan Chase & Co. | 7.4 | % | |||
2. Wells Fargo & Co. | 5.1 | ||||
3. Royal Dutch Shell PLC- Class A-ADR | 4.0 | ||||
4. Citigroup Inc. | 3.7 | ||||
5. Chevron Corp. | 3.3 | ||||
6. Omnicom Group Inc. | 3.1 | ||||
7. Bank of America Corp. | 2.9 | ||||
8. Anthem, Inc. | 2.8 | ||||
9. Unum Group | 2.7 | ||||
10. Synchrony Financial | 2.4 |
Top Five Industries*
| |||||
1. Diversified Banks | 22.0 | % | |||
2. Integrated Oil & Gas | 12.4 | ||||
3. Life & Health Insurance | 6.4 | ||||
4. Pharmaceuticals | 4.8 | ||||
5. Investment Banking & Brokerage | 4.2 |
Total Net Assets | $191.1 million | |||||
Total Number of Holdings* | 49 |
The Fund’s holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
Invesco V.I. Value Opportunities Fund
Unfavorable stock selection in, and overweight exposure to, the energy sector was the largest detractor from relative Fund performance. Weaker commodity prices were a primary cause of the sector’s negative returns. Weak commodity prices hurt several Fund holdings, including coal mining company Peabody Energy, integrated oil and gas company Petrobras Petroleo Brasilerio and offshore driller Noble. Peabody underperformed as an oversupply of metallurgical coal impacted the company’s earnings. However, we see the metallurgical coal oversupply situation improving over the next several years. Besides industry concerns, Petrobras Petroleo Brasileiro was impacted by a bribery scandal that in our opinion excessively hurt its stock price. Noble was impacted by oversupply in the offshore rig market. We believe these companies are trading at very attractive valuations.
Underweight exposure to the utilities sector also hurt relative Fund performance as the sector was one of the best-performing sectors during the year. We avoided utilities altogether because we believed they remain very expensive. Over the past 40 years, utilities have rarely been as expensive relative to the S&P 500 as they were in 2014.
The US economy exhibited signs of improvement during the year. Economic weakness in China and geopolitical tensions remained risks. Although we analyze macro factors, our focus is on bottom-up stock selection. We invest in companies based on their individual risk and return potential, as driven by their fundamentals and valuation.
As value managers, we point to the very attractive valuations that characterize many holdings in the portfolio. We believe low earnings expectations, combined with very attractive valuations, could potentially provide downside protection in a volatile equity market.
Thank you for your investment in Invesco V.I. Value Opportunities Fund and for sharing our long-term investment horizon.
The views and opinions expressed in management’s discussion of Fund performance are those of Invesco Advisers, Inc. These views and opinions are subject to change at any time based on factors such as market and economic conditions. These views and opinions may not be relied upon as investment advice or recommendations, or as an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but Invesco Advisers, Inc. makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
See important Fund and, if applicable, index disclosures later in this report.
Jason Leder Chartered Financial Analyst, Portfolio Manager, is lead manager of Invesco V.I. Value | ||
Opportunities Fund. He joined Invesco in 2010. Mr. Leder earned a bachelor’s degree from The University of Texas at Austin and an MBA from Columbia University. | ||
Yogi Kak Chartered Financial Analyst, Portfolio Manager, is manager of Invesco V.I. Value Opportunities Fund. | ||
He joined Invesco in 2011. Mr. Kak earned a Bachelor of Technology degree in electrical engineering from the Institute of Technology, Banares Hindu University and an MBA from Tulane University. |
Invesco V.I. Value Opportunities Fund
Your Fund’s Long-Term Performance
Results of a $10,000 Investment – Oldest Share Class(es)
Fund and index data from 12/31/04
Past performance cannot guarantee comparable future results.
Average Annual Total Returns | |||||
As of 12/31/14 | |||||
Series I Shares | |||||
Inception (9/10/01) | 4.51 | % | |||
10 Years | 4.25 | ||||
5 Years | 11.80 | ||||
1 Year | 6.62 | ||||
Series II Shares | |||||
Inception (9/10/01) | 4.25 | % | |||
10 Years | 3.98 | ||||
5 Years | 11.50 | ||||
1 Year | 6.39 |
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
Invesco V.I. Value Opportunities Fund’s investment objective is long-term growth of capital.
n | Unless otherwise stated, information presented in this report is as of December 31, 2014, and is based on total net assets. |
n | Unless otherwise noted, all data provided by Invesco. |
n | To access your Fund’s reports/prospectus, visit invesco.com/fundreports. |
Principal risks of investing in the Fund
Convertible securities risk. The Fund may own convertible securities, the value of which may be affected by market interest rates, the risk that the issuer will default, the value of the underlying stock or the right of the issuer to buy back the convertible securities.
Depositary receipts risk. Depositary receipts involve many of the same risks as those associated with direct investment in foreign securities. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts or to pass through to them any voting rights with respect to the deposited securities.
Derivatives risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the underlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value, less tax efficient and subject to changing government regulation that could impact the Fund’s ability to use
certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Developing/emerging markets securities risk. The prices of securities issued by foreign companies and governments located in developing/emerging market countries may be affected more negatively by inflation, devaluation of their currencies, higher transaction costs, delays in settlement, adverse political developments, the introduction of capital controls, withholding taxes, nationalization of private assets, expropriation, social unrest, war or lack of timely information than those in developed countries.
Initial public offerings risk. The prices of IPO securities fluctuate more than prices of equity securities of companies with longer trading histories. In addition, companies offering securities in IPOs may have less experienced management or limited operating histories. There can be no assurance that the Fund will have favorable IPO investment opportunities.
Foreign securities risk. The Fund’s foreign investments may be affected by changes in a foreign country’s exchange rates, political and social instability, changes in economic or taxation policies, difficulties when enforcing obligations, decreased liquidity, and increased volatility. Foreign companies may be subject to less regulation resulting in less publicly available information about the companies.
Management risk. The investment techniques and risk analysis used by the Fund’s portfolio managers may not produce the desired results.
Market risk. The prices of and the income generated by the Fund’s securities may decline in response to, among other things, investor sentiment, general economic and market conditions, regional or global instability, and currency and interest rate fluctuations.
Preferred securities risk. Preferred securities may include provisions that permit the issuer, in its discretion, to defer or omit distributions for a certain period of time. If the Fund owns a security that is deferring or omitting its distributions, the Fund may be required to report the distribution on its tax returns, even though it may not have received this income. Further, preferred securities may lose substantial value due
to the omission or deferment of dividend payments.
REIT risk/real estate risk. Investments in real estate related instruments may be affected by economic, legal, cultural, environmental or technological factors that affect property values, rents or occupancies of real estate related to the Fund’s holdings. Real estate companies, including REITs or similar structures, tend to be small- and mid-cap companies, and their shares may be more volatile and less liquid. The value of investments in real estate related companies may be affected by the quality of management, the ability to repay loans, the utilization of leverage and financial covenants related thereto, whether the company carries adequate insurance and environmental factors. If a real estate related company defaults, the Fund may own real estate directly, which involves the following additional risks: environmental liabilities; difficulty in valuing and selling the real estate; and economic or regulatory changes.
Sector fund risk. The Fund’s investments are concentrated in a comparatively narrow segment of the economy, which may make the Fund more volatile than non-concentrated funds.
Small- and mid-capitalization risks. Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments and may have little or no operating history or track record of success, and limited product lines, markets, management and financial resources. The securities of small- and mid-sized companies may be more volatile due to less market interest and less publicly available information about the issuer. They also may be illiquid or restricted as to resale, or may trade less frequently and in smaller volumes, all of which may cause difficulty when establishing or closing a position at a desirable price.
Unseasoned issuer risk. Investments in unseasoned companies or companies with special circumstances often involve much greater risks than are inherent in other types of investments and securities of such companies may be more likely to experience fluctuations in price. In addition, investments made in anticipation of future events may, if the events are delayed or never achieved, cause stock prices to fall.
Invesco V.I. Value Opportunities Fund
Value investing style risk. The Fund emphasizes a value style of investing, which focuses on undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on value equity securities are less than returns on other styles of investing or the overall stock market. Value stocks also may decline in price, even though in theory they are already underpriced.
About indexes used in this report
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
The Russell 3000® Value Index is an unmanaged index considered representative of 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.
Other information
The returns shown in management’s discussion of Fund performance are based on net asset values calculated for shareholder transactions. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes, and as such, the net asset values for shareholder transactions and the returns based on those net asset values may differ from the net asset values and returns reported in the Financial Highlights. Additionally, the returns and net asset values shown throughout this report are at the Fund level only and do
not include variable product issuer charges. If such charges were included, the total returns would be lower.
Industry classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
Invesco V.I. Value Opportunities Fund
Schedule of Investments(a)
December 31, 2014
Shares | Value | |||||||
Common Stocks & Other Equity Interests–96.88% |
| |||||||
Advertising–3.13% | ||||||||
Omnicom Group Inc. | 77,065 | $ | 5,970,226 | |||||
Air Freight & Logistics–1.83% | ||||||||
UTi Worldwide, Inc.(b) | 289,742 | 3,497,186 | ||||||
Application Software–1.47% | ||||||||
Synopsys, Inc.(b) | 64,537 | 2,805,423 | ||||||
Automobile Manufacturers–1.46% | ||||||||
Nissan Motor Co., Ltd. (Japan)(c) | 321,200 | 2,798,197 | ||||||
Cable & Satellite–2.18% | ||||||||
Time Warner Cable Inc. | 27,450 | 4,174,047 | ||||||
Coal & Consumable Fuels–0.86% | ||||||||
Peabody Energy Corp.(c) | 212,688 | 1,646,205 | ||||||
Communications Equipment–1.70% | ||||||||
Cisco Systems, Inc. | 116,651 | 3,244,648 | ||||||
Consumer Finance–2.44% | ||||||||
Synchrony Financial(b) | 156,917 | 4,668,281 | ||||||
Department Stores–2.12% | ||||||||
Macy’s, Inc. | 61,497 | 4,043,428 | ||||||
Diversified Banks–21.97% | ||||||||
Bank of America Corp. | 305,808 | 5,470,905 | ||||||
Citigroup Inc. | 129,572 | 7,011,141 | ||||||
Comerica Inc. | 54,162 | 2,536,948 | ||||||
JPMorgan Chase & Co. | 225,739 | 14,126,746 | ||||||
U.S. Bancorp | 67,206 | 3,020,910 | ||||||
Wells Fargo & Co. | 179,052 | 9,815,631 | ||||||
41,982,281 | ||||||||
Diversified Metals & Mining–1.13% | ||||||||
Teck Resources Ltd.–Class B (Canada) | 158,453 | 2,161,299 | ||||||
Electronic Components–1.42% | ||||||||
Corning Inc. | 118,229 | 2,710,991 | ||||||
Food Retail–1.41% | ||||||||
Kroger Co. (The) | 41,983 | 2,695,728 | ||||||
General Merchandise Stores–1.53% | ||||||||
Target Corp. | 38,612 | 2,931,037 | ||||||
Household Products–1.43% | ||||||||
Procter & Gamble Co. (The) | 30,081 | 2,740,078 | ||||||
Industrial Conglomerates–2.11% | ||||||||
General Electric Co. | 159,460 | 4,029,554 | ||||||
Integrated Oil & Gas–12.42% | ||||||||
Chevron Corp. | 56,255 | 6,310,686 | ||||||
Exxon Mobil Corp. | 26,419 | 2,442,436 |
Shares | Value | |||||||
Integrated Oil & Gas–(continued) | ||||||||
Petroleo Brasileiro S.A.–ADR (Brazil) | 424,616 | $ | 3,099,697 | |||||
Royal Dutch Shell PLC–Class A–ADR (United Kingdom) | 113,217 | 7,579,878 | ||||||
Total S.A.–ADR (France) | 84,134 | 4,307,661 | ||||||
23,740,358 | ||||||||
Integrated Telecommunication Services–1.03% | ||||||||
Verizon Communications Inc. | 41,992 | 1,964,386 | ||||||
Internet Software & Services–1.27% | ||||||||
Google Inc.–Class C (b) | 4,600 | 2,421,440 | ||||||
Investment Banking & Brokerage–4.24% | ||||||||
Goldman Sachs Group, Inc. (The) | 18,466 | 3,579,265 | ||||||
Morgan Stanley | 116,422 | 4,517,173 | ||||||
8,096,438 | ||||||||
Life & Health Insurance–6.40% | ||||||||
Aflac, Inc. | 45,998 | 2,810,018 | ||||||
MetLife, Inc. | 78,673 | 4,255,423 | ||||||
Unum Group | 148,223 | 5,170,018 | ||||||
12,235,459 | ||||||||
Managed Health Care–4.03% | ||||||||
Anthem, Inc. | 41,852 | 5,259,541 | ||||||
UnitedHealth Group Inc. | 24,088 | 2,435,056 | ||||||
7,694,597 | ||||||||
Marine–0.98% | ||||||||
Diana Shipping Inc. (Greece)(b) | 279,533 | 1,875,666 | ||||||
Oil & Gas Drilling–1.03% | ||||||||
Noble Corp. PLC | 119,043 | 1,972,543 | ||||||
Pharmaceuticals–4.83% | ||||||||
Bristol-Myers Squibb Co. | 50,677 | 2,991,463 | ||||||
Novartis AG (Switzerland) | 39,966 | 3,675,942 | ||||||
Pfizer Inc. | 81,919 | 2,551,777 | ||||||
9,219,182 | ||||||||
Property & Casualty Insurance–2.59% | ||||||||
Allied World Assurance Co. Holdings AG | 41,535 | 1,575,007 | ||||||
Allstate Corp. (The) | 47,892 | 3,364,413 | ||||||
4,939,420 | ||||||||
Regional Banks–2.24% | ||||||||
Investors Bancorp, Inc. | 156,263 | 1,754,052 | ||||||
Zions Bancorp. | 88,237 | 2,515,637 | ||||||
4,269,689 | ||||||||
Steel–1.20% | ||||||||
POSCO–ADR (South Korea) | 36,007 | 2,297,607 | ||||||
Systems Software–2.32% | ||||||||
Oracle Corp. | 98,392 | 4,424,688 |
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–1.89% | ||||||||
CDW Corp. | 102,793 | $ | 3,615,230 | |||||
Technology Hardware, Storage & Peripherals–1.55% | ||||||||
Hewlett-Packard Co. | 73,935 | 2,967,012 | ||||||
Wireless Telecommunication Services–0.67% | ||||||||
Vodafone Group PLC–ADR (United Kingdom) | 37,518 | 1,281,990 | ||||||
Total Common Stocks & Other Equity Interests |
| 185,114,314 | ||||||
Money Market Funds–3.05% |
| |||||||
Liquid Assets Portfolio–Institutional Class(d) | 2,915,166 | 2,915,166 | ||||||
Premier Portfolio–Institutional Class(d) | 2,915,166 | 2,915,166 | ||||||
Total Money Market Funds |
| 5,830,332 | ||||||
TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)–99.93% |
| 190,944,646 |
Shares | Value | |||||||
Investments Purchased with Cash |
| |||||||
Money Market Funds–1.83% |
| |||||||
Liquid Assets Portfolio–Institutional Class (Cost $3,502,936)(d)(e) | 3,502,936 | $ | 3,502,936 | |||||
TOTAL INVESTMENTS–101.76% |
| 194,447,582 | ||||||
OTHER ASSETS LESS LIABILITIES–(1.76)% |
| (3,365,218 | ) | |||||
NET ASSETS–100.00% |
| $ | 191,082,364 |
Investment Abbreviations:
ADR | – American Depositary Receipt |
Notes to Schedule of Investments:
(a) | Industry and/or sector classifications used in this report are generally according to the Global Industry Classification Standard, which was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s. |
(b) | Non-income producing security. |
(c) | All or a portion of this security was out on loan at December 31, 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 December 31, 2014. |
Counterparty | Gross Amount of Securities on Loan at Value | Cash Collateral Received for Securities Loaned* | Net Amount | |||||||||
State Street Bank and Trust Co. | $ | 3,357,342 | $ | (3,357,342 | ) | $ | — |
* | Amount does not include excess collateral received. |
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
December 31, 2014
Statement of Operations
For the year ended December 31, 2014
Assets: |
| |||
Investments, at value (Cost $129,428,501)* | $ | 185,114,314 | ||
Investments in affiliated money market funds, at value and cost | 9,333,268 | |||
Total investments, at value (Cost $138,761,769) | 194,447,582 | |||
Foreign currencies, at value (Cost $91) | 89 | |||
Receivable for: | ||||
Investments sold | 145,116 | |||
Fund shares sold | 1,904 | |||
Dividends | 420,868 | |||
Investment for trustee deferred compensation and retirement plans | 106,354 | |||
Total assets | 195,121,913 | |||
Liabilities: | ||||
Payable for: | ||||
Investments purchased | 60,440 | |||
Fund shares reacquired | 144,721 | |||
Collateral upon return of securities loaned | 3,502,936 | |||
Accrued fees to affiliates | 180,677 | |||
Accrued trustees’ and officers’ fees and benefits | 504 | |||
Accrued other operating expenses | 28,994 | |||
Trustee deferred compensation and retirement plans | 121,277 | |||
Total liabilities | 4,039,549 | |||
Net assets applicable to shares outstanding | $ | 191,082,364 | ||
Net assets consist of: | ||||
Shares of beneficial interest | $ | 121,876,835 | ||
Undistributed net investment income | 3,550,308 | |||
Undistributed net realized gain | 9,973,190 | |||
Net unrealized appreciation | 55,682,031 | |||
$ | 191,082,364 | |||
Net Assets: |
| |||
Series I | $ | 110,865,152 | ||
Series II | $ | 80,217,212 | ||
Shares outstanding, $0.001 par value per share, |
| |||
Series I | 11,269,119 | |||
Series II | 8,194,943 | |||
Series I: | ||||
Net asset value per share | $ | 9.84 | ||
Series II: | ||||
Net asset value per share | $ | 9.79 |
* | At December 31, 2014, securities with an aggregate value of $3,357,342 were on loan to brokers. |
Investment income: |
| |||
Dividends (net of foreign withholding taxes of $191,004) | $ | 6,291,160 | ||
Dividends from affiliated money market funds (includes securities lending income of $31,116) | 34,233 | |||
Total investment income | 6,325,393 | |||
Expenses: | ||||
Advisory fees | 1,517,467 | |||
Administrative services fees | 595,104 | |||
Custodian fees | 12,996 | |||
Distribution fees — Series II | 246,548 | |||
Transfer agent fees | 35,833 | |||
Trustees’ and officers’ fees and benefits | 28,089 | |||
Other | 74,207 | |||
Total expenses | 2,510,244 | |||
Less: Fees waived | (11,705 | ) | ||
Net expenses | 2,498,539 | |||
Net investment income | 3,826,854 | |||
Realized and unrealized gain (loss) from: | ||||
Net realized gain (loss) from: | ||||
Investment securities | 26,898,380 | |||
Foreign currencies | (7,116 | ) | ||
26,891,264 | ||||
Change in net unrealized appreciation (depreciation) of: | ||||
Investment securities | (17,249,545 | ) | ||
Foreign currencies | (4,294 | ) | ||
(17,253,839 | ) | |||
Net realized and unrealized gain | 9,637,425 | |||
Net increase in net assets resulting from operations | $ | 13,464,279 |
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 years ended December 31, 2014 and 2013
2014 | 2013 | |||||||
Operations: | ||||||||
Net investment income | $ | 3,826,854 | $ | 2,649,408 | ||||
Net realized gain | 26,891,264 | 33,012,564 | ||||||
Change in net unrealized appreciation (depreciation) | (17,253,839 | ) | 31,741,901 | |||||
Net increase in net assets resulting from operations | 13,464,279 | 67,403,873 | ||||||
Distributions to shareholders from net investment income: | ||||||||
Series I | (1,634,027 | ) | (1,827,315 | ) | ||||
Series ll | (1,170,784 | ) | (1,176,208 | ) | ||||
Total distributions from net investment income | (2,804,811 | ) | (3,003,523 | ) | ||||
Share transactions–net: | ||||||||
Series l | (25,128,840 | ) | (36,568,590 | ) | ||||
Series ll | (28,394,119 | ) | (22,283,095 | ) | ||||
Net increase (decrease) in net assets resulting from share transactions | (53,522,959 | ) | (58,851,685 | ) | ||||
Net increase (decrease) in net assets | (42,863,491 | ) | 5,548,665 | |||||
Net assets: | ||||||||
Beginning of year | 233,945,855 | 228,397,190 | ||||||
End of year (includes undistributed net investment income of $3,550,308 and $2,507,521, respectively) | $ | 191,082,364 | $ | 233,945,855 |
Notes to Financial Statements
December 31, 2014
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 ask 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 net investment 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. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Fund invests and are shown in the Statement of Operations.
K. | Forward Foreign Currency Contracts — The Fund may engage in foreign currency transactions either on a spot (i.e. for prompt delivery and settlement) basis or through 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, or the Fund may also enter into forward foreign currency contracts that do not provide for physical settlement of the two currencies, but instead are settled by a single cash payment calculated as the difference between the agreed upon exchange rate and the spot rate at settlement based upon an agreed upon notional amount (non-deliverable forwards). The Fund will set aside liquid assets in an amount equal to daily mark-to-market obligation for forward foreign currency contracts.
A forward foreign currency contract is an obligation between two parties (“Counterparties”) 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. Value Opportunities 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 $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% |
For the year ended December 31, 2014, the effective advisory fees incurred by the Fund was 0.695%.
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 year ended December 31, 2014, the Adviser waived advisory fees of $11,705.
The Trust has entered into a master administrative services agreement with Invesco pursuant to which the Fund has agreed to pay Invesco a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants’ accounts. Pursuant to such agreement, for the year ended December 31, 2014, Invesco was paid $55,218 for accounting and fund administrative services and reimbursed $539,886 for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with Invesco Investment Services, Inc. (“IIS”) pursuant to which the Fund has agreed to pay IIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IIS for certain expenses incurred by IIS in the course of providing such services. For the year ended December 31, 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 year ended December 31, 2014, expenses incurred under the Plan are detailed in the Statement of Operations as Distribution fees.
For the year ended December 31, 2014, the Fund incurred $1,245 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
Invesco V.I. Value Opportunities Fund
securities or other investments are tiered into one of three levels. Changes in valuation methods may result in transfers in or out of an investment’s assigned level:
Level 1 — | Prices are determined using quoted prices in an active market for identical assets. |
Level 2 — | Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, loss severities, default rates, discount rates, volatilities and others. |
Level 3 — | Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. |
The following is a summary of the tiered valuation input levels, as of December 31, 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 | $ | 187,973,443 | $ | 6,474,139 | $ | — | $ | 194,447,582 |
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—Distributions to Shareholders and Tax Components of Net Assets
Tax Character of Distributions to Shareholders Paid During the Fiscal Years Ended December 31, 2014 and 2013:
2014 | 2013 | |||||||
Ordinary income | $ | 2,804,811 | $ | 3,003,523 |
Tax Components of Net Assets at Period-End:
2014 | ||||
Undistributed ordinary income | $ | 3,665,855 | ||
Undistributed long-term gain | 11,922,441 | |||
Net unrealized appreciation — investments | 53,736,562 | |||
Net unrealized appreciation (depreciation) — other investments | (3,782 | ) | ||
Temporary book/tax differences | (115,547 | ) | ||
Shares of beneficial interest | 121,876,835 | |||
Total net assets | $ | 191,082,364 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is due to differences in the timing of recognition of gains and losses on investments for tax and book purposes. The Fund’s net unrealized appreciation difference is attributable primarily to wash sales.
The temporary book/tax differences are a result of timing differences between book and tax recognition of income and/or expenses. The Fund’s temporary book/tax differences are the result of the trustee deferral of compensation and retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. Capital losses generated in years beginning after December 22, 2010 can be carried forward for an unlimited period, whereas previous losses expire in eight 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 carryforwards in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions.
Invesco V.I. Value Opportunities Fund
The Fund utilized $15,781,667 of capital loss carryforward in the current period to offset net realized capital gain for federal income tax purposes. The Fund does not have a capital loss carryforward as of December 31, 2014.
NOTE 7—Investment Securities
The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the year ended December 31, 2014 was $31,135,519 and $80,773,161, 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 | $ | 64,864,743 | ||
Aggregate unrealized (depreciation) of investment securities | (11,128,181 | ) | ||
Net unrealized appreciation of investment securities | $ | 53,736,562 |
Cost of investments for tax purposes is $140,711,020.
NOTE 8—Reclassification of Permanent Differences
Primarily as a result of differing book/tax treatment of foreign currency transactions and fair fund settlements, on December 31, 2014, undistributed net investment income was increased by $20,744, undistributed net realized gain was decreased by $20,744. This reclassification had no effect on the net assets of the Fund.
NOTE 9—Share Information
Summary of Share Activity | ||||||||||||||||
Years ended December 31, | ||||||||||||||||
2014(a) | 2013 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Sold: | ||||||||||||||||
Series I | 424,414 | $ | 4,064,543 | 556,711 | $ | 4,628,953 | ||||||||||
Series II | 1,022,954 | 9,705,160 | 655,770 | 5,483,500 | ||||||||||||
Issued as reinvestment of dividends: | ||||||||||||||||
Series I | 168,630 | 1,634,027 | 214,474 | 1,827,315 | ||||||||||||
Series II | 121,325 | 1,170,784 | 138,704 | 1,176,208 | ||||||||||||
Reacquired: | ||||||||||||||||
Series I | (3,227,074 | ) | (30,827,410 | ) | (5,220,012 | ) | (43,024,858 | ) | ||||||||
Series II | (4,093,539 | ) | (39,270,063 | ) | (3,515,746 | ) | (28,942,803 | ) | ||||||||
Net increase (decrease) in share activity | (5,583,290 | ) | $ | (53,522,959 | ) | (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 63% of the outstanding shares of the Fund. The Fund and the Fund’s principal underwriter or adviser, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco and/or Invesco affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco and/or Invesco affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The 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. Value Opportunities 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 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 and/or expenses absorbed | Ratio of net to average | Portfolio turnover(c) | |||||||||||||||||||||||||||||||||||||
Series I | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | $ | 9.36 | $ | 0.18 | (d) | $ | 0.44 | $ | 0.62 | $ | (0.14 | ) | $ | 9.84 | 6.62 | % | $ | 110,865 | 1.03 | %(e) | 1.04 | %(e) | 1.87 | %(d)(e) | 15 | % | ||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||
Series II | ||||||||||||||||||||||||||||||||||||||||||||||||
Year ended 12/31/14 | 9.31 | 0.15 | (d) | 0.44 | 0.59 | (0.11 | ) | 9.79 | 6.39 | 80,217 | 1.28 | (e) | 1.29 | (e) | 1.62 | (d)(e) | 15 | |||||||||||||||||||||||||||||||
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 |
(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 per share and the ratio of net investment income 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 $0.12 and 1.23% and $0.09 and 0.98% for Series I and Series II, respectively. |
(e) | Ratios are based on average daily net assets (000’s omitted) of $119,722 and $98,619 for Series I and Series II shares, respectively. |
Invesco V.I. Value Opportunities Fund
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of AIM Variable Insurance Funds (Invesco Variable Insurance Funds) and Shareholders of Invesco V.I. Value Opportunities Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Invesco V.I. Value Opportunities Fund (one of the funds constituting AIM Variable Insurance Funds (Invesco Variable Insurance Funds), hereafter referred to as the “Fund”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where confirmations of security purchases have not been received, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 13, 2015
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 July 1, 2014 through December 31, 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 (07/01/14) | ACTUAL | HYPOTHETICAL (5% annual return before | Annualized Expense Ratio | ||||||||||||||||||||
Ending Account Value (12/31/14)1 | Expenses Paid During Period2 | Ending Account Value (12/31/14) | Expenses Paid During Period2 | |||||||||||||||||||||
Series I | $ | 1,000.00 | $ | 1,013.20 | $ | 5.13 | $ | 1,020.11 | $ | 5.14 | 1.01 | % | ||||||||||||
Series II | 1,000.00 | 1,011.70 | 6.39 | 1,018.85 | 6.41 | 1.26 |
1 | The actual ending account value is based on the actual total return of the Fund for the period July 1, 2014 through December 31, 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 184/365 to reflect the most recent fiscal half year. |
Invesco V.I. Value Opportunities Fund
Tax Information
Form 1099-DIV, Form 1042-S and other year–end tax information provide shareholders with actual calendar year amounts that should be included in their tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the Internal Revenue Code or to meet a specific state’s requirement.
The Fund designates the following amounts or, if subsequently determined to be different, the maximum amount allowable for its fiscal year ended December 31, 2014:
Federal and State Income Tax | ||||
Corporate Dividends Received Deduction* | 99.19 | % | ||
U.S. Treasury Obligations | 0.00 | % |
* | The above percentages are based on ordinary income dividends paid to shareholders during the Fund’s fiscal year. |
Invesco V.I. Value Opportunities Fund
Trustees and Officers
The address of each trustee and officer is AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the “Trust”), 11 Greenway Plaza, Suite 1000, Houston, Texas 77046-1173. The trustees serve for the life of the Trust, subject to their earlier death, incapacitation, resignation, retirement or removal as more specifically provided in the Trust’s organizational documents. Each officer serves for a one year term or until their successors are elected and qualified. Column two below includes length of time served with predecessor entities, if any.
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Interested Persons | ||||||||
Martin L. Flanagan1 — 1960 Trustee | 2007 | Executive Director, Chief Executive Officer and President, Invesco Ltd. (ultimate parent of Invesco and a global investment management firm); Advisor to the Board, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Trustee, The Invesco Funds; Vice Chair, Investment Company Institute; and Member of Executive Board, SMU Cox School of Business
Formerly: Chairman and Chief Executive Officer, Invesco Advisers, Inc. (registered investment adviser); Director, Chairman, Chief Executive Officer and President, IVZ Inc. (holding company), INVESCO Group Services, Inc. (service provider) and Invesco North American Holdings, Inc. (holding company); Director, Chief Executive Officer and President, Invesco Holding Company Limited (parent of Invesco and a global investment management firm); Director, Invesco Ltd.; Chairman, Investment Company Institute and President, Co-Chief Executive Officer, Co-President, Chief Operating Officer and Chief Financial Officer, Franklin Resources, Inc. (global investment management organization). | 144 | None | ||||
Philip A. Taylor2 — 1954 Trustee, President and Principal Executive Officer | 2006 | Head of North American Retail and Senior Managing Director, Invesco Ltd.; Director, Co-Chairman, Co-President and Co-Chief Executive Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Director, Chairman, Chief Executive Officer and President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) (financial services holding company); Director and President, INVESCO Funds Group, Inc. (registered investment adviser and registered transfer agent); Director and Chairman, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) (registered transfer agent) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.) (registered broker dealer); Director, President and Chairman, Invesco Inc. (holding company) and Invesco Canada Holdings Inc. (holding company); Chief Executive Officer, Invesco Corporate Class Inc. (corporate mutual fund company) and Invesco Canada Fund Inc. (corporate mutual fund company); Director, Chairman and Chief Executive Officer, Invesco Canada Ltd. (formerly known as Invesco Trimark Ltd./Invesco Trimark Ltèe) (registered investment adviser and registered transfer agent); Trustee, President and Principal Executive Officer, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); Trustee and Executive Vice President, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only); Director, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Director, Chief Executive Officer and President, Van Kampen Exchange Corp.
Formerly: Director and Chairman, Van Kampen Investor Services Inc.; Director, Chief Executive Officer and President, 1371 Preferred Inc. (holding company) and Van Kampen Investments Inc.; Director and President, AIM GP Canada Inc. (general partner for limited partnerships) and Van Kampen Advisors, Inc.; Director and Chief Executive Officer, Invesco Trimark Dealer Inc. (registered broker dealer); Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) (registered broker dealer); Manager, Invesco PowerShares Capital Management LLC; Director, Chief Executive Officer and President, Invesco Advisers, Inc.; Director, Chairman, Chief Executive Officer and President, Invesco Aim Capital Management, Inc.; President, Invesco Trimark Dealer Inc. and Invesco Trimark Ltd./Invesco Trimark Ltèe; Director and President, AIM Trimark Corporate Class Inc. and AIM Trimark Canada Fund Inc.; Senior Managing Director, Invesco Holding Company Limited; Director and Chairman, Fund Management Company (former registered broker dealer); President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only); President, AIM Trimark Global Fund Inc. and AIM Trimark Canada Fund Inc. | 144 | None | ||||
Independent Trustees | ||||||||
Bruce L. Crockett — 1944 Trustee and Chair | 1993 | Chairman, Crockett Technologies Associates (technology consulting company)
Formerly: Director, Captaris (unified messaging provider); Director, President and Chief Executive Officer, COMSAT Corporation; Chairman, Board of Governors of INTELSAT (international communications company); ACE Limited (insurance company); and Investment Company Institute | 144 | ALPS (Attorneys Liability Protection Society) (insurance company) |
1 | Mr. Flanagan is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer of the Adviser to the Trust, and an officer and a director of Invesco Ltd., ultimate parent of the Adviser. |
2 | Mr. Taylor is considered an interested person (within the meaning of Section 2(a)(19) of the 1940 Act) of the Trust because he is an officer and a director of the Adviser. |
Invesco V.I. Value Opportunities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
David C. Arch — 1945 Trustee | 2010 | Chairman of Blistex Inc., a consumer health care products manufacturer | 144 | Board member of the Illinois Manufacturers’ Association; Member of the Board of Visitors, Institute for the Humanities, University of Michigan; Member of the Audit Committee of the Edward-Elmhurst Hospital | ||||
James T. Bunch — 1942 Trustee | 2004 | Managing Member, Grumman Hill Group LLC (family office private equity investments)
Formerly: Founder, Green Manning & Bunch Ltd. (investment banking firm) (1988-2010); Executive Committee, United States Golf Association; and Director, Policy Studies, Inc. and Van Gilder Insurance Corporation | 144 | Chairman, Board of Governors, Western Golf Association; Chairman, Evans Scholars Foundation; and Director, Denver Film Society | ||||
Rodney F. Dammeyer — 1940 Trustee | 2010 | Chairman of CAC, LLC, (private company offering capital investment and management advisory services)
Formerly: Prior to 2001, Managing Partner at Equity Group Corporate Investments; Prior to 1995, Chief Executive Officer of Itel Corporation (formerly Anixter International); Prior to 1985, experience includes Senior Vice President and Chief Financial Officer of Household International, Inc., Executive Vice President and Chief Financial Officer of Northwest Industries, Inc. and Partner of Arthur Andersen & Co.; From 1987 to 2010, Director/Trustee of investment companies in the Van Kampen Funds complex | 144 | Director of Quidel Corporation and Stericycle, Inc. | ||||
Albert R. Dowden — 1941 Trustee | 2000 | Director of a number of public and private business corporations, including the Boss Group, Ltd. (private investment and management); Nature’s Sunshine Products, Inc. and Reich & Tang Funds (5 portfolios) (registered investment company)
Formerly: Director, Homeowners of America Holding Corporation/Homeowners of America Insurance Company (property casualty company); Director, Continental Energy Services, LLC (oil and gas pipeline service); Director, CompuDyne Corporation (provider of product and services to the public security market) and Director, Annuity and Life Re (Holdings), Ltd. (reinsurance company); Director, President and Chief Executive Officer, Volvo Group North America, Inc.; Senior Vice President, AB Volvo; Director of various public and private corporations; Chairman, DHJ Media, Inc.; Director, Magellan Insurance Company; and Director, The Hertz Corporation, Genmar Corporation (boat manufacturer), National Media Corporation; Advisory Board of Rotary Power International (designer, manufacturer, and seller of rotary power engines); and Chairman, Cortland Trust, Inc. (registered investment company) | 144 | Director of: Nature’s Sunshine Products, Inc., Reich & Tang Funds, Homeowners of America Holding Corporation/ Homeowners of America Insurance Company, the Boss Group | ||||
Jack M. Fields — 1952 Trustee | 1997 | Chief Executive Officer, Twenty First Century Group, Inc. (government affairs company); Owner and Chief Executive Officer, Dos Angeles Ranch, L.P. (cattle, hunting, corporate entertainment); and Discovery Global Education Fund (non-profit)
Formerly: Chief Executive Officer, Texana Timber LP (sustainable forestry company); Director of Cross Timbers Quail Research Ranch (non-profit); and member of the U.S. House of Representatives | 144 | Insperity, Inc. (formerly known as Administaff) | ||||
Prema Mathai-Davis — 1950 Trustee | 1998 | Retired. Formerly: Chief Executive Officer, YWCA of the U.S.A. | 144 | None | ||||
Larry Soll — 1942 Trustee | 2004 | Retired. Formerly: Chairman, Chief Executive Officer and President, Synergen Corp. (a biotechnology company) | 144 | None | ||||
Hugo F. Sonnenschein — 1940 Trustee | 2010 | President Emeritus and Honorary Trustee of the University of Chicago and the Adam Smith Distinguished Service Professor in the Department of Economics at the University of Chicago. Prior to 2000, President of the University of Chicago | 144 | Trustee of the University of Rochester and a member of its investment committee; Member of the National Academy of Sciences and the American Philosophical Society; Fellow of the American Academy of Arts and Sciences | ||||
Raymond Stickel, Jr. — 1944 Trustee | 2005 | Retired. Formerly: Director, Mainstay VP Series Funds, Inc. (25 portfolios) and Partner, Deloitte & Touche | 144 | None |
Invesco V.I. Value Opportunities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Independent Trustees—(continued) | ||||||||
Suzanne H. Woolsey — 1941 Trustee | 2014 | Chief Executive Officer of Woolsey Partners LLC | 144 | Emeritus Chair of the Board of Trustees of the Institute for Defense Analyses; Trustee of Colorado College; Trustee of California Institute of Technology; Prior to 2014, Director of Fluor Corp.; Prior to 2010, Trustee of the German Marshall Fund of the United States; Prior to 2010 Trustee of the Rocky Mountain Institute | ||||
Other Officers | ||||||||
Russell C. Burk — 1958 Senior Vice President and Senior Officer | 2005 | Senior Vice President and Senior Officer, The Invesco Funds | N/A | N/A | ||||
John M. Zerr — 1962 Senior Vice President, Chief Legal Officer and Secretary | 2006 | Director, Senior Vice President, Secretary and General Counsel, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Senior Vice President and Secretary, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Vice President and Secretary, Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.) and IVZ Distributors, Inc. (formerly known as INVESCO Distributors, Inc.); Director and Vice President, INVESCO Funds Group, Inc.; Senior Vice President, Chief Legal Officer and Secretary, The Invesco Funds; Manager, Invesco PowerShares Capital Management LLC; Director, Secretary and General Counsel, Invesco Investment Advisers LLC (formerly known as Van Kampen Asset Management); Secretary and General Counsel, Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.) and Chief Legal Officer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust , PowerShares Actively Managed Exchange-Traded Fund Trust; and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Director and Vice President, Van Kampen Advisors Inc.; Director, Vice President, Secretary and General Counsel, Van Kampen Investor Services Inc.; Director, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Senior Vice President, General Counsel and Secretary, Invesco Aim Advisers, Inc. and Van Kampen Investments Inc.; Director, Vice President and Secretary, Fund Management Company; Director, Senior Vice President, Secretary, General Counsel and Vice President, Invesco Aim Capital Management, Inc.; Chief Operating Officer and General Counsel, Liberty Ridge Capital, Inc. (an investment adviser); Vice President and Secretary, PBHG Funds (an investment company) and PBHG Insurance Series Fund (an investment company); Chief Operating Officer, General Counsel and Secretary, Old Mutual Investment Partners (a broker-dealer); General Counsel and Secretary, Old Mutual Fund Services (an administrator) and Old Mutual Shareholder Services (a shareholder servicing center); Executive Vice President, General Counsel and Secretary, Old Mutual Capital, Inc. (an investment adviser); and Vice President and Secretary, Old Mutual Advisors Funds (an investment company) | N/A | N/A | ||||
Sheri Morris — 1964 Vice President, Treasurer and Principal Financial Officer | 1999 | Vice President, Treasurer and Principal Financial Officer, The Invesco Funds; Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); and Vice President, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust, and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust
Formerly: Vice President, Invesco Aim Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; Assistant Vice President and Assistant Treasurer, The Invesco Funds and Assistant Vice President, Invesco Advisers, Inc., Invesco Aim Capital Management, Inc. and Invesco Aim Private Asset Management, Inc.; and Treasurer, PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust | N/A | N/A |
Invesco V.I. Value Opportunities Fund
Trustees and Officers—(continued)
Name, Year of Birth and Position(s) Held with the Trust | Trustee and/ or Officer Since | Principal Occupation(s) During Past 5 Years | Number of Funds in Fund Complex Overseen by Trustee | Other Directorship(s) Held by Trustee During Past 5 Years | ||||
Other Officers—(continued) | ||||||||
Karen Dunn Kelley — 1960 Vice President | 1993 | Senior Managing Director, Investments; Director, Co-President, Co-Chief Executive Officer, and Co-Chairman, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Chairman, Invesco Senior Secured Management, Inc.; Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.); Executive Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.); Director, Invesco Mortgage Capital Inc. and Invesco Management Company Limited; Director and President, INVESCO Asset Management (Bermuda) Ltd., Vice President, The Invesco Funds (other than AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust); and President and Principal Executive Officer, The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust) and Short-Term Investments Trust only)
Formerly: Director, INVESCO Global Asset Management Limited and INVESCO Management S.A.; Senior Vice President, Van Kampen Investments Inc. and Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser); Vice President, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.); Director of Cash Management and Senior Vice President, Invesco Advisers, Inc. and Invesco Aim Capital Management, Inc.; Director and President, Fund Management Company; Chief Cash Management Officer, Director of Cash Management, Senior Vice President, and Managing Director, Invesco Aim Capital Management, Inc.; Director of Cash Management, Senior Vice President, and Vice President, Invesco Advisers, Inc. and The Invesco Funds (AIM Treasurer’s Series Trust (Invesco Treasurer’s Series Trust), and Short-Term Investments Trust only) | N/A | N/A | ||||
Crissie M. Wisdom — 1969 Anti-Money Laundering Compliance Officer | 2013 | Anti-Money Laundering Compliance Officer, Invesco Advisers, Inc. (formerly known as Invesco Institutional (N.A.), Inc.) (registered investment adviser), Invesco Capital Markets, Inc. (formerly known as Van Kampen Funds Inc.), Invesco Distributors, Inc., Invesco Investment Services, Inc., Invesco Management Group, Inc., Van Kampen Exchange Corp., The Invesco Funds, and PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust, PowerShares Actively Managed Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Commodity Fund Trust; and Fraud Prevention Manager and Controls and Risk Analysis Manager for Invesco Investment Services, Inc. | N/A | N/A | ||||
Todd L. Spillane — 1958 Chief Compliance Officer | 2006 | Senior Vice President, Invesco Management Group, Inc. (formerly known as Invesco Aim Management Group, Inc.) and Van Kampen Exchange Corp.; Senior Vice President and Chief Compliance Officer, Invesco Advisers, Inc. (registered investment adviser) (formerly known as Invesco Institutional (N.A.), Inc.); Chief Compliance Officer, The Invesco Funds; Vice President, Invesco Distributors, Inc. (formerly known as Invesco Aim Distributors, Inc.) and Invesco Investment Services, Inc. (formerly known as Invesco Aim Investment Services, Inc.)
Formerly: Chief Compliance Officer, Invesco Funds (Chicago); Senior Vice President, Van Kampen Investments Inc.; Senior Vice President and Chief Compliance Officer, Invesco Aim Advisers, Inc. and Invesco Aim Capital Management, Inc.; Chief Compliance Officer, INVESCO Private Capital Investments, Inc. (holding company), Invesco Private Capital, Inc. (registered investment adviser), Invesco Global Asset Management (N.A.), Inc., Invesco Senior Secured Management, Inc. (registered investment adviser), Van Kampen Investor Services Inc., PowerShares Exchange-Traded Fund Trust, PowerShares Exchange-Traded Fund Trust II, PowerShares India Exchange-Traded Fund Trust and PowerShares Actively Managed Exchange-Traded Fund Trust; and Vice President, Invesco Aim Capital Management, Inc. and Fund Management Company | N/A | N/A |
The Statement of Additional Information of the Trust includes additional information about the Fund’s Trustees and is available upon request, without charge, by calling 1.800.959.4246. Please refer to the Fund’s prospectus for information on the Fund’s sub-advisers.
Office of the Fund 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Investment Adviser Invesco Advisers, Inc. 1555 Peachtree Street, N.E. Atlanta, GA 30309 | Distributor Invesco Distributors, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Auditors PricewaterhouseCoopers LLP 1000 Louisiana Street, Suite 5800 Houston, TX 77002-5678 | |||
Counsel to the Fund Stradley Ronon Stevens & Young, LLP 2005 Market Street, Suite 2600 Philadelphia, PA 19103-7018 | Counsel to the Independent Trustees Goodwin Procter LLP 901 New York Avenue, N.W. Washington, D.C. 20001 | Transfer Agent Invesco Investment Services, Inc. 11 Greenway Plaza, Suite 1000 Houston, TX 77046-1173 | Custodian State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110-2801 |
Invesco V.I. Value Opportunities Fund
ITEM 2. | CODE OF ETHICS. |
As of the end of the period covered by this report, the Registrant had adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
.ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees has determined that the Registrant has at least one audit committee financial expert serving on its Audit Committee. The Audit Committee financial expert is Raymond Stickel, Jr. Mr. Stickel is “independent” within the meaning of that term as used in Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) to (d)
Fees Billed by PWC Related to the Registrant
PWC billed the Registrant aggregate fees for services rendered to the Registrant for the last two fiscal years as follows:
Fees Billed for Services Rendered to the Registrant for fiscal year end 2014 | (e)(2) Percentage of Fees Billed Applicable to Non-Audit Services Provided for fiscal year end 2014 Pursuant to Waiver of Pre-Approval Requirement(1) | Fees Billed for Services Rendered to the Registrant for fiscal year end 2013 | (e)(2) Percentage of Fees Billed Applicable to Non-Audit Services Provided for fiscal year end 2013 Pursuant to Waiver of Pre-Approval Requirement(1) | |||||||||||||
Audit Fees | $ | 553,850 | N/A | $ | 519,200 | N/A | ||||||||||
Audit-Related Fees(2) | $ | 0 | 0 | % | $ | 5,162 | 0 | % | ||||||||
Tax Fees(3) | $ | 124,650 | 0 | % | $ | 177,795 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
|
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Total Fees | $ | 678,500 | 0 | % | $ | 702,156 | 0 | % |
(g) PWC billed the Registrant aggregate non-audit fees of $124,650 for the fiscal year ended 2014, and $182,957 for the fiscal year ended 2013, for non-audit services rendered to the Registrant.
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. |
(2) | Audit-Related fees for the fiscal year end December 31, 2013 includes fees billed for agreed upon procedures related to regulatory filings. |
(3) | Tax fees for the fiscal year end December 31, 2014 includes fees billed for reviewing tax returns. Tax fees for the fiscal year end December 31, 2013 includes fees billed for reviewing tax returns and consultation services. |
Fees Billed by PWC Related to Invesco and Invesco Affiliates
PWC billed Invesco Advisers, Inc. (“Invesco”), the Registrant’s adviser, and any entity controlling, controlled by or under common control with Invesco that provides ongoing services to the Registrant (“Invesco Affiliates”) aggregate fees for pre-approved non-audit services rendered to Invesco and Invesco Affiliates for the last two fiscal years as follows:
Fees Billed for Non- Audit Services Rendered to Invesco and Invesco Affiliates for fiscal year end 2014 That Were Required to be Pre-Approved by the Registrant’s Audit Committee | (e)(2) Percentage of Fees Billed Applicable to Non-Audit Services Provided for fiscal year end 2014 Pursuant to Waiver of Pre- Approval Requirement(1) | Fees Billed for Non- Audit Services Rendered to Invesco and Invesco Affiliates for fiscal year end 2013 That Were Required to be Pre-Approved by the Registrant’s Audit Committee | (e)(2) Percentage of Fees Billed Applicable to Non-Audit Services Provided for fiscal year end 2013 Pursuant to Waiver of Pre- Approval Requirement(1) | |||||||||||||
Audit-Related Fees | $ | 574,000 | 0 | % | $ | 574,000 | 0 | % | ||||||||
Tax Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
All Other Fees | $ | 0 | 0 | % | $ | 0 | 0 | % | ||||||||
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Total Fees(2) | $ | 574,000 | 0 | % | $ | 574,000 | 0 | % |
(1) | With respect to the provision of non-audit services, the pre-approval requirement is waived pursuant to a de minimis exception if (i) such services were not recognized as non-audit services by the Registrant at the time of engagement, (ii) the aggregate amount of all such services provided is no more than 5% of the aggregate audit and non-audit fees paid by the Registrant, Invesco and Invesco Affiliates to PWC during a fiscal year; and (iii) such services are promptly brought to the attention of the Registrant’s Audit Committee and approved by the Registrant’s Audit Committee prior to the completion of the audit. |
(2) | Audit-Related fees for the year end 2014 include fees billed related to reviewing controls at a service organization. |
(g) Including the fees for services not required to be pre-approved by the registrant’s audit committee, PWC billed Invesco and Invesco Affiliates aggregate non-audit fees of $4,009,694 for the fiscal year ended 2014, and $1,645,309 for the fiscal year ended 2013, for non-audit services rendered to Invesco and Invesco Affiliates.
(h) The Audit Committee also has considered whether the provision of non-audit services that were rendered to Invesco and Invesco Affiliates that were not required to be pre-approved pursuant to SEC regulations, if any, is compatible with maintaining PWC’s independence.
(f) Not applicable.
(e)(1)
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the Invesco Funds (the “Funds”)
Last Amended May 4, 2010
Statement of Principles
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission (“SEC”) (“Rules”), the Audit Committees of the Funds’ (the “Audit Committees”) Board of Trustees (the “Board”) are responsible for the appointment, compensation and oversight of the work of independent accountants (an “Auditor”). As part of this responsibility and to assure that the Auditor’s independence is not impaired, the Audit Committees pre-approve the audit and non-audit services provided to the Funds by each Auditor, as well as all non-audit services provided by the Auditor to the Funds’ investment adviser and to affiliates of the adviser that provide ongoing services to the Funds (“Service Affiliates”) if the services directly impact the Funds’ operations or financial reporting. The SEC Rules also specify the types of services that an Auditor may not provide to its audit client. The following policies and procedures comply with the requirements for pre-approval and provide a mechanism by which management of the Funds may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific case-by-case services by the Audit Committees (“general pre-approval”) or require the specific pre-approval of the Audit Committees (“specific pre-approval”). As set forth in these policies and procedures, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committees. Additionally, any fees exceeding 110% of estimated pre-approved fee levels provided at the time the service was pre-approved will also require specific approval by the Audit Committees before payment is made. The Audit Committees will also consider the impact of additional fees on the Auditor’s independence when determining whether to approve any additional fees for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services that may be provided by each Auditor without obtaining specific pre-approval from the Audit Committee generally on an annual basis. The term of any general pre-approval runs from the date of such pre-approval through September 30th of the following year, unless the Audit Committees consider a different period and state otherwise. The Audit Committees will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to assist the Audit Committees in fulfilling their responsibilities.
Delegation
The Audit Committees may from time to time delegate pre-approval authority to one or more of its members who are Independent Trustees. All decisions to pre-approve a service by a delegated member shall be reported to the Audit Committees at the next quarterly meeting.
Audit Services
The annual audit services engagement terms will be subject to specific pre-approval of the Audit Committees. Audit services include the annual financial statement audit and other procedures such as tax provision work that is required to be performed by the independent auditor to be able to form an opinion on the Funds’ financial statements. The Audit Committees will obtain, review and consider sufficient information concerning the proposed Auditor to make a reasonable evaluation of the Auditor’s qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may grant either general or specific pre-approval of other audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services such as issuing consents for the inclusion of audited financial statements with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Non-Audit Services
The Audit Committees may provide either general or specific pre-approval of any non-audit services to the Funds and its Service Affiliates if the Audit Committees believe that the provision of the service will not impair the independence of the Auditor, is consistent with the SEC’s Rules on auditor independence, and otherwise conforms to the Audit Committees’ general principles and policies as set forth herein.
Audit-Related Services
“Audit-related services” are assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; and agreed-upon procedures related to mergers, compliance with ratings agency requirements and interfund lending activities.
Tax Services
“Tax services” include, but are not limited to, the review and signing of the Funds’ federal tax returns, the review of required distributions by the Funds and consultations regarding tax matters such as the tax treatment of new investments or the impact of new regulations. The Audit Committees will scrutinize carefully the retention of the Auditor in connection with a transaction initially recommended by the Auditor, the major business purpose of which may be tax avoidance or the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committees will consult with the Funds’ Treasurer (or his or her designee) and may consult with outside counsel or advisors as necessary to ensure the consistency of Tax services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court, district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and approved by the SEC, in connection with seeking Audit Committees’ pre-approval of permissible Tax services, the Auditor shall:
1. | Describe in writing to the Audit Committees, which writing may be in the form of the proposed engagement letter: |
a. | The scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the Fund, relating to the service; and |
b. | Any compensation arrangement or other agreement, such as a referral agreement, a referral fee or fee-sharing arrangement, between the Auditor and any person (other than the Fund) with respect to the promoting, marketing, or recommending of a transaction covered by the service; |
2. | Discuss with the Audit Committees the potential effects of the services on the independence of the Auditor; and |
3. | Document the substance of its discussion with the Audit Committees. |
All Other Auditor Services
The Audit Committees may pre-approve non-audit services classified as “All other services” that are not categorically prohibited by the SEC, as listed in Exhibit 1 to this policy.
Pre-Approval Fee Levels or Established Amounts
Pre-approval of estimated fees or established amounts for services to be provided by the Auditor under general or specific pre-approval policies will be set periodically by the Audit Committees. Any proposed fees exceeding 110% of the maximum estimated pre-approved fees or established amounts for pre-approved audit and non-audit services will be reported to the Audit Committees at the quarterly Audit Committees meeting and will require specific approval by the Audit Committees before payment is made. The Audit Committees will always factor in the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services and in determining whether to approve any additional fees exceeding 110% of the maximum pre-approved fees or established amounts for previously pre-approved services.
Procedures
Generally on an annual basis, Invesco Advisers, Inc. (“Invesco”) will submit to the Audit Committees for general pre-approval, a list of non-audit services that the Funds or Service Affiliates of the Funds may request from the Auditor. The list will describe the non-audit services in reasonable detail and will include an estimated range of fees and such other information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general pre-approval of the Audit Committees will be submitted to the Funds’ Treasurer (or his or her designee) and must include a detailed description of the services to be rendered. The Treasurer or his or her designee will ensure that such services are included within the list of services that have received the general pre-approval of the Audit Committees. The Audit Committees will be informed at the next quarterly scheduled Audit Committees meeting of any such services for which the Auditor rendered an invoice and whether such services and fees had been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit Committees shall be submitted to the Audit Committees jointly by the Fund’s Treasurer or his or her designee and the Auditor, and must include a joint statement that, in their view, such request is consistent with the policies and procedures and the SEC Rules.
Each request to provide tax services under either the general or specific pre-approval of the Audit Committees will describe in writing: (i) the scope of the service, the fee structure for the engagement, and any side letter or amendment to the engagement letter, or any other agreement between the Auditor and the audit client, relating to the service; and (ii) any compensation arrangement or other agreement between the Auditor and any person (other than the audit client) with respect to the promoting, marketing, or recommending of a transaction covered by the service. The Auditor will discuss with the Audit Committees the potential effects of the services on the Auditor’s independence and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC Rules will be promptly brought to the attention of the Audit Committees for approval, including documentation that each of the conditions for this exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the services provided to any entity in the investment company complex as defined in section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of the engagement and the fees associated with those services.
The Audit Committees have designated the Funds’ Treasurer to monitor the performance of all services provided by the Auditor and to ensure such services are in compliance with these policies and procedures. The Funds’ Treasurer will report to the Audit Committees on a periodic basis as to the results of such monitoring. Both the Funds’ Treasurer and management of Invesco will immediately report to the chairman of the Audit Committees any breach of these policies and procedures that comes to the attention of the Funds’ Treasurer or senior management of Invesco.
Exhibit 1 to Pre-Approval of Audit and Non-Audit Services Policies and Procedures
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can reasonably conclude that the results of the service would not be subject to audit procedures in connection with the audit of the Fund’s financial statements)
• | Bookkeeping or other services related to the accounting records or financial statements of the audit client |
• | Financial information systems design and implementation |
• | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports |
• | Actuarial services |
• | Internal audit outsourcing services |
Categorically Prohibited Non-Audit Services
• | Management functions |
• | Human resources |
• | Broker-dealer, investment adviser, or investment banking services |
• | Legal services |
• | Expert services unrelated to the audit |
• | Any service or product provided for a contingent fee or a commission |
• | Services related to marketing, planning, or opining in favor of the tax treatment of confidential transactions or aggressive tax position transactions, a significant purpose of which is tax avoidance |
• | Tax services for persons in financial reporting oversight roles at the Fund |
• | Any other service that the Public Company Oversight Board determines by regulation is impermissible. |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | As of February 12, 2015, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the PEO and PFO, to assess the effectiveness of the Registrant’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”), as amended. Based on that evaluation, the Registrant’s officers, including the PEO and PFO, concluded that, as of February 12, 2015, the Registrant’s disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. |
(b) | There have been no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12. | EXHIBITS. |
12(a) (1) | Code of Ethics. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
By: | /s/ Philip A. Taylor | |
Philip A. Taylor | ||
Principal Executive Officer | ||
Date: | February 27, 2015 |
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Philip A. Taylor | |
Philip A. Taylor | ||
Principal Executive Officer | ||
Date: | February 27, 2015 |
By: | /s/ Sheri Morris | |
Sheri Morris | ||
Principal Financial Officer | ||
Date: | February 27, 2015 |
EXHIBIT INDEX
12(a) (1) | Code of Ethics. | |
12(a) (2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. | |
12(a) (3) | Not applicable. | |
12(b) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. |